THCB

It’s Past Time to End the Employer Mandate

flying cadeuciiThe New Year always brings many changes.  In addition to soon to be broken resolutions, this particular year ushered in strict mandates requiring employers with more than 100 full-time employees to either provide health insurance to those employees or pay fines of between $2000 and $3,000.  We’ve seen many firms  publicly respond to this by cutting benefits to part-time workers.  Despite the criticism that often accompanies these decisions, in many, if not all, of these cases this move benefits employees. Without the offer of employer-provided insurance they get access to the ACA exchanges.

Part of the criticism stems from the implicit belief that firms “give” benefits to their employees out of some form of philanthropy.  These benefits are just a tax-preferred (though not really for low-income employees) form of compensation, and research shows that increases in benefit costs result in lower wages for employees.  The firms that have cut benefits will either increase wages or lose a lot of employees. (If they cut benefits, do not raise wages, and do not lose workers, then they must not have been profit maximizing to begin with; we highly doubt that firms like WalMart would have knowingly forsaken an opportunity to maximize profits.)

As the employer mandate has been phased in since the passage of the ACA, we have seen an increasing focus on the artificial distinction between full and part time employees.  Firms are only responsible for fines based on how many full-time employees don’t have access to insurance and a compilation of anecdotal evidence suggests that employers have responded by placing strict caps on the number of hours their employees can work.  Suggestive evidence of this being a widespread phenomenon can be seen in this analysis of CPS data, which shows an increase in the number of part-time hours working below 30 hours per week.  While there are many things that could be causing this shift, the timing strongly suggests that hand of the ACA employer mandate at work.

Most recently, news emerged that Staples has threatened to fire any part time employee that works more than 25 hours per week.  To be fair, Staples executives claim that this is simply a reiteration of a long-standing rule though the timing suggests that stricter enforcement of this regulation is likely related to the large fines that Staples would face for part-time employees that cross the artificial 30 hour barrier.  In a recent interview, President Obama was none too pleased about this announcement:

“I haven’t looked at Staples stock lately or what the compensation of the CEO is, but I suspect that they could well afford to treat their workers favorably and give them some basic financial security. It’s one thing when you’ve got a mom-and-pop store who can’t afford to provide paid sick leave or health insurance or minimum wage to workers — even though a large percentage of those small businesses do it because they know it’s the right thing to do. But when I hear large corporations that make billions of dollars in profits trying to blame our interest in providing health insurance as an excuse for cutting back workers’ wages, shame on them.”

Shame on you Mr. President. First, Staples is only doing this because of your policies.  And who can blame them for reacting like this. Staples isn’t earning “billions” in profits per year. They are competing in a world of online commerce where their competitors don’t have the same large retail workforce (though much of their business appears to be shifting out of the retail setting as they shutter hundreds of stores.) Finally, it should be noted that recent research finds that these larger employers are already offering higher wages than “mom and pop” stores.

These points aside, the President’s statement is either disingenuous or belies a willful ignorance of how and why private employers provide benefits to their employees. Benefits are not something that private firms owe to their employees, instead they are part of a compensation package that is determined in the marketplace.  These benefits are provided by employers because of the combination of a historical accident of post-WWII price controls, the tax-preferred status of these benefits, and the benefits of risk pooling in the employer setting in a world where people don’t have to purchase insurance.  Most economists believe that this employer sponsored insured (ESI) is inherently inefficient, and recent research by Garthwaite and his co-authors shows that is distorts the labor supply decisions of many Americans.

In this setting, what we are actually talking about is not just the provision of benefits but limits on how many hours employees can work because of a new explicit mandate in the ACA.  This is just further evidence that the employer mandate is causing far more harm in the labor market than good.

