According to a report recently released by the Congressional Budget Office (CBO), the U.S. government will provide a health insurance subsidy of approximately $660 billion in 2016, with $266 billion flagged for employment-based (group) health insurance. While group health insurance covers a significant number of workers in the U.S., the employment-based enrollment numbers are expected to drop given the alternatives offered by the Affordable Care Act (ACA) and the changing composition of the workforce.
Next, we’ll dive into the details of this employer-sponsored group health insurance forecast.
U.S. Government’s Sizable Subsidies of Group Health Insurance
The CBO and the Joint Committee on Taxation (JCT) estimate that the total net subsidy provided by the federal government for people under the age of 65 will amount to approximately $660 billion in 2016. The CBO and JCT project that this subsidy will rise annually at a rate of 5.4 percent. The forecasted net subsidy for the 2017-2026 period discussed in the report is $8.9 trillion.
Most of the costs of these subsidies can be attributed to Medicaid and to employer-sponsored health insurance coverage for those under age 65. The latter cost arises primarily because health insurance premiums paid by employers are exempt from federal income and payroll taxes. These employment-based coverage subsidies are expected to increase to $460 billion in a decade and will total around $3.6 trillion during the 2017-2026 period.
Additionally, certain small employers who provide health insurance coverage to their workers are eligible to receive a tax credit of up to 50 percent of the coverage cost. The CBO and JCT predict that these credits will cost an estimated $1 billion per year.
Forecasted Drops in Group Health Insurance
This year, employment-based insurance will cover 155 million workers, or 57 percent of the population under the age of 65. The CBO and JCT expect this number to drop to 152 million by the year 2019 for three reasons. First, the ACA has led some employers to refrain from providing coverage and some employees to decline coverage because of the existence of alternative sources, such as exchange-based subsidies or Medicare. Second, the cost of premiums for group health insurance has been rising rapidly. Third, the aging population of the U.S. and changes resulting from the ACA’s implementation have led to a reshaping of the labor force.
However, the CBO and JCT note that there have been no significant numbers of employers removing health insurance coverage at this point.
The federal government’s subsidization of health insurance coverage in 2016 is projected to continue rise over the next ten years. Additionally, employment-based coverage is forecasted to drop as a result of the ACA, high premiums, and the reshaping of the American workforce. While the CBO and JCT anticipate that some employers will stop offering coverage in response to the ACA, they believe that previous CBO estimates of the potential magnitude of this occurrence may have been overestimated.
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