With this and several subsequent posts I’ll be digging into the employer and individual mandate provisions of the House and Senate health reform bills (all will be listed under the “health insurance mandates” tag). This is an area of both professional and personal interest–the former because I’m a health economist and the latter because my wife runs a small business, and a member of my extended family is (or was until recently) uninsured and will likely look to an exchange for coverage in the future. For this series of posts I won’t adhere to my normal once-per-weekday schedule. They’ll just come out as I produce them. I imagine all but intense policy wonks will ignore them anyway.
This post is on the Senate bill’s employer mandate. Its individual mandate and mandates in the House bill will be covered in other posts. My sources for this post are the recent Center on Budget and Policy Priorities report by Robert Greenstein and Paul Van De Water and Timothy Jost’s Health Affairs blog post.
Under the Senate bill, firms with fewer than 50 full-time workers are exempt from any mandate or “employer responsibility” provision. (It is my understanding that some subset of small businesses would be eligible for tax credits if they provide insurance, but that this provision sunsets in a few years.) For remaining firms, the variant that applies depends on certain characteristics of the firm. In particular, the bill identifies types of firm as: (1) those that do not offer coverage, (2) those that offer coverage but require a duration of employment before qualifying for it, and (3) firms in which some employees purchase coverage through an exchange (a firm can fall into more than one category). In all cases and hereafter by “employee” or “worker” I mean a full-time one where “full-time” is 30 or more hours per week. Nothing in the Senate bill applies to part-time workers (that is, such workers don’t count–for the purposes of this post we can assume they don’t exist).
1. Firms that do not offer coverage. Firms that fall into this category but not in category 3 below would not be subject to any penalty. That’s one reason why it is correct to say that the Senate bill doesn’t include an employer mandate. It has been estimated that very few firms would actually fall into this category but not in category 3 so that makes it almost correct to say that there actually is a form of back-door mandate in the bill. On the other hand, this structure provides an incentive for labor market distortions. Firms might be tempted to manage their pool of labor so that they end up in this and only this category. To stay out of category 3 a firm cannot hire any workers from families with low enough incomes such that the workers qualify for subsidized coverage on an exchange.
2. Firms requiring a waiting period. Waiting periods longer than 90 days would be banned. Firms with waiting periods up to 30 days would not face a fee. For a 30-60 day waiting period the fee is $400 per affected worker. For a 60-90 day waiting period the fee is $600 per instance. As these are relatively small fees assessed only on affected workers this aspect of the bill isn’t really a big deal financially for most firms. Moreover, it imposes no labor market distortions. It does suggest that there could be some issues with individual workers falling into 1-3 month gaps in coverage. That’s not so great. I yearn for something simpler like a ban on waiting periods above 30 days. Since coverage is usually handled monthly a worker switching employers would experience no gap in coverage under such a rule.
3. Firms with employees using the exchange. Here’s where the real bite is. All workers offered employer coverage of sufficient generosity (I won’t go into the details) and with an employee premium below 10% of income are barred from using the exchange. All other workers are eligible for purchase of insurance on an exchange. If such a worker has low enough family income (below 400% of the poverty line) to receive a subsidy the employer pays a fee.
Before discussing the employer fee, note that this provision (number 3) is mandate-like, if not strictly speaking a mandate. That is, though it doesn’t direct employers to provide insurance (as a mandate would) it says that if they don’t provide insurance of sufficient generosity they could owe a fee. Since penalties for violation of a mandate (in the strict sense) are fees, there really isn’t a big distinction here, apart from labor market distortions which I describe below. Practically speaking I’d call this a mandate of a sort.
The penalty fee structure is a bit complicated. If a firm offers insurance then it is the minimum of (a) $3,000 per year per worker receiving a subsidy for exchange coverage or (b) $750 per worker of any type (with or without exchange coverage, with or without a subsidy). If a firm doesn’t offer insurance than only part (b) of the aforementioned fee structure applies.
If an insurance-offering firm hires few enough subsidy-receiving workers relative to its total workforce then part (a) of the fee structure is binding. In that case, the firm minimizes the fee by minimizing the hiring of workers with low family income. That’s the source of the potential labor market distortion. Note that in this case the perverse incentive to hire higher family income workers exists only if the firm offers coverage that costs it less than $3,000 per year per enrolled employee. How common is this? I don’t know.
In closing, I remind readers that I’ve hidden the issue that all of the above only applies to full-time (30+ hours/week) workers. Another way for employers to avoid penalties is to replace full-time with part-time help.