Skip the employer mandate in Obamacare, economist urges

Independence Blue Cross' call center occupies an area equal to one-and-a-half football fields. Not only has the number of customer calls increased; the calls also last longer, because the new members have more questions.
Independence Blue Cross' call center occupies an area equal to one-and-a-half football fields. Not only has the number of customer calls increased; the calls also last longer, because the new members have more questions.
Posted: June 25, 2014

The Obama administration has given employers a reprieve from the mandate that they offer their workers insurance at low employee premiums or pay a penalty. The enforcement is postponed until 2016.

But should the mandate ever come back?

Even strong supporters of the Affordable Care Act are divided. David Blumenthal, of the Commonwealth Fund, says the mandate on employers is needed to compel them to honor their "shared responsibility" to pay their workers' premiums.

Tim Jost, a professor at Washington and Lee University and a leading backer and interpreter of the complex ACA rules, says the mandate has too many adverse side effects and should be "repealed and replaced" by something else.

Commonsense Americans may wonder why - if we can get by without the employer mandate for the next two years - we ever need it.

In the short run, the mandate may not do much for the uninsured or for workers. But in the longer run, not having it might harm the federal budget. As some economists see it, the answer is not to bring back the mandate, but rather to replace it with a more efficient and equitable system. Much of the rationale turns on a radically different view of employer premium contributions - we think workers pay for all of their health benefits, regardless of what their employer contributes. Workers may not pay all of the premiums directly, but they earn lower wages in return for their employer's contribution.

Short-term, the numbers on the mandate do not add up to much of an impact. The mandate affects only firms with more than 100 full-time workers, and very few of these workers are either uninsured or stuck with premium contributions that are unaffordable, as defined by the law.

Only about five million uninsured people under age 65 (when they become eligible for Medicare) are associated with workers for large firms, and an even smaller number must pay a premium higher than what the law considers affordable. Estimates are that the employer mandate would at most only cut the ranks of the uninsured 0.5 percent.

The mandate will boost federal coffers with fines from companies that do not offer coverage, but the contribution to the federal budget of these fines is estimated at only $5 billion a year - a tiny fraction of the ACA's cost.

The downside of retaining the mandate is a serious burden for the great majority of large employers that will have to prove they are in compliance. It also creates an incentive to distort hiring practices, to emphasize more part-timers, and an incentive for firms to shrink rather than grow so as to avoid having to provide coverage altogether.

These effects, combined with the minuscule impact on the uninsured and a righteous employer outcry against bureaucratic paperwork, have deflated enthusiasm among many people for proceeding with the mandate's implementation.

Blumenthal says, nevertheless, that these enduring defects would be worth it to maintain employers' "shared responsibility." However, many economists see "shared responsibility" as a myth. The small number of workers "helped" by employer premium contributions will also be harmed by lower raises as their employers seek to recover the cost of this benefit.

Why, then, did the ACA include a health-insurance mandate for larger employers, and why might dropping it eventually cause the government problems? In a study of the mandate that I conducted with my colleague Adam Leive, we estimated that before reform, nearly 50 million insured people were associated with low-wage workers in large firms. The ACA's drafters used the employer mandate to keep these workers in employer plans and out of the insurance exchanges, where they could claim large government subsidies to help pay the premiums. They did not want the government to have to provide subsidies to low-wage workers who were already privately insured, and much of this population was at large firms.

In my view, we should skip the employer mandate and instead offer the same premium subsidies to all low-wage workers, regardless of the size of the company for which they work and where they get their insurance.


Mark V. Pauly is professor of health care management, business economics, and public policy at the Wharton School. He wrote this for the Field Clinic, an Inquirer blog on Philly.com that covers health the Affordable Care Act. 

 

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