Dec 10, 2009

The Senate Free-Rider Provision or: How in trying to reform health care we could end up with a part-time America

Senate, what on earth is up with the Free-Rider provision in the health care bill?

In the spirit of an encouraging friend offering constructive criticism on decisions that could lead to potentially harmful and unintended consequences (like the time in college when my roommate wanted to sink her life-savings into an industrial dump truck on eBay), we think it is about time to sit down, put the kettle on, and have a heart-to-heart.

In a nutshell, the Free-Rider provision states that employers who don’t offer good coverage pay a fine if their workers qualify for subsidies to buy coverage in the insurance exchange.

Now for the problems:
  1. Companies don’t have to pay fines for part-time workers
  2. Companies don’t have to pay fines for workers eligible for Medicaid
  3. Companies only have to pay a fine for workers receiving subsidies to buy coverage the insurance exchange.
  4. The standard for “good coverage” that an employer must offer to avoid paying fines is ridiculously low.

Problem #1: Say you are the owner of Spend-A-Lot Stores and you need to cut costs. Health care is a huge expenditure for you, but you find that if you shift more workers to part-time, you can avoid having to pay for good benefits without having to pay fines. Your arch-nemesis, Fantabulousamazing, Inc. believes in investing in its workers and does offer good health plans. Now responsible Fantabulousamazing is at a disadvantage to your unscrupulous business practices, thus defeating the entire purpose of the provision.

Not only that, but workers in the community who were barely getting by on the wages at Spend-A-Lot now can’t get enough hours to pay the bills and are stuck without access to health care.

Problem #2: If workers qualify for Medicaid, Spend-A-Lot doesn’t have to pay fines for not providing good coverage because the workers won’t be buying insurance in the exchange.

Increase the number of workers on Medicaid = decrease health care costs = keep wages low enough for workers to qualify = further erode the middle class jobs offered by Spend-A-Lot.

Problem #3: By hiring workers who would not qualify for subsidies on the exchange, Spend-A-Lot can reduce the amount of fines incurred by not offering quality health coverage.

Workers not eligible for Medicaid who also do not qualify for subsidies would include those who are covered under their parents plans, older workers eligible for Medicare, and married workers whose spouses offer adequate health plans.

Center for American Progress sums it up pretty well:

Thus, counterintuitively, a “free rider” provision would penalize—and thus disincentivize—employers from hiring workers eligible for premium subsidies: low- and moderate-income individuals. This is a great concern for single mothers in particular, who could be penalized as less attractive hires.

Problem #4: If Spend-A-Lot offers really terrible coverage to workers, the definition of adequate coverage in the provision is so loose that a large share of the burden for health care costs can still remain on the workers while Spend-A-Lot doesn’t have to pay any fines at all. Now workers are left unable to qualify in the exchange and with coverage that will stick them with huge medical bills that they can’t afford.

On Tuesday, we released a report examining the impact of the provision on Walmart workers. Granted, we are not fans of Walmart in general because of its history of poor behavior when it comes to workers, but it also happens to be the largest private employer in the U.S.

The results? To maximize profits, the provision creates the incentive for Walmart to shift to part-time and to keep wages low and workers dependent on public programs. If a bad actor as big as Walmart can slip through the loopholes, what does that say about the bill’s ability to bring down health costs nationwide?