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The Employer Mandate

July 8, 2014

Let’s talk about the Employer Mandate.  Oh, now, don’t whine.  It can’t be all bubbles and roses and Supreme Court rants on this site.  I’m a respectable organization.  Here are the salient facts:

1. The Employer Mandate, part of the Affordable Care Act, is a requirement that all businesses with over 50 full-time employees provide health insurance to said full-time employees, OR

2. Pay what is called an Employer Shared Responsibility Payment (non-tax deductible) with the company’s federal tax return.  This annual fee is $2,000 per employee (first 30 exempt).

3. The Employer Shared Responsibility Provision is supposed to insure that the federal government, state governments, insurers, employers and individuals are given shared responsibility for the availability, quality and affordability of health insurance coverage.

4. If at least one full-time employee receives a premium tax credit because coverage is either unaffordable or does not cover 60 percent of total costs, the employer must pay the lesser of $3,000 for each of those employees receiving a credit or $750 for each of their full-time employees total.  This means, I think, that if the employee qualifies for government assistance with premiums because their company does not provide adequate, affordable health insurance, the company has to pay the government back. This is often called a “free-rider” penalty because it is triggered when an employer’s low-income employee “free-rides” on the federal government to obtain health care coverage.

5. For coverage to be “affordable”, the statute requires that for low-income employees—defined as those between 100-400% of federal poverty level—the employee’s portion of the premium for individual coverage cannot exceed 9.5% of his/her household income. Secondly, to meet the minimum value requirement, the plan must pay, on average, at least 60% of the costs of covered services.

6. Offering coverage that is affordable for the employee blocks all “related individuals” — generally, the spouse and tax dependent children — from accessing a government subsidy. And the bar hasn’t been set very high: if the employee would not have to pay more than 9.5% of his household income for his portion of the single (employee-only) premium on the employer’s plan, his entire family is firewalled off from getting the subsidy.

I know.  Yawn.  Blah, blah, blah.  But here’s the thing: according to Avik Roy of Forbes, “If the employer mandate were to ultimately be repealed, or never implemented, today’s news [regarding the delay in implementation to 2016] may turn out to be one of the most significant developments in health care policy in recent memory.”  Why does Mr. Roy say this?

Because the employer mandate reinforces the bizarre United States practice of having health insurance provided by employers in the first place.  The idea started in the 1880s when large mining, lumber, and railroad companies developed plans that covered medical services for their workers. The 1942 Stabilization Act, which restricted wage increases but ruled that health insurance didn’t count as a wage, combined with the failure of President Truman’s public health insurance proposal, set in motion the system we have today. Opponents of the employer mandate, whose numbers are rising according to Politico.com, have several concerns.  They say it drives up the cost of labor, that it discourages small business growth, that it encourages part-time hiring and out-sourcing, and in general increases the cost of doing business in the US, making it hard for us to compete with foreign companies.

Uwe Reinhardt, my favorite healthcare economist, said this in the New York Times last week: (http://www.nytimes.com/2014/07/03/upshot/the-illogic-of-employer-sponsored-health-insurance.html?module=Search&mabReward=relbias%3Ar%2C{%222%22%3A%22RI%3A15%22}&_r=0)

“The [Hobby Lobby] ruling raises the question of why, uniquely in the industrialized world, Americans have for so long favored an arrangement in health insurance that endows their employers with the quasi-parental power to choose the options that employees may be granted in the market for health insurance. For many smaller firms, that choice is narrowed to one or two alternatives – not much more choice than that afforded citizens under a single-payer health insurance system.Furthermore, the arrangement induces employers to intervene in many other ways in their employees’ personal life – for example, in wellness programs that can range from the benign to annoyingly intrusive, depending upon the employers’ wishes.  And what kind of health “insurance” have Americans gotten under this strange arrangement? Once again, uniquely in the industrialized world, it has been ephemeral coverage that is lost with the job or changed at the employer’s whim. Citizens in any other industrialized country have permanent, portable insurance not tied to a particular job in a particular country.”

And here’s Neil Irwin, also of the NYT:

“In truth, the American system of health care — in which most people get their private health insurance through their employer — has always been rather odd. Why should quitting a job also mean you have to get a new health insurance plan? Why should your boss get to decide what options you have and negotiate the cost of them? Employers don’t get to select our auto insurance or mortgage company, so why should health insurance be any different?”

Health policy experts are saying that, in effect, the ACA is working so well that people might decide they’re better off getting their own coverage through the exchanges than through their companies, in part because of item #6 above.  Companies would be glad to oblige, moving insurance away from employment.  Except for that pesky mandate.

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From → Healthcare

2 Comments
  1. The other element of employer health benefits is that it makes health too expensive for free-lancers and people who are not employed, not to mention people on stress leave, and a few million other people. The big insurance companies give the employer a rate per person that can never be duplicated by an individual. The employer who hires only on a contract basis leaves the employee unable to afford the kind of insurance that will let him keep his excellent primary care doctor. I’ve seen it happen to often, and lived through it too often.

    • Margaret – good point. The hope is that the ACA will alleviate the problem of the cost of self-insured folks. We’ll see.

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