Employer Exclusion Cap Revenue and Enrollment Effects

The Affordable Care Act (ACA) has many provisions that are meant to put downward pressure on premiums and health care spending. Currently, an excise tax is set to be implemented in the year 2020 on high-cost Employer Sponsored Insurance (ESI) plans. This tax is meant to curb spending in the ESI market and raise tax revenue at the same time. In addition, many ACA-alternative plans that have been scored by H&E include some variation on this excise tax in the form of a cap on the ESI tax exclusion. In this exercise, H&E predicts what it would look like to repeal the excise tax on high cost ESI plans and replaces the tax with a cap on the ESI exclusion.

Relative to current law, this exercise is different in a few areas. First, what is being modeled is a cap on the exclusion for ESI instead of an additional tax applied ESI plans. Under current law the tax is set to be implemented in 2020, while it was implemented in this study in the year 2017. Currently, the tax thresholds are set to increase yearly at inflation, while in this study the cap is set to increase at GDP since various plans scored by H&E are indexed at this rate. The simulation was run over ten years from 2017 to 2026. For this analysis, four different caps on the exclusion were considered:

Exclusion at $12,000 for individuals and $30,000 for families (12k/30k)
Exclusion at $10,200 for individuals and $27,500 for families (10.2k/27.5k)
Exclusion at $8,000 for individuals and $24,500 for families (8k/24.5k)
Exclusion at $5,000 for individuals and $20,000 for families (5k/20k)

Total ESI Enrollment

As expected, enrollment is not affected that much despite changes that are made to the cap. In each case, ESI enrollment grows slightly until it peaks around year 5 or 6. During the final 4 to 5 years of the simulation, enrollment begins to decline at a rate faster than the growth of the previous years. As the cap is lowered, the decline becomes faster.

12k/30k – Enrollment in the ESI marketplace stays relatively steady at around 145 million each year. The first year of the simulation, 2017, has an ESI enrollment of 144.8 million. The year with the lowest enrollment is 2026 at 144.3 million while the year with the highest enrollment is 2022 at 145.5 million enrollees.

10.2k/27.5k – As enrollment goes, this scenario is not much different than the previous scenario. Enrollment in the ESI marketplace stays relatively steady at around 145 million each year. The first year of the simulation, 2017, has an ESI enrollment of 144.8 million. The year with the lowest enrollment is 2026 at 144 million.

Table 1. Year by Year ESI Enrollment by Cap (Millions)
	2017	2018	2019	2020	2021	2022	2023	2024	2025	2026
$12,000/ $30,000	144.8	145.0	145.1	145.3	145.4	145.5	145.5	145.3	144.9	144.3
$10,200/ $27,500	144.8	144.9	145.1	145.2	145.4	145.5	145.4	145.2	144.7	144.0
$8,000/ $24,500	144.4	144.5	144.6	144.7	144.8	144.7	144.6	144.2	143.6	142.7
$5,000/ $20,000	141.9	141.9	142.0	142.1	142.1	141.9	141.6	141.1	140.3	139.2

8k/24.5k – This scenario results in enrollment numbers similar to the first two. The average enrollment over the 10-year window is about 144 million. The first year of the simulation, 2017, has an ESI enrollment of 144.4 million. The year with the lowest enrollment is 2026 at 142.7 million while the year with the highest enrollment is 2021 at 144.8 million enrollees.

5k/20k – This is the worst scenario for enrollment as there is an immediate effect from the cap and a more dramatic decline later in the simulation. The first year of the simulation, 2017, has an ESI enrollment of 141.9 million. The year with the lowest enrollment is 2026 at 139.2 million.

Actuarial Value and Enrollment

Pinning down which actuarial value (AV) of plans is most affected by a cap on the exclusion is not an exact science because the cost of the premium does not factor into the calculation for actuarial value. Generally speaking, the higher the AV is, the higher the premium is going to be; however, when the regional variation in premium prices is considered, the picture becomes less clear.[i]

When the caps are set at the highest level, 12k/30k Platinum level plans (90% AV) are really the only plans substantially affected. As the caps are lowered, they begin to affect plans of other AV levels. Because of the premium variation between AV levels, many plans with an AV lower than that of the Platinum level plans are affected by the cap before many Platinum level plans.

In each case, the Platinum level plans see their enrollment decrease by about half. While, the decrease is dramatic, the total enrollment in the ESI market does not reflect it. It is likely that many people in Platinum plans are either enrolling in plan with a lower AV or they are turning down their offer from the employer and receiving insurance from another member of their household. This is indicated by the drastic increase in the “Turn Down for Other Employer Sponsored Insurance” plan (TDESI).

