Small firms, bigger changes: health insurance coverage take-up rates in small firms after the ACA

ABSTRACT

Measuring the impact of the Affordable Care Act of 2010 (ACA) on employer-sponsored health insurance is essential in an era of constant changes to health policy. Using data from the Kaiser Family Foundation Employer Survey, we focus on firms with fewer than 50 employees in order to isolate the effect of the ACA on small firms. We utilize a differences‐in‐differences approach with a time fixed effect structure to provide analysis for a treatment group of small firms and a control group of large firms. After excluding firms with grandfathered plans, we find that the ACA provisions reduced health insurance coverage take-up rates in small firms by 1.96 to 2.67 percentage points (compared to large firms).

KEYWORDS:

• Health economics
• Affordable Care Act of 2010
• employer-sponsored health insurance coverage

JEL CLASSIFICATION:

• I13
• I18
• G22

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ National Center for Health Statistics (https://www.cdc.gov/nchs/products/databriefs/db317.htm).

² This survey is a nationally representative survey of multiple large and small firms. Using multiple firms eliminates the risk of including firm-specific factors, such as human resources (Lo Sasso, Shah, and Frogner 2010).

³ The wide range of data allows us to track any change in health insurance coverage take-up rates that may have been in place before 2010, and the full four years of post-treatment data allow for eliminating any short-term fluctuation and shocks.

⁴ A study of the first-year impact of Kentucky’s Medicaid expansion on insurance coverage and access to care by Benitez, Creel, and Jennings (2016) finds large reductions in the low-income uninsurance rate, with this statistic falling from 35 percent at the end of 2013 to just below 11 percent by the end of 2014.

⁵ Wherry and Miller (2016), examine the effect of the ACA’s Medicaid expansion on insurance coverage and find that Medicaid expansion reduced the uninsured rate by 7 percentage points among low income individuals in 2014.

⁶ See also Courtemanche, Marton, Ukert, Yelowitz and Zapata (2018, 2019).

⁷ For example, allowing adult children to remain on or to join their parents’ policies until age 26, bans against lifetime limits and rescissions, and bans against waiting periods of more than 90 days, are among the provisions that apply to both grandfathered plans and non-grandfathered plans.

⁸ This aspect of our data set is critical given that the difference-in-difference method that we employ in this study relies on the common trends assumption. Inclusion of firms that did not offer health insurance prior to 2014 would lead to changes in the control group that would bias any statistical examination.

⁹ Because the survey is not mandatory, there is the possibility of a self-selection bias in these data.

¹⁰ To increase precision of the survey, KFF/HRET stratified the sample by industry and size categories. The overall response rate is 33 percent, which is calculated using a CASRO method that accounts for firms that are determined to be ineligible in its calculation.

¹¹ Each plan reported by a firm is classified within the survey into one of four plan types: high deductible health plan (HDHP), preferred provider organization (PPO), point-of-service plan (POS), and health maintenance organization (HMO).

¹² We ensured stability (between small firms and their large firm counterparts) of the panel data set over the time horizon by excluding firms that did not contribute any information either prior to 2010 or after 2014.

¹³ Note that the summary statistics presented in Table 1 are means. The relatively large decline in the average percentage of employees earning less than $25,000 after 2014 could be explained by improvement in the macroeconomy, as the unemployment rate declined and incomes rose over all or much of the past decade. The decline in the average percentage of employees making less than $25,000 after 2014 is consistent across small and large firms (i.e. about five percentage points), which defuses any concern over identification. Similarly, the decrease in part-time employees across small and large firms (pre- and post-ACA) is consistent (i.e. about five percentage points).

¹⁴ These subgroups are analyzed in much of the published literature in this genre.

¹⁵ It is worth noting that previous research indicates that the number of choices offered can affect health insurance coverage take-up rates (Abraham and Feldman 2010).

¹⁶ It is important to note that, unlike prior research (Wehby and Lyu 2018; Lyons 2017), our results do not suggest that the ACA crowded-out private health insurance coverage. Instead, we document a difference in health insurance coverage take-up rates between small firms and large firms as a result of the ACA.