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A Free Ride for Business Under Health Reform

The health insurance reform bill passed by the Senate just before Christmas is so big and so tall, to paraphrase the Cat in the Hat, that it's impossible (for a reasonable person) to understand, all in all. So let's look at a little piece of it -- the "employer mandate" -- which may have the horrifying effect of transforming many full-time workers into part-timers. At least, so says a paper from the Center for Economic and Policy Research, a Washington. D.C. think tank with a couple of Nobel laureates on its board.

To make health-insurance reform fair and workable, everybody has to share the costs -- employers, individuals and the government. Under the current system, many people are "free-riders." They carry no insurance, either because they can't afford to buy it or because they simply don't feel like spending the money. When they get sick, they turn up at hospital emergency rooms, and if they can't or won't pay, the rest of us pick up their bills in higher hospital costs (hospitals have to get the money somewhere) or in higher taxes for Medicaid, the government's health insurance program for the poor. Similarly, businesses that fail to provide health insurance also get a free ride. Their employees must pick up the entire cost of their health insurance or go on Medicaid if they're eligible.

Health insurance reform is supposed to correct all that. In the Senate bill, however, employers could easily get a free ride, actually more than one. Here's how it works -- it's wickedly complicated, so hang in there. First, employers are not required to provide insurance to employees with family incomes below 133% of the federal poverty line. That's an annual income of $29,392 for a family of four which comes out to wages of about $14 an hour -- more than most retail clerks earn at Home Depot, Target or Walmart. Nor do employers have to provide insurance for employees with family incomes that are more than 400% of the poverty line ($88,200 for a family of four), although most do. What about those with incomes between 133% and 400% of the poverty line? "There is an employer responsibility, but it is limited to full-time employees," writes Shawn Fremstad, the study's author." And, it's up to the employer to define full-time.

Where's the free ride? In my view, there are three. Employers are completely off the hook for workers whose family incomes are less than 133% of the poverty line. Yes, those folks can go on Medicaid, but why should they have to if they're working? And why should the rest of us have to pick up the cost?

The second free ride involves the penalty assessed on employers who don't provide health insurance. It's $750 per year per full-time employee. I would like to know where anybody can buy a decent health insurance policy for $750 a year. According to a study by the Kaiser Family Foundation, the average premium for a family policy came to $13,375 in 2009. Guess who would wind up paying the difference between the penalty and the actual cost of health insurance? The individuals who buy the policy and taxpayers.

The final and most insidious effect of this employer mandate is the incentive the legislation would give employers to increase the number of people they employ from the "responsibility category (the 133%ers to 400%ers) to the "no responsibility" category (the under 133%-ers), which would free them of the obligation of providing anything. The Senate bill gives employers two easy ways to accomplish that goal: Shift full-time employees to part-time; or pay wages low enough to allow an employee to qualify for Medicaid.

Would they do that? You tell me.