The Employer Mandate and the ACA: Why Employer Coverage Fell in Massachusetts but Nowhere Else

The Affordable Care Act (ACA) was designed to minimize disruptions to employer-sponsored insurance (ESI) by creating an employer mandate and prohibiting tax credit eligibility for those with affordable employer offers. Research indicates that employer coverage rates have been stable nationally under the ACA; whether the employer mandate played an important role in this regard is unknown.

Massachusetts, which passed an employer mandate starting in 2006, offers a unique policy environment in which to evaluate this issue. The state eliminated its employer mandate at the end of 2013 in anticipation of the federal employer mandate taking effect in 2014, but the latter was ultimately delayed by the Obama Administration until 2015. The ACA mandate exempts firms smaller than 50 workers from any penalties, whereas Massachusetts’ mandate applied to firms as small as 11 workers.

We compared changes in ESI in Massachusetts vs. the rest of the U.S. before and after ACA implementation. Our primary dataset was the American Community Survey (ACS), 2011-2015. We estimated difference-in-differences regression models for changes in ESI and employment rates in Massachusetts vs. the rest of the U.S., before and after the 2014 implementation of the ACA and elimination of Massachusetts’ employer mandate. We also separately measured changes in ESI across different income groups in order to assess potential ESI crowd-out by Medicaid expansion and subsidized Marketplace coverage.

We then used the Medical Expenditure Panel Survey Insurance Component (MEPS), supplemented with the Massachusetts Employer Survey, to examine changes in firm-level offer rates and employee take-up rates of ESI by firm size.

We find that ESI rates declined significantly in Massachusetts starting in 2014, while ESI was stable or slightly increasing in nearly all other states. Our overall difference-in-differences estimate was that ESI declined by 2.3 percentage points (p<0.001) in Massachusetts by 2015, compared to the rest of the U.S. This change was largest among middle-income workers eligible for Marketplace subsidies (-5.2 percentage points for 138-250% of the federal poverty level [FPL], and -2.2 percentage points for those 250-400% FPL, compared to -1.6 percentage points for those below 138% FPL and -0.3 for those above 400% FPL). We found no differential change in employment in Massachusetts during this period.

Data from the employer surveys indicate that ESI offer rates selectively declined at smaller firms in Massachusetts after 2014, with mixed evidence on whether take-up rates among workers in these firms also declined.

Overall, our findings suggest that eliminating the employer mandate reduced employer coverage in Massachusetts, primarily via lower offer rates in firms no longer subject to the mandate’s penalties. Crowd-out of ESI by Medicaid did not explain most of the Massachusetts’ ESI decline, with greater crowd-out evident in the income range eligible for Marketplace subsidies. Our results suggest that one of the less salient features of the ACA – the employer mandate – may have played an underappreciated role in maintaining national rates of employer coverage since 2014. Conversely, proposed federal legislation to eliminate the ACA’s mandate might lead to an erosion of ESI nationally.