While we have been critical of many aspects of the ACA, one facet we clearly support is that it represents the first realistic opportunity to move away from the distortions of ESI.  By forcing people to purchase insurance and imposing an increasingly binding tax on “high dollar” benefits, the ACA limits the main benefits of ESI.  However, it then includes a counter-productive mandate that forces employers to offer benefits and distorts the number of hours that employees work.

Rather than lecturing CEOs that are acting in the fiduciary interest of their shareholders, the President should show the courage to end the employer mandate.  It will surely not be popular among many of his most liberal supporters, but it ultimately will make the ACA more effective.

The authors are economists at the Kellogg School of Management.

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Barry Carol
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Barry Carol

I see the advance directive issue as most important for the elderly as 75%-80% of all deaths each year strike the 65 and older population. Moreover, someone who receives a cancer diagnosis, for example, may have very different goals if it happens in middle age vs. old age. One piece of good news about this is that there is usually plenty of time to address the issue following a diagnosis of cancer, congestive heart failure, end stage renal disease, MS, Parkinson’s, Alzheimer’s and dementia. I think the medical profession could do a much better job, however, in drawing patients out… Read more »

John Ballard
Guest

This comments thread has drifted way far from the subject of the post. It’s time to either close comments or get them back on track. It’s great fun, but as one of the worst offenders, I plead guilty of drifting so I’ll stop. Surely we all have other matters to attend.

Don Levit
Guest

John Ballard wrote
Money is a good motivator
And it might serve as an incentive for doctors and their staff to pursue more vigorously for their completion
I was thinking of money as a motivator for the family of the very ill person
Are you suggesting the providers get a cut of the savings?
Don Levit

John Ballard
Guest

You make an interesting point. To be clear, I’m not “suggesting” anything. I’m saying in plain language that a surcharge for those who for whatever reason do not, have not or otherwise refuse to file and maintain advance directives can act as an incentive to cause those documents to be part of everyone’s medical record. Legal safeguards in most states protect those who cannot speak for themselves (which is the aim of advance directives) but safeguards against abuse (which is what you are describing) should be part of the protocol. I’m not a lawyer, so legal guardianship may be an… Read more »

allan .
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allan .

” a surcharge for those who for whatever reason do not, have not or otherwise refuse to file and maintain advance directives can act as an incentive to cause those documents to be part of everyone’s medical record.” This doesn’t seem well thought out. Let’s take a 25 year old who is totally healthy and thinks he or she is invincible. Do you want that individual to set up and pay for a wellness appointment with a physician so the statement can be placed in the medical record? Should the 25 year old become ill do you think the advanced… Read more »

John Ballard
Guest

No,, allan, our exchange here regards people who are getting old — anticipating complications at the end of life. A good age to make them obligatory might be Medicare eligibility. (Younger people with life-threatening or terminal conditions might also consider advance directives.) In any case they should not be a once-and-done event. Advance directives should be reviewed at least every three or four years for several reasons. Medical advances may have changed, appointed agents may have died, moved or changed their minds. The person who filed the document may have changed his or her mind. That is wasted time and… Read more »

Barry Carol
Guest
Barry Carol

My primary care doctor tells me that here in NJ the end of life protocol is to do what the family wants if the patient can’t speak for himself or is not competent to do so. This is why I think it is especially important for elderly people to tell their spouse and adult children what care they want and don’t want in an end of life situation. If they feel that an actual conversation is too difficult or uncomfortable, they can write a letter or memo, sign it and give it to their family members or at least tell… Read more »

John Ballard
Guest

Barry Carol you have put your finger on exactly the right problem. I have seen it often, both in our own family and those of many seniors with whom I work. Even when someone near death knows and has accepted it, too often they cannot “get permission” from someone — typically, but not always, a family member. The result is protracted suffering for all concerned. I heard about one hospice counselor whose advice to a family waiting for the final moment was that it was okay to gather quietly around the bed, but best not to say anything or touch… Read more »

allan .
Guest
allan .

