The law’s advocates are already pushing the administration for a fix, so that employers would be required to make coverage affordable for employees and their families. But our new research demonstrates why this decision isn’t so cut-and-dry:  Using this broader definition of “affordable,” subsidies in the new law could motivate millions of employees to willingly shift from an employer plan to a government-subsidized insurance exchange at significant cost to taxpayers —even if their employers continue to offer coverage.

The healthcare law expands coverage in three ways: increasing Medicaid eligibility to 133 percent of the federal poverty line; requiring large employers to provide affordable insurance to employees; and creating an insurance market with income based subsidies for those not offered coverage deemed affordable.

How these provisions impact the insurance market depends on the answers to two questions.

First, does “affordable coverage” refer to coverage just for employees alone, or for employees and their families? We suspect the administration’s proposed answer to the first question comes as a big surprise to the average Congressperson, who believed —as we did at the start of our research— that the law levies a fine if a large employer doesn’t provide affordable coverage for employees and their families.

Indeed, language in certain sections of the law seems to indicate that an employer is on the hook if coverage isn’t provided to an employee and their dependents. But a close reading of the bill shows that the employer fine is only triggered when coverage isn’t affordable for the employee —not the employee and their family.

That brings us to the second question, which interacts in important ways with the administration’s answer to the first: Will employers keep their current insurance plans but adjust them to allow lower-to-moderate income employees ($89,400 for a family of four) to qualify for entry into the subsidized exchanges?

The Congressional Budget Office assumed not. Yet for income-eligible employees, subsidy dollars will make exchange coverage more affordable than their current employer plan-even when purchased with after-tax dollars. It’s also an attractive proposition for employers, who would pay less in per-employee fines than to provide affordable insurance in the first place.

By increasing pre-tax health insurance premiums-making coverage unaffordable for some-employers will free their lower-to-moderate income employees to obtain subsidized exchange coverage (with correspondingly higher wages) and still maintain their plan for higher-income workers.
To estimate the significance of the answers to these questions, we used Census Bureau data to model the impact of the healthcare law on the source of insurance coverage among workers (aged 17-64) who were employed in the private sector.
Currently, about 75 percent of this population receives insurance coverage through their employer, five percent purchase their policies individually, and another 3 percent are publicly insured through state Medicaid programs. That leaves 17 percent that are uninsured.

Assuming the three main insurance provisions of the ACA take effect, the administration’s definition of “affordability” sticks, and people act as government assumes they will, we find the following: Employer-sponsored coverage rises slightly to 78 percent; just over 10 percent receive coverage in the newly created exchange; and approximately 2.5 million new people receive coverage through Medicaid.

When we alter the model so that employees and employers work together to take advantage of exchange subsidies, the picture changes: employer-sponsored coverage stabilizes at about 74 percent, and the number of employees insured in the exchange rises by about 4 million. This all occurs despite our very optimistic assumption that all large firms offer coverage and no small firms drop coverage.

But if we allow for the broader interpretation of the employer mandate being pushed by the law’s advocates,  where employers must make coverage affordable for workers and their families-the changes are more dramatic. Employer-sponsored coverage drops to 66 percent, with nearly one-quarter of the non-elderly working-age insured population—over 21 million people receiving their insurance through the exchange.

We’re economists, not political consultants, so we offer no unique insight on whether the administration’s proposed rule will hold in the face of political pressure. But we do know that this unpopular definition and its possible revision hold significant implications for everyone impacted by this law’s provisions. Either millions of dependent families of employees will be stuck without an offer of affordable coverage-or taxpayers will be stuck with significantly more subsidy costs than originally projected.

Richard V. Burkhauser is the Sarah Gibson Blanding Professor of Policy Analysis at Cornell University. Kosali Simon is a Professor at the Indiana University School of Public and Environmental Affairs. The figures in this op-ed are based on an earlier version of this research sponsored by the Employment Policies Institute. The most recent version is available online via NBER.