Table 2. Enrollment by Plan Choice for Each Cap (Millions)
	PCHOICE	2017	2018	2019	2020	2021	2022	2023	2024	2025	2026
$12,000/ $30,000	Platinum	24.1	22.9	21.7	20.4	19.0	17.5	16.0	14.5	13.0	11.5
	Gold	89.2	88.1	86.8	85.3	83.8	82.3	80.8	79.1	77.1	74.6
	Silver	8.1	8.2	8.3	8.3	8.3	8.2	8.2	8.2	8.2	8.2
	Bronze	2.0	2.2	2.4	2.6	2.8	3.0	3.2	3.4	3.7	4.1
	HSA_E	7.6	8.5	9.6	10.8	12.1	13.5	15.1	16.7	18.4	20.1
	HRA	11.6	11.8	11.8	11.9	11.9	11.8	11.6	11.3	10.9	10.4
	TDESI¹	2.1	3.0	4.2	5.6	7.1	8.6	10.0	11.3	12.6	14.3
	TDOTH²	0.1	0.2	0.3	0.4	0.5	0.6	0.7	0.8	0.9	1.0
	Total	144.8	145.0	145.1	145.3	145.4	145.5	145.5	145.3	144.9	144.3
$10,200/ $27,500	Platinum	23.4	22.2	21.0	19.6	18.2	16.7	15.2	13.7	12.2	10.7
	Gold	89.4	88.2	86.9	85.5	84.0	82.5	80.9	79.1	76.9	74.2
	Silver	8.4	8.5	8.6	8.6	8.6	8.5	8.5	8.5	8.6	8.6
	Bronze	2.1	2.3	2.5	2.7	2.9	3.1	3.3	3.5	3.9	4.2
	HSA_E	7.6	8.6	9.7	10.9	12.2	13.6	15.2	16.8	18.5	20.2
	HRA	11.7	11.8	11.9	12.0	11.9	11.9	11.7	11.4	11.0	10.5
	TDESI¹	2.1	3.0	4.2	5.6	7.1	8.6	10.0	11.3	12.7	14.5
	TDOTH²	0.2	0.2	0.3	0.4	0.5	0.6	0.7	0.8	0.9	1.0
	Total	144.8	144.9	145.1	145.2	145.4	145.5	145.4	145.2	144.7	144.0
$8,000/ $24,500	Platinum	21.9	20.7	19.5	18.2	16.8	15.3	13.9	12.4	11.0	9.6
	Gold	88.7	87.4	85.9	84.3	82.6	80.9	79.2	77.3	74.9	71.8
	Silver	9.2	9.3	9.4	9.4	9.4	9.3	9.3	9.3	9.3	9.3
	Bronze	2.3	2.5	2.7	2.9	3.1	3.4	3.6	3.9	4.2	4.6
	HSA_E	7.8	8.8	9.9	11.1	12.5	14.0	15.5	17.1	18.8	20.4
	HRA	12.0	12.2	12.3	12.3	12.3	12.2	12.0	11.7	11.2	10.7
	TDESI¹	2.3	3.3	4.6	6.0	7.5	9.0	10.4	11.7	13.3	15.2
	TDOTH²	0.2	0.2	0.3	0.4	0.5	0.6	0.7	0.8	1.0	1.1
	Total	144.4	144.5	144.6	144.7	144.8	144.7	144.6	144.2	143.6	142.7
$5,000/ $20,000	Platinum	20.9	19.8	18.6	17.3	16.0	14.6	13.2	11.9	10.5	9.1
	Gold	85.4	84.0	82.5	80.9	79.4	77.7	75.9	73.8	71.0	67.5
	Silver	9.4	9.5	9.4	9.3	9.2	9.1	9.1	9.0	8.9	8.8
	Bronze	2.6	2.8	3.0	3.2	3.4	3.6	3.9	4.2	4.5	4.9
	HSA_E	8.6	9.7	10.8	12.1	13.4	14.9	16.4	18.0	19.6	21.2
	HRA	11.8	11.9	11.9	11.9	11.8	11.6	11.3	10.9	10.4	9.8
	TDESI¹	2.9	4.0	5.4	6.8	8.3	9.7	11.0	12.5	14.2	16.6
	TDOTH²	0.2	0.3	0.4	0.5	0.6	0.7	0.8	0.9	1.0	1.2
	Total	141.9	141.9	142.0	142.1	142.1	141.9	141.6	141.1	140.3	139.2
¹TDESI represents people that were offered ESI, but turned it down for other ESI offered to another within their household. ²TDOTH represents people that were offered ESI, but turned it down for other private insurance that is not ESI.

As expected, there seems to be a trickle-down effect as the cap on the exclusion becomes stronger through the years and/or by each case. As mentioned earlier, Platinum plans are expected to decrease along with Gold level plans while high deductible health plans (HSA_E) are expected to more than double in each case along with people that choose the TDESI option.

