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.

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