Why More, Not Fewer, People Might Start Getting Health Insurance Through Work

In an earnings call last week, Walmart announced that its workers were signing up for health insurance en masse. The news was bad for the company's shareholders, since the added $500 million it will cost to cover them will eat into expected profits. But it also means that many more low-income families have health insurance now than did last year.

The change didn't come because of a more generous company policy. Walmart has long offered health insurance to its full-time workers for relatively low premiums - about $18 every two weeks for its lowest-paid workers. It came because many more workers decided to take advantage of the offer.

It's early yet to be sure of a strong trend, but the Walmart experience mirrors evidence from early polls and the historical experience of Massachusetts, which enacted a law similar to the Affordable Care Act in 2006. More people may be signing up for employer-based coverage than did before.

When we talk about the effect of the Affordable Care Act on health insurance, we often focus on people who were shut out of the market before, either because a prior illness made insurance inaccessible to them or because a high premium put coverage out of their financial reach. What Walmart's experience reminds us is that there were also uninsured people who simply chose not to buy coverage before there was a law requiring them to do so. Now they may be changing their minds.

This increase, if it is permanent, is going to cost employers money. But it illustrates how the Affordable Care Act is set up to build on the country's existing insurance system rather than tear it down. The law doesn't just create new public insurance programs. It also includes incentives designed to get more people enrolled in employer health coverage.

The law's best-known and least-liked provision - the 'individual mandate' - is probably causing the trend. For the first time, people must buy insurance this year or be subject to a tax penalty. In Massachusetts, a similar requirement changed the employer-sponsored insurance market in two ways, said Sharon Long, a senior fellow at the Urban Institute, who has studied the state's experience.

First, it encouraged more workers who were already being offered health insurance to take it - an effect roughly analogous to what Walmart is experiencing. Second, it actually induced more employers to offer coverage to their workers - because, Ms. Long believes, workers began to demand insurance once they were required to have it. Over all, the percentage of Massachusetts residents with employer-based insurance went to 65.6 percent in 2008, when the health care law was up and running, up from 61 percent in 2006.

The first effect should apply nationwide. The second may be a quirk of the Massachusetts labor market, where health reform was broadly popular, and most businesses tend to pay high wages. Estimates from the Congressional Budget Office suggest that some small employers that currently offer insurance may stop doing so now that their workers have other options. Some analysts of the law (and many of its critics) forecast widespread employer 'dumping' of workers into new health insurance marketplaces, but there's little evidence so far that this is happening. The law includes a requirement that employers offer coverage to their workers or pay a fine, but the Obama administration has postponed its start.

 % of employers offer health insurance

Gap between Massachusetts and U.S.

 % of employers offer health insurance

So far, at least, more people seem to be getting health insurance from their jobs than did last year. A recent analysis of Gallup polling data, published in The New England Journal of Medicine, found that while most newly insured people got coverage through Medicaid or new state insurance marketplaces, about 2 percent of the increase was coming from other sources. The employer market is not the only possible source of that rise, but Dr. Benjamin Sommers, a professor at the Harvard School of Public Health who wrote the paper with colleagues, said it suggests movement in employer coverage. Recent surveys from the Urban Institute also show an increase in the number of people reporting employer-based coverage, Ms. Long said, though the change was small enough that it could be a result of sampling errors.

A pair of employer surveys from the Federal Reserve Bank of New York found that employers were expecting 'a somewhat larger proportion of employees, on net, would be covered than in the past.'

Dave Ostendorf, a managing director at Towers Watson, a benefits consulting firm, said his customers were seeing small but real increases in the number of people they're insuring through employer plans this year. It's early to be sure, he said, but he's seeing indications that employer coverage is growing.

'The individual mandate is new, and that's something that people are aware of,' he said.