It should also be noted that some people turn down an offered ESI plan for insurance options outside the ESI market. This is denoted by the label “TDOTH.” The amount of people that choose this option remain relatively unchanged throughout the simulation. They are counted as being insured through the ESI market because they were offered a plan and are insured through some other private means.

Revenue and Actuarial Value

As mentioned above, a cap that is based on premiums is going to affect a mix of plans because of regional variation in premiums. The 12k/30k cap was the only exception to this rule. Since the cap is weak, only plans with the highest of premiums are going to be affected by this cap; the effect is concentrated in the highest cost Platinum plans. In this case, revenue grows each year until 2021 when it peaks at $30.4 billion, and then it begins to decrease as more and more people leave Platinum plans. In every case, revenue results from employees opting to pay higher taxes over enrolling in a plan with a less generous benefit structure or from employers compensating for the tax with higher salaries or extra benefits.

In the 10.2k/27.5k case, there is an increase of revenue from Platinum, but towards the end of the 10-year window, the cap starts to affect Gold plans as the cap catches up with some of the Gold plans with higher premiums. Revenues from Platinum plans are higher as more Platinum plans are affected combined with the stiffer tax.

As one would expect, the cap that created the highest amount of revenue was the 5k/20k cap, creating nearly $2.5 trillion in revenue over ten years. Since the benefits that come with ESI plans are so strong, H&E expects the current ESI population to largely remain in the ESI marketplace. It is projected that as the cap gets, stronger, households will begin to buy insurance with a lower AV instead going to the individual market.

Table 3. Revenue By Actuarial Value¹ (Billions)
		2017	2018	2019	2020	2021	2022	2023	2024	2025	2026	Total
$12,000/ $30,000	Platinum	27.5	28.7	29.6	30.2	30.4	30.3	29.7	28.7	27.4	25.6	288
	Gold	0	0	0	0	0	0	0	0	0	0	0
	Silver	0	0	0	0	0	0	0	0	0	0	0
	Bronze	0	0	0	0	0	0	0	0	0	0	0
	Total	27.5	28.7	29.6	30.2	30.4	30.3	29.7	28.7	27.4	25.6	288
$10,200/ $27,500	Platinum	35.8	36.9	37.5	37.7	37.6	36.9	35.9	34.4	32.6	30.3	356
	Gold	0	0	0	0	0	0	0.7	6.8	13.1	19.3	40
	Silver	0	0	0	0	0	0	0	0	0	0	0
	Bronze	0	0	0	0	0	0	0	0	0	0	0
	Total	35.8	36.9	37.5	37.7	37.6	36.9	36.6	41.3	45.7	49.6	395
$8,000/ $24,500	Platinum	52.6	53.0	52.8	52.1	50.9	49.2	47.0	44.3	41.2	37.6	481
	Gold	32.3	38.4	44.7	51.1	57.6	64.3	71.2	78.1	84.6	90.2	613
	Silver	0	0	0	0	0	0.2	0.3	0.4	0.4	0.5	2
	Bronze	0	0	0	0	0	0	0	0	0	0	0
	Total	84.9	91.4	97.5	103.3	108.7	113.8	118.5	122.8	126.2	128.3	1096
$5,000/ $20,000	Platinum	76.2	75.7	74.7	73.0	70.6	67.7	64.2	60.1	55.5	50.5	668
	Gold	135.2	142.4	149.5	156.8	164.2	171.7	179.0	185.5	190.5	192.9	1668
	Silver	7.0	7.8	8.6	9.3	10.0	10.8	11.6	12.5	13.4	14.3	105
	Bronze	0.6	0.9	1.2	1.5	1.8	2.3	2.7	3.3	4.1	5.0	23
	Total	219.0	226.8	233.9	240.5	246.7	252.4	257.5	261.5	263.5	262.6	2464
*Some numbers are off by rounding error. ¹AV is indicated by current corresponding metal level

Enrollment and Revenue

Because the generous benefits of that come with ESI, revenue can be raised at surprisingly little coverage cost as long as employers continue to offer insurance. The weakest cap in the produces $288 billion of revenue over the course of 10-years with little effect on enrollment numbers. The strongest cap produces $2.5 trillion in revenue over 10-years and about 4 million less people (about 3% less) enrolled in the ESI marketplace in 2026 relative to the benchmark.

The graph below serves as an illustration of how ESI enrollment and revenue created by the various cap options are related over time. Each point represents the relation between revenue and enrollment for one year in the simulation. This is repeated for each cap option. At its weakest, the cap creates the least revenue along with the least variation of enrollment as it only affects the costliest plans. At its strongest, the cap causes greater variation in both revenue and enrollment as it applies to plans across multiple AVs, especially in the later years of the simulation.

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[i] http://files.kff.org/attachment/report-2015-employer-health-benefits-survey, pg 26