The notion that employers might stop offering health insurance coverage once decent policies are more readily available on exchanges warrants some concern. It would actually be a good thing if we transition away from an employer-based system, but it would be preferable that the transition occurs gradually. If employers abandon coverage en masse, it could lead to discontent and a dramatic increase in government subsidy costs.
Internal documents recently reviewed by Fortune, originally requested by Congress, show what the bill’s critics predicted, and what its champions dreaded: many large companies [including AT&T and Deere] are examining a course that was heretofore unthinkable, dumping the health care coverage they provide to their workers in exchange for paying penalty fees to the government.
For large firms that do not offer coverage, those penalty fees would be $2,000 for every employee over 30 that the firm employs.
Are those fees too low? Perhaps. But it is worth noting that they’re far higher than those of the Massachusetts’ employer mandate, described in a recent Millbank Quarterly paper by Michael Doonan and Katherine Tull of Brandeis University. “Employers who do not provide health insurance to their employees must pay a ‘fair share’ assessment to the state of up to $295 per employee per year.”
What’s the experience in Massachusetts under the mandate with this penalty level? Doonan and Tull write,
The first year of health reform showed no evidence of crowd-out, either from a decrease in the number of employers offering health insurance coverage or in the number of workers taking up coverage (Long 2008). The number of employers offering health insurance also rose between 2005 and 2007 from 70 to 72 percent. … Health reform facilitated the uptake in employer sponsored plans without the feared crowd-out.
Perhaps there are other features of the Massachusetts law or its employers that invalidate a national extrapolation. Or perhaps Massachusetts employers hung in for the first year but began dumping or will dump later. I’ll be on the lookout for other explanations and evidence along these lines (leads appreciated). However, based on what I know now, I’m not too concerned about widespread employer dumping.