The Affordable Care Act's Employer Penalty Gap
Along with the scandalous number of the uninsured, one of the biggest healthcare outrages in the United States has been the ability of large companies employing low-wage workers to avoid providing decent group coverage, letting those employees enroll instead in public programs such as Medicaid.
Those programs were meant for poor people not in the labor force or those working for marginal employers. In the absence of any legal obligation to provide workplace coverage, giant corporations such as Wal-Mart exploit the public programs and thus shift costs onto taxpayers. A recently updated report by the Democratic staff of the U.S. House Committee on Education and the Workforce estimates that the workforce of a typical Wal-Mart Supercenter costs taxpayers some $250,000 a year in Medicaid costs.
One might think this is going to change under the Affordable Care Act that is gradually taking effect. While the law contains a requirement for individuals to have coverage, there is no real employer mandate to provide that coverage to workers. Instead, the ACA imposes penalties on certain employers for failing to provide affordable and inadequate coverage. Yet there are no fines levied when a boss pushes a worker onto the Medicaid rolls.
In fact, the ACA’s provisions encouraging states to expanded Medicaid coverage, while a good thing for the uninsured, will make it easier for low-wage employers both to avoid providing group coverage and to escape penalties for that refusal. This is worth keeping in mind when businesses complain about the supposedly onerous employer penalties in the ACA—penalties whose implementation the Obama Administration announced in July will be delayed for a year.
The ACA’s employer penalties have a very narrow scope. They will apply only when an employee of a firm with 50 or more full-time workers (the law’s definition of a “large” employer) seeks non-group coverage from an insurance company through one of the new state Exchanges and the employee qualifies for a premium or cost-sharing subsidy based on his or her household income. Those individual subsidies are available only for workers whose household income is between 100 and 400 percent of the federal poverty line (FPL) for their family size and whose employer either fails to provide any group coverage or provides coverage that is unaffordable or inadequate.
This means that employers of people earning less than the FPL or more than 400 percent of the FPL face absolutely no risk of penalties for failing to provide decent coverage, while the workers in those income ranges are denied subsidies from the Exchanges. Those earning less than the FPL may or may not be eligible for Medicaid, depending on the state. Those earning more than 400 percent of the FPL are not eligible for Medicaid in any state.
Penalties may also not apply when “large” employers fail to provide affordable coverage to those in the 100-400 percent of FPL range. That’s because some of those workers will for the first time qualify for Medicaid if they live in a state that accepts the optional federal incentives in the ACA for expanding Medicaid eligibility.
Some concern has been expressed about the potential coverage gap for those low-income families which are not eligible either for an Exchange subsidy or Medicaid, but much less attention has been paid to what amounts to an employer penalty gap.
A primary aim of the ACA is to reduce the ranks of the uninsured, but the rejection of a single-payer system means that workplace-based coverage needs to be strengthened. That should have meant a rigorous employer mandate. Instead, the ACA went with a pay-or-play system whose penalties turn out to be full of holes. Companies such as Wal-Mart may thus find it easy to continue shifting healthcare costs onto the public.
At the state level, one of ways activists have sought to fight such cost-shifting has been to push for disclosure of data showing which companies account for the most enrollees in Medicaid and other public plans. Such lists have been published for about half the states, with Wal-Mart or McDonald’s typically appearing at the top.
The ACA will require “large” employers to file reports indicating whether they provide group coverage, but it appears these reports will not be made public. Not only does the ACA fail to impose a real employer mandate; it also misses an opportunity to shame those freeloading employers which expect taxpayers to pick up the tab for their failure to provide decent coverage to their workers.
Note: This an a shortened version of a piece originally posted in the Dirt Diggers Digest.