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Employer Premiums and the ACA

White House Press Secretary Sean Spicer claimed that “because of Obamacare, premiums on everybody have gone up … whether you’re in an employer-based system or not.” Employer premiums have been affected somewhat, but they’ve been growing at historically low rates for several years.

Experts have estimated a 1 percent to 3 percent increase in employer premiums in 2011, due to insurance requirements instituted then under the Affordable Care Act, including preventive care without copays and coverage for young adults up to age 26 on their parents’ plans. There may have been some impact on premiums since, but the average growth rate for employer plans has been so low, it’s difficult to tell.

“There was nothing fundamentally large about the ACA overall which had a noticeable effect” on employer plans’ premiums, Gary Claxton, vice president and co-director of the Program for the Study of Health Reform and Private Insurance at the Henry J. Kaiser Family Foundation, told us.

Spicer made his claim in the March 8 news briefing, making the point a few times. He said, “And I think that all premiums have increased over the last — whether you’re in an employer-based system or not.” And, he said, “So one of the big issues with Obamacare was in order to fix a problem that faced you know 15 to 20 million people, is that the entire system got shattered. And prices on everybody got ratcheted up.”

The “15 to 20 million people” is a reference to the individual, or nongroup, market, where those who don’t get employer-sponsored or government insurance buy their own coverage.

There were about 22 million, or 7 percent of Americans, on the nongroup market in 2015, according to an analysis of Census Bureau figures by the Kaiser Family Foundation. And Spicer is correct to suggest that much of the law was focused on changing this market so that more Americans would be insured (in addition to the law’s expansion of Medicaid to cover more people).

Since the ACA was passed in 2010, we’ve written about many claims about the law’s impact on premiums, much of them focused on the nongroup market and the ACA marketplaces — where those who get tax credits and subsidies through the ACA obtain coverage.

Before the ACA, states imposed different requirements on the nongroup market. The federal health care law, however, required insurers to accept anyone regardless of health status, and not vary premiums based on medical conditions. Insurers were limited to pricing based on family size, geography and, to a limited extent, age and tobacco use. There are also minimum benefits requirements. This was a major change for the nongroup market.

And as we’ve pointed out, that market has seen much higher average premium increases than the employer-sponsored market. The average increase for the second lowest-cost silver plan on HealthCare.gov — which encompassed 38 states over the past two years — was 25 percent from 2016 to 2017; it was 7.2 percent the year before. The average increase for an employer-provided family plan in 2016, meanwhile, was 3 percent — marking the fifth straight year of 3 percent or 4 percent premium growth.

When Sen. Ted Cruz recently pointed to the increase in employer-sponsored premiums under the ACA as evidence of how it has “driven up the cost of health care,” we said that was misleading, since the growth has been at such low rates that the Obama administration touted it as a positive. (That was misleading, too. Experts have said the economy was the main reason, not the ACA.)

Still, the slow rate of growth was good news for premiums: The total average family plan cost increased by 43 percent from 2008 to 2016, but it went up more than double that rate — 97 percent — from 2000 to 2008.

There has been some impact on premiums of employer-sponsored plans because of the health care law, however.

Added Benefits, Added Cost

The workplace is the primary source of insurance in the United States, with 49 percent of Americans, or 156 million people, covered by employer-based plans as of 2015, according to the Kaiser Family Foundation numbers.

In 2011, the average employer-sponsored family plan premium jumped up 9 percent from 2010 — a big increase compared with the mere 3 percent increase for the year before. Republicans blamed the Affordable Care Act, but several independent experts told us the bulk of the increase was due to rising health care costs. They estimated that a 1 percent to 3 percent increase was attributable to benefit requirements instituted by the ACA.

Those benefit requirements included: covering preventive care without copays or deductibles, allowing adult children to stay on parents’ policies until age 26, increasing annual coverage limits, and covering children without regard for preexisting conditions. Experts also expected a boost to premiums that year simply due to the very low growth the previous year.

Gail Wilensky, who was the head of the Medicare and Medicaid programs during the George H.W. Bush administration and is now a senior fellow at Project HOPE, a health training and humanitarian organization, told us the increase due to the ACA provisions in 2011 would have been static.

“Those changes have been built into the rates, starting in 2012, so that unless there is a change in the provisions, they are still there but not growing,” she said in an email to FactCheck.org. “It’s why many of the insurance companies said in 2012 that even if the Supreme Court nullified the ACA, they would/could still keep those provisions.”

So much of the ACA has been studied and analyzed, but we could find no research that has attempted to tease out how much of the low growth in employer premiums since 2011 could be attributable to the health care law.

“We don’t think the ACA could have had much more of an effect on premiums beyond the 1-3 percent increase in 2011 attributable to those early requirements,” Fredric Blavin, a senior research associate at the Urban Institute, told us in an email. “The biggest changes under the law since 2011 were the Marketplace and Medicaid coverage expansions in 2014, but very little has changed in the employer market (especially since the Cadillac Tax was delayed).”

