The best way to fix the employer mandate

The employer mandate is likely to be the first big issue in the Affordable Care Act (ACA) that actually gets a bipartisan makeover. But right now, the odds are that a fix will go in the wrong direction. It doesn’t have to. There’s a simple reform to the employer mandate that would address its immediate shortcomings and be a good solution for the long-term changes we need in the way we pay for healthcare.

The Obama administration first delayed and then decided to phase in the employer mandate, which requires firms with more than 50 employees — only 5 percent of all businesses — to pay a portion of health coverage for employees who work 30 hours a week, or pay a fine.

{mosads}Numerous bills introduced by Republicans in both houses would repeal or delay the employer mandate. Recently the Urban Institute, a liberal think tank, weighed in on the side of eliminating the mandate. The Urban Institute calculated that doing so would have only a small impact on the number of people who are uninsured — between 200,000 and 500,000 — as Medicaid and individual coverage would enroll many of those who would not gain employer coverage under a mandate. But the 10-year cost would be $130 billion — not chump change.

There are also several bills, with bipartisan support, for changing the definition of employees for whom coverage must be paid for, to those who work 40 hours instead of 30. While this would remove the incentive to keep employees working under 30 hours, it would also push employers to shave time off the workweek of 40-hour employees.

There are two big problems with eliminating the mandate, or allowing employers to cover even fewer workers. One, doing so flies in the face of the evolving changes in the labor force, where most new jobs are being created in the low-wage industries, which are now most likely to not offer coverage. As a result, eliminating the mandate will over time impact a growing portion of the labor force. Two, eliminating the mandate shifts more of the cost of paying for coverage to government and individuals, letting employers off the hook.

The corporations that would be happiest to see the employer mandate go would be the nation’s large low-wage employers, the same firms that pay the minimum wage, rely on part-time workers and don’t offer health benefits. These firms are leaders in a national trend, accelerating post-recession, in which most new jobs pay low wages with few benefits. If the nation’s economy is going to move forward, we need to require these firms to pay decent wages and benefits, so their workers earn enough to live the middle-class lifestyle needed to power the economy.

There is a simple solution, one that was included in the version of the ACA enacted by the House in 2009. Employers that decide not to provide health coverage for their employees should be required to pay a percentage of payroll as a tax to cover healthcare, just like employers do now for FICA (Social Security and Medicare).

This form of employer mandate has a number of important advantages over the current law. First, there is almost no incentive to hire someone for less than 30 hours or to stay under 50 employees. The amount paid is simply a function of gross payroll. Second, it provides a more affordable alternative to paying health premiums for low-wage workers. That is because health premiums are a much bigger share of a low-wage employee’s payroll than a higher wage employee’s. Third, it would raise $107 billion more than the current employer mandate, according to the Congressional Budget Office score of the 2009 House bill, compared with the Senate bill that became the Affordable Care Act.

This better-designed employer mandate will not only improve the quality of low-wage jobs by including part-time workers, but will also stop the shift of costs from big low-wage employers to their workers and the government. Already, many of the employees of these firms qualify for programs like the Supplemental Nutrition Assistance Program (SNAP) and Medicaid. Employers should share responsibility for helping to pay for coverage, not shift even more of their obligations to government and their employees.

We need to fix the employer mandate in a way that restructures, instead of accelerates, a new economy that is increasingly characterized by low-wage, no-benefit work. Stopping the employer mandate only makes that economy worse for workers and taxpayers. But giving firms the option of paying a payroll tax instead of providing health coverage makes the financing of health coverage more affordable to low-wage firms, while keeping them responsible for paying for a share of health benefits. It immediately ends concerns about firms pushing more workers into part-time jobs. And it is a foundation for a future healthcare financing system, which provides broad-based financing for health coverage in the 21st-century economy.

Kirsch is a senior fellow at the Roosevelt Institute and a senior adviser to USAction. Follow him @_RichardKirsch.