John, I didn’t see you stating an age earlier, but now that you say a senior on Medicare we can deal specifically with that individual. Should that form you want be filled out at the time of one of those wasteful wellness check-ups? Will an additional fee be charged? If the senior was in perfect health do you think that he might alter his desires on his way towards that all important bridge? Who should explain the intricacies of an advanced directive? Should we do a psych evaluation on all of them to make sure they were of sound mind… Read more »

John Ballard
Guest

allan, your questions are good ones and I don’t want to toss out glib answers. If my comment came across as patronizing, I’m sorry. My intention is simply raising awareness, nothing more. In the administrative and legal thicket of healthcare, advance directives are just another piece of grunt work that anyone can do. No need to over-think the .matter. Just get it done. Or don’t. A signed refusal to have a directive is no different from one that spells out every detail. And if the notion of a surcharge sounds offensive, forget it. I said that mainly to bring attention… Read more »

allan .
Guest
allan .

John, we all want the wishes of the patient met so your desired end point meets mine. For some reason when we talk about healthcare we stress coercion. A person’s personal healthcare is not the place to be coercive. The individual derives benefit when he is treated in the fashion he would want. Each individual state has its own laws as to what occurs should a patient be unable to respond to the desired question.

Bob Hertz
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Bob Hertz

Note to John Ballard: Thanks for your heartfelt reflections. If everyone had a basic income, then difficult jobs would pay more than easy ones. Changing bedpans or picking crops would pay $30 an hour. while teaching art history would pay $5 an hour. The free market would actually create justice if this happened. Instead, the employers of cheap labor have gone out and found desperate workers. This is the great injustice of our time. When migrant workers were kicked out of Alabama for a time, local farmers tried offering $15 an hour but had few takers. They were so spoiled… Read more »

John Ballard
Guest

You understand perfectly, Bob. Just last week I heard a farmer here in Georgia trying to behave like a good conservative but admitting that those middle-aged guys he hired to replace the migrants run off by our tough employment requirements — those guys just couldn’t cut it and he was losing money using them.

Bob Hertz
Guest
Bob Hertz

America is hardly the first nation in history to have old persons who need daily care. Other nations have handled this through servants, slaves, and unmarried daughters.

To handle this through paid employees is very challenging as everyone points out

Bob Hertz
Guest
Bob Hertz

As Barry points out, numerous large industries in the US are built on a cheap labor model. High turnover, low wages, no benefits, etc. ACA subsidies and the expansion of Medicaid, for all their flaws, are the first federal attempt in years to help these workers. The employer mandate backfired, because the workers in these sectors have virtually no bargaining power. In a nation like France, the unions would have said, ‘OK, make us work 29 hours a week but pay us for 40.” It is a matter of the least bad solution.Putting all the restaurants and dry cleaners out… Read more »

Barry Carol
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Barry Carol

Bob, If it were up to me, I would get rid of the employer mandate but keep the individual mandate as guaranteed issue without regard to pre-existing conditions won’t work unless there is a mandate to buy insurance. Otherwise, people would just wait until they get sick to buy insurance. If both mandates are repealed, the only approach that would work would be a one-time opportunity for those with pre-existing conditions to sign up. After that, if you can’t show that you were continuously insured, you have to pass underwriting or join a high risk pool if there is one.… Read more »

John Ballard
Guest

Thanks for this. My working life in food service management gave me a deep sympathy for the working poor. They live daily with dental, medical and other challenges that would cripple others with much higher income. I sometimes wonder how they do it — but I really already know. When there are no other options, we all do what we have to do to survive. I’m still waiting, but I look for the realization that the one category of work that will never be exported is the service sector. Many jobs are highly compensated because they are require a lot… Read more »

Barry Carol
Guest
Barry Carol

John, I think one impediment to higher wages for the people you refer to is the large number of illegal immigrants in the country who are willing to work for comparatively low pay. This problem could be mitigated by enforcing the e-verify system and cracking down on employers who hire illegals. We could also alter the birthright citizenship provision of the 14th amendment to require at least one parent to be a citizen for the baby to be a citizen. This is the way virtually every other developed country in the world handles it. Under current law, anyone born here… Read more »

