What About The Affordability Of Mandated Private Employment Based Coverage?
Employers, even very small ones, can now buy coverage for their employees regardless of health status. This is because of the guaranteed issuance of coverage for small businesses in California. When Governor Davis was about to be recalled, he signed SB 2, which was an employer mandate. He signed it so that full-time employees would or could have had employment-based coverage if they worked for a medium-sized employer. If they worked for a large employer, the whole family would have been required to be covered. But the voters narrowly repealed the law the next year before it could even be implemented and then tested in the courts.
Massachusetts had a “pay or play” requirement for employers to offer coverage that it passed in the late 80’s during Governor Dukakis’ third term. It also served as the Governor’s springboard for the 1988 presidential campaign. This was never implemented, because his successor, Governor Bill Weld, and the state legislature repealed Massachusetts’ pay or play tax (also called a fee or assessment) on employers.
The difficulty with SB 2 and some other versions of “pay or play” for lower income working families and employers of all sizes with low wage workers is that family coverage costs nearly three times as much as employee-only coverage. So, if employee only coverage is $4,000, then coverage for all family members is $12,000. And the tax subsidy undergirding employment-based coverage is terribly regressive, as I’ll discuss in a moment.
Let’s see how that works, assuming the family earns just a bit over $21,000 – 100% of the Federal Poverty Level for a family of four. On average, their private family coverage costs $12,000. So, that’s about 60% of their income, unaffordable for individuals purchasing individual family coverage. It is also very expensive for employers and employees.
What about the tax subsidy for employment-based purchasing, you might say? The tax subsidy gives pre-tax dollar purchasing. That subsidizes about 50% of the costs of employment-based coverage if the employees are in the top federal and state income tax brackets, but probably only about 8% of their costs of coverage if their earnings are just above poverty. That’s why it is regressive.
Really think about that odd and regressive $300 billion tax policy for one moment. We recently looked at ten other countries and found none that subsidized coverage more for those who are better off than those who are worse off.
If we want to go the route of mandating the purchase of employment-based private insurance without fixing the regressive tax code subsidy, we are going to have to find a whopping big subsidy to make coverage affordable for lower income families. If we expand public coverage, which is a better option for lower wage working families, we will have federal financial participation through Medicaid and SCHIP. But, we will still need to find a state match, which is a little tough here in California, especially this year.
An intermediate approach is to “mix and match” public and private funds. Use the federal match through Medi-Cal and Healthy Families, and take something from the employer, something from state and local government, and a little something from the employee. It is a lot easier to describe than it is to actually do, but it is the right approach to solve affordability for working families. I should note that this could be challenging to implement because of all the moving parts.
My vote would be to fix the tax policy so it appropriately subsidizes those who need it most. This is politically very tough sledding; labor and business will need to strongly support such a change for it to have a reasonable chance of passage.
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