Problems with the “free-rider” provision…

Much has been written about the free rider proposal in the Senate Finance health reform measure.

The Center for Budget Policy and Priorities points to the danger of discrimination against moderate income employees who might qualify for the credit in the exchange. http://www.cbpp.org/files/9-16-09health3.pdf

Ken Jacobs, UC Berkeley posting at the Institute for America’s Future compares the three major proposals. http://institute.ourfuture.org/

The CBO analysis of the Senate Finance measure estimates a modest amount of revenue from the free rider provision. http://www.cbo.gov/ftpdocs/106xx/doc10642/10-7-Baucus_letter.pdf

All of these analyses raise important points.

Here is what we want to focus on:

The free rider provision is easily evaded by precisely those employers who are most likely to have employees using the exchange, to wit, employers with workforces that are disproportionately low and moderate income.

Here’s why: the free rider provision only applies to employees who work more than 30 hours per week. It is entirely possible for employers to restructure work so that most low and moderate wage jobs are less than 30 hours per week while supervisors, managers, professional and even long-time employees work more than 30 hours per week. Indeed, this is already the structure of employment in large segments of retail and fast food.

And employers will figure out pretty quickly that the way to avoid paying the credit is to restructure work to be less than 30 hours per week. They will have a considerable incentive to do so: the first employee that goes into the exchange will cost them $5000 for that employee—or $400 for every employee. That is a considerable marginal increment, as the economists say, or a pretty big whack as the rest of us would say.

Is it bad for the employees? They will be eligible for the credit or perhaps Medicaid, even if they work multiple jobs, none of which provide benefits. The credit is not as generous as good employee health benefits provided by employers with high wage workforces but still the credit or Medicaid are substantially better than nothing which is all that too many low and moderate income employees have now.

But what about the taxpayer? The taxpayer will end up footing the bill for the lack of employer-paid benefits. Employers who systematically restructure low and moderate income jobs to be less than 30 hours per week will shift the costs to Medicaid and the exchange—to the taxpayer.

Health Access California promotes quality, affordable health care for all Californians.

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