ACA’s Employer Mandate

Paul N. Van de Water of the Center on Budget and Policy Priorities has a summary of the ACA’s employer mandate. You might recall (or have blocked out) how complicated many of the employer mandate proposals were during debate over health reform. The final version turned out to be fairly complicated too, but folks are getting better at describing it. Van de Water does a nice job.

Large employers that do not offer health insurance coverage will pay an annual penalty of $2,000 for every full-time employee beyond the first 30, as long as the employer has at least one employee who receives subsidized coverage in the local health insurance exchange. …

Employers with 50 or more FTEs will pay a penalty of $3,000 a year for each full-time worker who is offered employer coverage but instead receives a premium credit to buy coverage in the exchange. The total amount that an employer will have to pay with respect to such employees will be capped at an amount equal to $2,000 times the total number of full-time workers in excess of 30 that the firm employs. …

Employees offered coverage by their employer will generally be barred from purchasing coverage in the exchange — as long as the coverage meets a minimum standard (it must have at least a 60-percent actuarial value) and the worker does not have to pay more than 9.5 percent of income for the employee share of the premium. …

Employers must offer what the legislation refers to as “free-choice vouchers” to employees whose share of the premium for employer-sponsored coverage would be between 8 and 9.5 percent of their income. The amount of an employee’s voucher would equal the contribution the employer would make to its own health plan on behalf of the employee, and the employee could use the voucher to purchase insurance in the exchange. Employees receiving free-choice vouchers are not eligible for subsidies.

The post-ACA enactment debate has included the question of whether employers will drop insurance. Van de Water, citing a CBO report, says they will not do so in large numbers (I agree).

The individual mandate will increase workers’ desire for employer-sponsored coverage, and employer contributions for coverage will still receive preferred tax treatment. Some firms with large numbers of low-wage workers who could qualify for premium subsidies may decide that it would be beneficial to them and their workers for the firm not to continue offering coverage. But the Congressional Budget Office estimates that the number of people receiving coverage through their employer will not be very different — it will be about 2 percent lower by 2019 — than it would have been in the absence of the health reform legislation.[3]

Most of the discussion of the employer mandate ignores an important tension. On one hand, moving away from an employer-based system, with its tax subsidy, would be collectively beneficial. In this sense, erosion of ties between employment and health insurance is good. On the other hand, individuals with employer plans generally hate change and like the big subsidy. Since that’s most working-age voters there’s a political necessity (and an individual preference) for maintenance of the status quo. In this sense, erosion of the employer-bases system is bad.

Since the employer-based system appears to be protected under the ACA, we’ll be getting what most people want but we all should dislike. It’s a collective action problem nobody knows how to solve politically.

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