• Employer Mandate: What’s in a Name?

    As regular readers know I’m watching the media carefully for hints of how the final health reform bill will turn out. Today we learn that the Senate version of employer requirements is likely to prevail over the House’s employer mandate. Some are suggesting this is the demise of the employer mandate. I don’t think so, though it is a matter of semantics.

    First, the news. Lisa Wangsness of The Boston Globe reports:

    Democratic leaders negotiating a compromise health care bill appear likely to reject a House provision requiring employers to offer generous coverage to their workers or else pay a steep payroll tax, specialist say.

    The handful of moderate Senate Democrats who hold the political upper hand in shaping the final bill are expected to insist on hewing much closer to the Senate’s relatively lenient approach, which does not include a strong requirement that employers offer coverage….

    Killing off the strong employer mandate in the House version would represent a substantial victory for business lobbies, who last year confronted the possibility that large Democratic majorities in the House and Senate could stick businesses with heavy regulations and fines.

    As I wrote before, the House’s employer mandate is a very simple pay-or-play provision. Employers either offer coverage of sufficient generosity (the play part) or pay a fine. The Senate employer provisions are more complex and hidden in that complexity is some wiggle room for employers, but not that much.

    I prefer to think of the Senate’s version as a pay-or-play mandate (just like the House) with a small wrinkle. So, let me describe it this way, under the Senate bill an employer must offer coverage or pay a penalty. But they are exempt from penalty if no employee receives subsidized coverage from an exchange (sources: Greenstein/Van de Water, Tri-Committee House Staff [pdf]). That sounds like a big deal but it may not be, as I explain below.

    Why are business groups pushing for this pay-or-play (with loophole) version? Two reasons: (1) The level of coverage an employer must offer in order to keep its employees from having access to an exchange is lower than it would be under the House version. Clearly if employees don’t have exchange access they can’t receive subsidized exchange coverage, so the “pay” part of the provision could not be binding. (2) Even if an employer offers a level of coverage that would permit exchange access, it could be the case that no employee seeks it or doesn’t qualify for subsidies. This would permit the employer to offer lower-benefit coverage than they could under the House version and avoid any penalty.

    Fine. But in what way is this bad for workers? I can think of two ways. One is that the minimum benefit level to prevent exchange access is lower than the House version. In particular, it might be possible for an employer to construct policies that provide low benefits for certain conditions, which would lead to cheaper coverage but less protection for the policyholder (and his/her family). The other is a possible labor market distortion. Employers might try to avoid hiring workers who might be inclined to opt for subsidized exchange coverage.

    I don’t like the Senate’s employer provisions relative to those of the House, but how bad is it in absolute terms? I don’t think it is that bad. The minimum benefit standard is lower than the House’s but not tremendously lower (60% vs. 70% of actuarial value). Though there are loopholes that afford employers some wiggle room, it is a lot less wiggle room than they have now. I don’t know how many employers will take advantage of that wiggle room but it may be a small number representing a small proportion of workers (Greenstein and Van de Water think so too).

    So, is the Senate version an employer mandate or not? Reasonable people can disagree but I would say it is effectively so, just with slightly weaker demands under the “play” part and potentially lower penalties for the “pay” part. The ability for employers to avoid both playing and paying is minimal, though not zero.

    But it almost doesn’t matter what we call it or whether it is good or bad. It seems to be the best that can be achieved politically. The Senate’s 60 votes are necessary so they hold the power here.

    Later: See my follow-up post on this topic.

    Later still: And then there is the issue of risk selection.

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