• What’s the Goal, Exchange or Employer Coverage?

    I’m starting to see the employer mandate (Senate style) more clearly. This doesn’t change what I wrote earlier, just supplements it.

    The penalty for offering unaffordable coverage is no greater than $3,000 per employee that receives exchange coverage with a subsidy. That is low relative to the cost of an insurance policy. It’s even low relative to an employer contribution to a policy, particularly so for family coverage (so says the KFF/HRET 2009 Employer Health Benefits Survey).

    So, employers should be happy to pay that penalty instead of paying for coverage for an employee. And the provision that opens exchanges to workers whose premium share would be greater than 9.8% of income provides the opportunity for employers to do just that. That’s no doubt a reason business groups like the Senate version of the employer mandate.

    How should we feel about this? On the one hand, the employer-based insurance system is muddled with perverse incentives and labor market distortions. So, the fewer folks trapped in it the better. Vive l’exchange! On the other hand, no doubt it doesn’t seem right to some that employers should be able to dodge some costs by taking advantage of exchange coverage. The Senate’s mandate isn’t called a “free rider provision” for nothing.

    But you can’t have it both ways. If employers are penalized more for workers who use the exchange we get more employer coverage and less use of exchanges. If employers get a break and employees are “encouraged” toward exchange coverage there will be more exchange use, though higher taxpayer cost.

    It would seem, then, that proponents of exchanges should prefer the Senate mandate, which is what we’re getting (or so it appears). So, for those so inclined, that’s another reason to like the Senate bill. That businesses like it as well may not be a reason good reason not to.

    • As you note, the Senate provision does a poor job of discouraging employers from dropping coverage and shifting costs onto the federal government. As a consequence it increases the on-budget costs of the bill and makes it more difficult to provide sufficient subsidies to low- and moderate-income families.

      Since the provision only applies to employees working over 30 hours, it provides a strong incentive for employers to reduce hours on workers who are not offered coverage on the job. Nationally 12 million employees work between 30 and 36 hours a week, of which 60 percent do not have coverage on the job.

      One other important correction. The only standard that applies to self-insured plans in the Senate is the bar on lifetime and annual limits. However, workers can turn down a plan and go into the exchange if the actuarial value is below 60 percent. Unlike the House, there is no standard for what is included in coverage.

      At a minimum the final bill should address the issue of part-time workers and apply the minimum standards to large employer plans.