How many people newly eligible to buy into company health plans next year will actually do so?
That’s one of the many questions about health-care reform that we don’t know the answer to. It matters for a few reasons. First, companies that offer health coverage will be on the hook for a significant chunk of their workers’ premiums, so the number of people who sign up will affect their costs. That’s a particular concern for small companies providing health benefits for the first time.
Second, the premiums that the law considers “affordable” (i.e., less than 9.5 percent of workers’ income) may still be too expensive to entice workers to buy in. Imagine a low-wage restaurant or retail worker already stretched to pay for housing, food, gas, and other necessities. Those workers may not have 5 percent of their income left to buy into company health plans. And if younger, healthier workers forgo coverage, that adverse selection means everyone else will pay more.
A new report today from payroll provider ADP offers some clue about how this might play out. The chart above, based on data from ADP’s clients, shows how workers drop off employer plans as premiums eat up a bigger share of their salaries. Workers start to opt out of employer health plans when their premium costs begin to take up more than 3 percent of their income, ADP’s data show. This starts to happen with individuals making less than $40,000 a year and gets more pronounced as wages decrease.
“If you think about 2014, it’s like this huge experiment,” says Christopher Ryan, vice president of ADP Strategic Advisory Services. “Several million people are going to have the opportunity to purchase benefits who’ve never had it before. But the real question is, can they afford it? Will they actually show up?”
The ADP data don’t provide a perfect model for what will happen next year. Individuals who don’t buy coverage will be subject to a new penalty in 2014. It starts at $95, or 1 percent of income (whichever is greater), and increases in later years to $695, or 2.5 percent of income. Premiums are tax deductible, while the fine is not. But the chart suggests that offering coverage to low-wage workers may not be enough to get them insured.