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August 18, 2014

Just Released: Firms Weigh in on Affordable Care Act in August Business Surveys

Jason Bram and Michael Kubiske

The Federal Reserve Bank of New York’s monthly surveys of manufacturers and service-sector firms include special supplementary questions on topics of interest. The August survey questions focused on the effects of the Affordable Care Act (ACA) on businesses in the District, and how, if at all, firms are making changes in response to it.

One clear finding of this survey (and of a somewhat similar survey we did last July) was that the ACA was widely seen as raising health coverage costs for businesses. We asked firms how much their health coverage costs changed from 2013 to 2014, and what change they expected for 2015. The median firm, in both our manufacturing and service-sector surveys, expected costs to increase 10 percent in 2015 following similar increases in 2014. But quantifying the effect of the ACA is not as easy as it might sound. We also asked respondents to characterize the ACA’s effect on health coverage costs per worker in 2014 and its expected effects in 2015. Nearly 60 percent of service firms and nearly 75 percent of manufacturers said that the ACA had increased health benefit costs per worker at least a little; even larger proportions said it would raise costs next year.

Interestingly, respondents who said the ACA was not affecting costs in 2014, both manufacturers and service firms, reported a median cost increase of about 8 percent in 2014. Meanwhile, among those respondents who said that the ACA had raised costs, the median reported cost increases were 11 and 12 percent for manufacturers and service firms, respectively. In addition, responses to these questions were fairly similar among larger firms (those with more than a hundred employees), smaller firms (those with fewer than fifty employees), and those in between. The Employer Costs for Employee Compensation survey for the Middle Atlantic Region (New York, New Jersey, and Pennsylvania), published by the Bureau of Labor Statistics, shows health coverage costs increasing at a roughly 4 percent rate in recent years, but accelerating to roughly 9 percent in late 2013 into early 2014.

We also asked businesses if they currently provided health insurance at all, and if not, whether they planned on offering it for the first time. Almost all respondents (roughly 95 percent) indicated that they currently offered health coverage. Very few said that they would drop coverage in response to the ACA, but a majority of firms said that they were making some modifications. Widely cited modifications included raising deductibles, out-of-pocket maximums, and co-pays; most respondents also mentioned an increase in the total premium, and a sizable proportion said that they were raising the employee contribution to the premium.

Finally, some businesses were taking other steps to offset some of the cost increases—steps such as increasing the proportion of part-time workers, scaling back on other compensation, and especially passing along some of the price increase to their customers. Still, about half of the firms surveyed were doing none of those, and the median respondent in both surveys expected to employ somewhat more full-time workers in 2015 than this year. In summary, it seems that the ACA has led to somewhat higher costs and that businesses are making various types of adjustments in response.

The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York, or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

Jason Bram is a research officer in the Federal Reserve Bank of New York’s Research and Statistics Group.

Michael Kubiske is a senior research analyst in the Bank’s Research and Statistics Group.

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