The Free Rider Provision Is No Employer Mandate

by Tim Foley

categories: National Health Exchange, Obama and Congress, The Uninsured and Underinsured

Published July 29, 2009 @ 08:02PM PT

There’s a “we're making it up as we go along” quality to the floated proposals from Max Baucus’ bipartisan gang of 6.  They all sound good when you first here them, and then sound increasingly less good as you contemplate what that actually means.

A health co-op sounds good.  I like democratic governance, and I have friends who live in co-op buildings!  But when you realize they take years if not decades to be effective and that existing co-ops and other non-profit plans have failed to introduce competition into the marketplace, it’s hard to see where the competition is supposed to come from.  Trimming subsidies down to 300% of the Federal poverty line might seem like a good compromise and a good way to keep the bill under an artificial price tag.  Shadowfax, a blogger who’s a must-read for me, wrote today, “even as a bleeding heart lib, I can tolerate reduced subsidies for folks making, what $66-88K per year?”  But then I realize that even at 400%, we’ll be leaving folks like Mark Barnes behind, and it doesn’t sound so good.

So it is with the Free Rider provision to replace an employer mandate.  It’s a pretty superficial stab to replace a policy that actually works with one that merely sounds good.
The employer mandate works because it’s “pay or play” – you either play by giving your employees comprehensive benefits or you pay into a common fund out of which we produce the subsidies that help fund everyone who doesn’t have employer-based coverage.  The Senate HELP bill has a pretty weak one ($750 for a full-time employee), the House bill has a strong one (8% of salary for employers with over $400,000 in payroll).  Small businesses actually get subsidies to help their employees get covered and to correct for the fact that the small business insurance market is nearly as abusive as the individual insurance market.  Whether a company pays or plays is up to them, but everyone’s in the same boat.  It’s shared responsibility.  More to the point, there’s no reward to the company for saying, “You know what, there’s a Health Exchange now – let’s dump our employees into that.”  They’ll pay less, but they’ll still pay.  And as the CBO has projected, this will actually lead to a slight increase in employer-based coverage.

The Free Rider provision, as articulated by Olympia Snowe (which is what we have to go on until Baucus actually releases a draft of the bill), instead only focuses on businesses whose employees buy a plan through the Exchange and receive a subsidy for it.  Those businesses will be asked to pick up between half to all of the cost of the federal subsidies.  At first glance, this might seem even fairer than the employer mandate – after all, those are the companies we really want to make sure pay their share, right?  But there are some serious problems:

1.)    I don’t think the business community whose employees make 300% of the federal poverty line or less ($66,000 for a family of 4 or $33,000 for an individual) would consider this any less of a mandate.  A blogger on The New Atlantis writes, “How is that not a mandate?… the reality is that just about every firm has some low wage workers on their payroll, which means the vast majority of employers will have to organize and pay for insurance for all of their employees to avoid getting fined for those who might end up in the federal subsidy program.”

2.)    Coupled with the gang of 6’s decision to pare back subsidies to 300% of the poverty line, this completely screws a not inconsiderable portion of the public.  The employer mandate isn’t just a way to recoup subsidies – it’s a way to protect individuals from getting dumped.  28% of the uninsured in this country make over $33,000 as individuals or $66,000 as a family of 4.  Where can they go to find affordable health care?  Nowhere.  What is the protection for those with insurance who make above 300% of the poverty line?  What makes their employer think twice before dumping their benefits under the Free Rider provision?  It doesn’t exist.

3.)    Just on a basic level, instead of creating shared sacrifice, you’ve created the haves (businesses who don’t have to pay Free Rider) and the have-nots (businesses who do).  As usual, this game is rigged for the “haves.”  Talk about being anti-competition.

Looks good on paper.  Doesn’t solve the problem.  And, even worse, creates a whole new set of perverse incentives and inequality.  And it’s no wonder – as Howard Dean has taken to saying about the health care debate, “If you’re focused on solving the problems of the United States Senate, you’re not focused on solving the problems of the United States.”

(Photo credit:  talkradionews on Flickr.)