Nearly 3 Million Americans at Risk of Losing their Employer-Sponsored Coverage under Proposed Reconciliation Reforms

Katie Mahoney
Former Vice President, Health Policy, U.S. Chamber of Commerce

Published

October 28, 2021

After weathering the worst of the pandemic, up to three million Americans could lose access to their employer-sponsored health coverage if Congress advances flawed policy reforms currently under debate as part of the federal budget reconciliation process.

In a new letter to the House Budget Committee, the Congressional Budget Office (CBO) estimated that a wide range of Americans could see disruptions to their job-based insurance – ranging from 200,000 employees to nearly 3 million workers depending on the scope of proposals considered. These policy changes could jeopardize the long-term stability of the private employer-sponsored insurance market that many American families depend on for their health.

What do these changes include?

Modification of the employer-sponsored coverage affordability test

Employers providing health coverage to their employees are required to meet a range of requirements, two of which include: 1) providing insurance that at a minimum meets 60% actuarial value (or, in the case of a self-insured plan, pays for 60% of allowed benefit costs, with the employee or beneficiary paying the remaining 40%) and 2) limiting the portion of the premium that is paid by the employee to an “affordable” amount, currently not to exceed 9.5% of their household income, indexed for inflation.

Currently, policymakers are considering mandating that employers pay an even larger portion of the premium by lowering the contribution that employees make to 8.5% (or less) of household income, with no indexing of this threshold. This change would compound the cost pressures on employers who are facing proposed tax increases and ever-increasing medical inflation. The financial pressure would be particularly acute for mid-size and small businesses, including those in the hospitality and retail industries, and ultimately, many companies may be forced to forego providing coverage altogether for employees. The net impact would be 300,000 Americans facing a reduction or total loss of employer-sponsored insurance and a steep increase in federal deficits by $10.8 billion to cover the cost of enrollees transitioning to public programs.

Erosion of the private market “firewall” for long-term program stability

As part of the reconciliation package, policymakers are contemplating additional changes to the employer-sponsored system’s firewall which would change longstanding policy that preserves the risk pool of employees that an employer insures. In any given employee population, some employees are older with more chronic conditions and other employees are younger and healthier. To maintain coverage and stable premiums, it is critical that the entire pool of covered employees remain in the risk pool. Congress has consistently and appropriately rejected policies that may disrupt this balance with the maintenance of a firewall that limits premium tax credits to individuals without an offer of employer-sponsored coverage. However, that balance is now at risk.

Policies being considered under reconciliation would allow individuals to elect premium tax credits and enroll in coverage on the individual market’s private exchange even when offered affordable, minimum value coverage from an employer. While this policy change would not trigger a shared responsibility penalty for the employer, it does disrupt the long-standing and fiscally responsible preference for employer-subsidized private coverage over fully-government subsidized coverage. If passed, CBO projects that roughly 900,000 Americans would be at risk for losing their employer-sponsored coverage over the next ten years as a result of this provision.

Now is not the time for Congress to advance policy reforms that would weaken the employer-sponsored market. Nearly 160 million Americans continue to depend on the program for high-quality access to providers and hospitals and innovative benefits that are vital for our economic recovery and growth. We urge policymakers to focus on the policies with a proven track record of delivering positive results for employees – not those that will leave them without a safety net when it comes to their health.