Last week the U.S. Senate Health, Education, Labor and Pension (HELP) Committee released a new version of its part of health reform. In the Senate, the HELP committee shares the health reform jurisdiction with the Senate Finance Committee, which has jurisdiction over Medicare and Medicaid. So some important components, like a Medicaid expansion, are absent from the HELP draft.
On the House side, the three committees have produced a joint discussion draft, called the Tri-Committees draft. It provides an interesting contrast to the two Senate versions: the employer obligation is more effective while the individual obligation is more affordable than either of the proposed Senate versions.
Employer responsibility and individual responsibility are linked: employers that provide better coverage make it easier for individuals to meet the individual mandate. If the employer requirement is low, then public programs or the exchange picks up the difference between what the employer does and what the individual can afford.
In the Senate HELP version, the employer obligation is modest while the individual obligation is substantial.
Unlike most of the reform proposals in California, but similar to Massachusetts, the HELP proposal imposes an employer “responsibility” assessment of $750 per year per full-time worker and $375 for each part-time worker unless the employer pays 60% of the premium for qualifying coverage.
The HELP proposal entirely exempts employers with fewer than 25 full-time employees (with no limit on part-timers). And it creates a small business tax credit for employers with 50 or fewer full-time employees with wages averaging $50,000 or less.
What a bonanza for restaurants and retail—especially for fast food and smaller retailers. And these are precisely the industries where employees are least likely to be offered coverage.
Why? Because the definition of full-time employee is 35 hours per week.
An employer could have literally 200 employees but so long as only 25 of them worked more than 35 hours per week, the employer would be exempt from the employer obligation—but eligible for the “small business” tax credit. Who would have a workforce that looks like this? A restaurant, a fast food place, smaller retailers.
Do WalMart and Macy’s win, too? For every employee that works less than 35 hours per week, and that is a lot of people in retail, the obligation is only $375 for the entire year. That is $31.25 per month. That is far less than the cost of private health insurance, it is even less than what California spends on Medi-Cal for working moms. Is it more than big retailers like Macy’s and WalMart do today?
The HELP version applies this requirement to every month worked: that means that the waiting periods for coverage that are common in both restaurants and retail, notoriously stretching to over a year in some instances. That will cost Wal-Mart and Macy’s something.
The CBO modeling does not appear to us to take into account the likely labor market dynamics—a fancy way of saying that lots of jobs without benefits that are full-time will become part-time if the HELP bill gets enacted.
Maybe such an approach made sense in Massachusetts where 68.3% of the under-65 population got their insurance on the job and very few purchase individual coverage. But it never made sense to us in California where only 54.7% of those under 65 get their coverage through employment—much less in LA County where only 48.8% gets coverage through the job.
In contrast, the House version includes both a more substantial employer contribution and one less likely to create labor market distortions. The House version requires large employers to contribute at least 72.5% of individual coverage or 65% of family coverage for each employee with a pro-rata share for part-timers or to contribute 8% of payroll for each employee.
The House version’s scaling of the contribution means that there is no incentive to create part-time jobs to avoid the obligation. The House version also says that it will exempt small business but does not yet define that exemption. It provides a tax credit to small businesses, with 25 or fewer employees making average wages under $20,000. The House version counts any employee who makes more than $5,000 annually, plainly including part-timers.
The House version minimizes labor market distortions in terms of part-time/full-time work. If a restaurant needs part-time employees because of the lunch rush or a retailer needs to staff up during the holiday season, that business can hire the part-time workers it needs and pay 8% of payroll into the exchange which will provide coverage for these part-time or part-year workers.
We are still waiting for CBO scoring on the House version but the 8% of payroll will create a meaningful employer responsibility contribution, especially in those industries such as retail and restaurants with substantial shares of low-wage and part-time workers.