Will Divestment from Employment-Based Health Insurance Save Employers Money? The Case of State and Local Governments

Jeremy D. Goldhaber-Fiebert, David M. Studdert, Monica S. Farid, Jay Bhattacharya

NBER Working Paper No. 20222
Issued in June 2014, Revised in July 2015
NBER Program(s):Economics of Aging, Health Care, Health Economics, Public Economics

Reforms introduced by the Affordable Care and Patient Protection Act (ACA) build new sources of coverage around employment-based health insurance. But what if firms find it cheaper to have their employees obtain insurance from these sources, even after accounting for penalties (for non-provision of insurance) and employee bonuses (to ensure the shift is cost neutral for them)? State and local governments (SLGs) have strong incentives to consider the economics of such “divestment”; many have large unfunded benefits liabilities. We investigated whether SLGs would save under two scenarios: (1) shifting all employees and under-65-retirees to alternative sources of coverage; (2) shifting only employees whose household incomes indicate they would be eligible for federally subsidized coverage and all under-65-retirees. Full divestment would cost SLGs more than they currently pay, due primarily to penalty costs. Selective divestment could save SLGs nearly $129 billion over 10 years at the expense of the federal government.

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Document Object Identifier (DOI): 10.3386/w20222

Published: Jeremy D. Goldhaber-Fiebert & David M. Studdert & Monica S. Farid & Jay Bhattacharya, 2015. "Will Divestment from Employment-Based Health Insurance Save Employers Money? The Case of State and Local Governments," Journal of Empirical Legal Studies, vol 12(3), pages 343-394.

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