The so-called Cadillac tax is a 40 percent excise tax on the cost of health coverage beyond a high-cost threshold — set at $10,200 for single coverage and $27,500 in family coverage in 2018 dollars, with cost-of-living adjustments each year thereafter. But Congress delayed until 2020 implementation of the tax, which economists favor but many politicians, labor unions and business groups oppose.

Blavin and his co-authors have found that coverage rates — both offers of coverage from employers and sign-ups for that coverage by employees — remained stable from June 2013 to March 2016. The share of workers under age 65 with employer coverage went from 71 percent to 72 percent. “There is no reason to expect the costs in this pool have changed either,” Blavin said.

The Kaiser Family Foundation, which provides the yearly estimates on the change in employer premiums through its health benefits surveys, hasn’t analyzed how much the ACA may have affected employer-sponsored premiums, said Claxton, “just because there are so many moving parts.” The recession, he said, is “already a time when employers make changes to their plans,” such as an increase in cost-sharing — like deductibles — to bring down costs.

And deductibles have gone up. While the average family plan premium went up 3 percent in 2016 and 4 percent the year before, a greater share of workers moved into high-deductible plans — 29 percent in 2016 were in such plans, which typically have health savings accounts or similar arrangements, compared with 20 percent in 2014. The Kaiser Family Foundation said the average premium increase in 2016 and 2015 was half a percentage point lower because of this shift to lower-cost but higher-deductible health plans.

“In 2016, 83 percent of covered workers face a deductible for single coverage, which averages $1,478,” the KFF press release on its annual survey said. “That’s up $159 or 12 percent from 2015, and $486 or 49 percent since 2011.”

The slowdown in premium growth, however, has been “significant.” The average family premium growth was 20 percent from 2011 to 2016, 31 percent from 2006 to 2011, and 63 percent from 2001 to 2006.

“It’s been pretty much of a lull,” Claxton said of employer premium growth in recent years.

chart on employer premium growth

These numbers are averages, meaning some premiums went up more and others less. And some employers are more likely to have been affected by the law. Claxton said there are “a few of the low-wage firms where this was a struggle” — firms that didn’t offer coverage before or offered plans with limited benefits.

Other ACA Provisions

Beyond the increased benefit requirements in 2011, what other ACA provisions could have affected employer-based premiums?

There’s a requirement to have an out-of-pocket limit, though Claxton said most employer plans already had one that was lower than the maximum required. And there’s a health insurance providers tax, but that wouldn’t affect self-funded plans, “which cover most people.” According to the most recent KFF employer insurance survey, 61 percent of workers with employer coverage are in plans that are partially or fully self-funded, which means the employer has financial responsibility for workers’ medical claims.

There’s also a 2.3 percent excise tax on certain medical devices, which would get passed on to premiums. But Claxton doesn’t know if premiums would go up by a few dollars, rather than something else being cut. Most employer plans, he said, are generous enough that adjustments can be made in other ways.

Then there are employer costs that could have increased — such as costs to cover more employees if more took up coverage or more were offered coverage because of the ACA. That wouldn’t have impacted premiums, but it’s an expense for employers.

The American Health Policy Institute, a think tank that “looks at the challenges employers face in providing health care to their employees” and whose board is made up of human resources officers from large employers, surveyed 103 large employers in 2014 on what they expected their costs to be under the ACA, including regulatory or compliance expenses. Based on their responses, the institute estimated that the cost to employers with 10,000 or more employees would be $4,800 to $5,900 per employee over a decade.

Some employers gave cost estimates for specific provisions of the law, and the sources of the highest such costs were the excise tax on high-cost health plans (the Cadillac tax, which has been delayed), the individual mandate (because more employees would sign up for coverage), and the provision to allow young adults to stay on their parents’ plans until age 26 (which affected premiums in 2011).

The Cadillac tax on high-cost health plans, as we mentioned, is a 40 percent tax on health coverage above a certain threshold. That cost would be passed along in the form of higher premiums, but the tax was designed to bring down health care spending and act as a cap on the tax exclusion for employer health insurance.

As we’ve explained before, the Joint Committee on Taxation has estimated that the majority of the revenue from the tax wouldn’t actually come from the excise tax itself. Instead, the JCT expects employers and employees would choose plans that fall under the cap, leading employers to increase wages instead. And those increased wages would be subject to payroll and income taxes. The health benefits aren’t subject to those taxes.

For now, the tax has been pushed off until 2020 (and the GOP health care legislation introduced this month would delay it further until 2025). But the latest KFF employer survey found a small percentage of employers had switched to a lower-cost plan or increased cost-sharing in anticipation of the tax taking effect.

Another factor keeping employer premiums low, Claxton said, is that there hasn’t been new medical technology in the past few years that typically spikes spending and premiums. There could be a higher increase for employer plans next year, he says, but “we’ve been predicting it for a little while.”

There’s some truth to Spicer’s statement about employer-based insurance premiums going up because of the ACA. But the impact has been small and related to increased benefit requirements in 2011. Since then, employer plans have been growing at historically low average rates.

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Claimed that “because of Obamacare, premiums on everybody have gone up … whether you’re in an employer-based system or not.”

White House press briefing
Wednesday, March 8, 2017