Senate Health Care Bill Lets Employers Duck Responsibility

December 2, 2009

The Senate health care bill has gotten kudos for fiscal responsibility. The Congressional Budget Office says it would not only pay for itself, but reduce the deficit by $130 billion in the first decade–an estimated $26 billion more than the bill the House passed last month.

We’re told the bill would also “bend the curve” of rising health care costs. A new brief by the Center on Budget and Policy Priorities explains how.

But low-income people fare won’t fare so well. High on my gripes list are the employer responsibility provisions. They’re not so bad as the Senate Finance Committee’s “free rider” provision, but they’ll still put low-income workers at a disadvantage.

The “free rider” was part of the Finance Committee’s solution to situations where employers don’t offer health insurance with benefits up to a minimum standard or do offer such insurance but not at a cost low-income workers can afford.

It required them to pay a free only for employees who are eligible for subsidized coverage in the health insurance exchange and work at least 30 hours a week. This obviously gave them a huge incentive to hire only people who didn’t qualify for subsidized coverage in the health insurance exchange and/or to reduce their hours to bring them under the definition of full-time, i.e., at least 30 hours a week.

The bill the Senate may (or may not) vote on levies a fee on most employers (all except those with fewer than 50 employees) that don’t offer health insurance if they’ve got even one full-time employee who gets a premium credit in the exchange. The fee starts at $750 for each full-time employee, whether low-income or not.

Since most covered employers are likely to have at least one low-income employee, the incentive to avoid hiring more is minimized. But the incentive to convert low-wage jobs to less than full-time is still there.

There’s also a fee for employers that offer health insurance but at a cost low-income workers can’t afford, i.e., more than 10% of their income. It’s $3,000 per employee, but only for those who can go to the exchange because the employer’s plan is, for them, unaffordable. So there’s still an incentive to prefer employees at higher income levels and those covered by another family member–and another incentive to convert full-time to part-time jobs.

The House bill offers no such incentives. Employers that don’t offer health insurance that meets a minimum standard would pay fees ranging from 2% to 8% of payroll, depending on payroll size. There’s an exemption here for quite small employers–those with payrolls below $500,000. But beyond this threshold, employers must provide or otherwise contribute to adequate health insurance for all their employees. Period.

The affordability standard for employer-provided insurance is higher than under the Senate bill–12% of income instead of 10%. However, the fee is up to 8% of the employer’s average wage times the number of employees eligible to buy on the exchange. According to CBPP, this fee would generally be less than what the employer would pay to insure higher-income workers. So there’s no incentive to prefer them.

The Senate bill also does considerably less than the House bill to help low-income people afford health insurance and the out-of-pockets they’ll have to pay if they buy it. But that’s a subject for another posting.

I’d like to think that Senate Majority Leader Harry Reid did the best he could to strengthen the employer responsibility provisions without losing any of the votes he needs to get a health reform bill passed.

He still seems not to have those votes lined up. If he gets them, we can only hope that the House employer mandate or something close to it prevails in the complex negotiations that will be needed to produce a House-Senate compromise.

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Senate Finance Committee Health Care Bill Better and Worse

October 21, 2009

The Senate Finance Committee worked hard, if not collaboratively, on the health care bill introduced by its chairman, Senator Baucus. A whopping 564 amendments considered. What it’s come up with has something for everyone to dislike. And I’m no exception.

Set aside the hot button issues like the lack of a public option and prospective cutbacks in Medicare. The committee failed to resolve two major problems in the Baucus bill that would adversely affect low-income people. In fact, it made at least one of them worse.

One big problem is affordability. The Finance Committee bill made some improvements here. However, both premiums and out-of-pocket expenses for low and moderate income households would still be much higher than under either the main bill pending in the House of Representatives or the bill passed by the Senate Health, Education, Labor, and Pensions Committee.

The Center on Budget and Policy Priorities has again crunched the numbers. As its new brief shows, for people below 200% of the federal poverty line, premiums would be two to four times greater.

If the bill were effective now, deductibles and co-pays for families at 250% of the FPL could be as high as $5,800 a year. For a family of three, this would be on top of an initial $4,349 premium–9.5% of its total income. And, for reasons explained in my earlier posting, premiums would eat up an increasing percentage of income over time.

The Finance Committee apparently recognized that health care would still be hard for many people to afford. But rather than adopt a different cost-sharing scheme, it waived the penalty for not having insurance for households whose premium costs for the lowest-cost plan in the insurance exchange would exceed 8% of their income.

CBPP says the waiver would apply to people with incomes between about 220% and 400% of the FPL. Given the costs of the insurance, many might decide to remain uninsured. Others might opt for the expanded “young invincible plan,” which isn’t just for young people any more. Under this plan, coverage would kick in only after people have met a high deductible–$5,800 for individuals and $11,600 for families.

One way or the other, a lot of low to moderate income people would still not have insurance that enables them to get the health care they need. Those most likely to opt out would be the healthiest–those who feel they’re invincible. But of course they’re not. Major illnesses and injuries can happen to anyone. And if the healthiest opt out, the risk pool would include mostly people with higher health costs. Up go the premiums. Up go the number of people who can opt out.

Another big problem in the Baucus bill was the “free rider” provision, i.e., the requirement that employers who don’t offer health insurance with benefits up to a minimum standard pay a fixed amount only for employees who are eligible for subsidies and work at least 30 hours. The fee would also apply if the insurance they offered was unaffordable for these employees.

Needless to say, this provision give employers a strong incentive to hire only people who don’t qualify for subsidies. It could also prompt them to convert current full-time, low-wage employees to part-time. Hardest hit would be near-poor single parents with dependent children because fees for them will be highest.

The Finance Committee bill strengthens this perverse incentive in two ways. First, it denies employers the right to deduct the costs of the fees as a business expense, even though health insurance is deductible. Second, it changes the formula for calculating the fees in such as way as to make them more costly.

The Finance Committee was trying to reduce the impacts of health care reform on the federal budget. Impacts on low-income people seem to have been of less concern. It could have done a better job if it had adopted a standard pay-or-play option for employers and tapped revenue sources outside the health care system, as the Coalition on Human Needs has recommended.

Senate Majority Leader Harry Reid has the thankless task of reconciling the Finance Committee bill with the Senate HELP Committee bill–and with an eye toward getting the 60 votes needed to get his version passed. It’s bound to have something that everyone–not just the all-but-solid Republican opposition–dislikes.

But will so many Senators, organized interest groups and we grassroots Americans dislike so much of it so much that it fails?