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E C O N O M I C A N D B U D G E T I S S U E B R I E F 8 CONGRESSIONAL BUDGET OFFICE is the provision of subsidies that would help cover the compensation than do competitors based in countries costs of health insurance purchased through exchanges. where insurance is not related to employment and that Other changes to the insurance market—prohibiting fundamental changes to the health insurance system could insurers from denying coverage to people because of their reduce or eliminate that disadvantage. However, such a preexisting conditions or limiting how much insurers cost reduction is unlikely to occur, except in the short run, could vary prices with the age or health status of insured primarily because the costs of fringe benefits are largely individuals—would also make insurance in the exchanges borne by workers in the form of lower cash wages. Other or individual market more affordable for less healthy or economic factors (including tax rates and currency values) older individuals. are likely to have a larger impact on a nation’s competi- tiveness in the world market. By making insurance obtained outside the workplace more attractive, those provisions could cause some To be sure, workers’ cash compensation might not people to retire early. In its 2008 report Budget Options, increase immediately by the full amount of any reduction Volume 1: Health Care, CBO analyzed an option that in employers’ payments for health insurance. For that rea- would allow people between the ages of 62 and 64 to buy son, firms that currently contribute toward the costs of into Medicare coverage. Under that option, participants their workers’ health benefits could temporarily reap some would pay premiums equal to the average cost of benefits savings in labor costs if changes to the health insurance for program participants plus a 5 percent administrative system resulted in their workers receiving subsidized cov- fee. CBO estimated that the number of retired individuals erage in some other way. But those firms would experi- would increase by roughly 20,000 as a consequence. That ence no permanent change in their competitive status. option, however, did not include subsidies to cover the costs of Medicare premiums or restrictions on how much In at least one circumstance, firms might find it difficult premiums could vary with the age of enrollees—two to adjust wages as health care costs increased or declined. features that would increase the attractiveness of the Some firms have commitments to cover the health care “bridge” coverage. costs of their retirees, and those commitments may not be fully funded. Reducing those legacy costs could ease the Increasing the availability of health insurance from financial strain on those firms. Stockholders could bene- sources other than employers could also reduce the partic- fit, but whether lower costs would enhance the firms’ ipation of some younger workers in the labor force, espe- competitiveness would depend on how firms used those cially those for whom gaining employer-based insurance is additional savings. If those retiree benefits were the result a major motivation for working; however, that effect of collective bargaining on behalf of both active workers would probably not be large. The impact on participation and retirees, active workers might bear the costs of those would probably be greatest among secondary earners benefits—but they might also capture any savings result- because they tend to be more responsive to changes in the ing from reductions in those costs. marginal benefit of working than are primary earners. Proposals that increased the availability of health insur- ance from other sources could also reduce job lock and, potentially, lead to better matches of workers to jobs. This brief was prepared by Janet Holtzblatt and Benjamin Page. It and other CBO publications are Effects of Changes to the Health available at the agency’s Web site (www.cbo.gov). Insurance System on International Competitiveness Douglas W. Elmendorf Some analysts have argued that domestic firms offering Director health insurance to their workers face higher costs for