John Ballard
Guest

Yeah, Barry, the “illegal immigrant” trope is among several widespread explanations for low wages but the simple fact is that wages are subject to the same laws of supply and demand that affect prices. When supplies increase and/or demand drops, prices go up — and vice-versa. In the case of wages, during times of high unemployment (like we just went through) many job seekers accept lower-paying jobs just to get by, bumping others further down the scale, with those at the bottom finding that even full-time work often is not enough to cover food, shelter and transportation. Temp jobs become… Read more »

Barry Carol
Guest
Barry Carol

“I once bought the idea that increasing the minimum wage resulted in job losses, but if anything the effect is the opposite. Those at the bottom are not about to save or hold extra income for investments — their spending will accelerate the economy if anything, resulting in a more robust velocity of the money supply.” You were right the first time, John. If raising the minimum wage created jobs, then we should raise it to $25 or $50 an hour and really get the economy humming. It defies common sense. If you go to a fast food restaurant in… Read more »

John Ballard
Guest

In this case, Barry, let’s agree to disagree. I’m aware of the Euro fast food mechanization. Clark Howard described it some time ago. Besides, US-Euro comparisons have many more wrinkles than that. America will never be a welfare state or anything close, and I’m Yankee enough to be okay with that. I am impressed, however, with Nick Hanauer’s grasp of feedback loops as well as Thomas Piketty’s distinction between income and wealth. As I said, though, this thread is about health care. Macroeconomics and economic theory are best left aside. There are many links to both names for anyone who… Read more »

Barry Carol
Guest
Barry Carol

“The elephant in the room, of course, is long-term care.” I suspect that the longer term solution to the long term care issue will be disruptive innovation. Specifically, drug companies will eventually develop drugs that will either cure Alzheimer’s and dementia or at least significantly slow down or even halt its progression. Even if such a drug cost $100K per year, I would rather pay that than the cost of nursing home or assisted living care especially if the patient got a much better quality of life in the bargain. The other development I can see over the longer term… Read more »

John Ballard
Guest

@Barry Carol [I guess it’s a good thing these threads only allow three layers of replies — otherwise some would rattle on for years] Thanks for your reply. No need to chase the wage rabbit any further here, by the way. The dementia challenge is huge. Just two nights ago the evening news had yet another feature about sports-related traumatic brain injury — in this case with football but it has bigger implications. And that’s just a subset of the bigger problem. One of the odd wrinkles I sometimes think about is the famous nun’s study (Italy) which turned up… Read more »

Don Levit
Guest

Barry:
Thanks for the article about Walgreens switching from self insured to fully insured on the exchsnges
One of the reasons cited was to provide more certainty in their exposure by moving to fully insured
Walgreens may be interested in shifting their exposure of the first $50,000 to National Prosperity Life and Health
We can guarantee a 35 percent annual return on contributions to individual HRA accounts – excellerating the lowering of Walgreens exposure to NPLH
To learn more go to nationalprosperity.com
Don Levit, CLU, ChFC

Barry Carol
Guest
Barry Carol

The problem and the controversy around part-time vs. full time hours and whether health insurance is offered or not exists mainly in three industries – restaurants and bars, hotels and hospitality (including tourism), and retail trade. Wages are generally low in these industries and to the extent that employers offer health insurance at all, the coverage was often comparatively skimpy prior to the ACA. There are a few cases where coverage is reasonably generous but there are reasons that can’t be replicated by competitors. Examples include Starbuck’s which provides decent insurance to employees who work at least 20 hours a… Read more »

James Case
Guest
James Case

I completely agree with what the writer is saying in this piece. I agree because it is wrong how different companies, businesses, and firms pretty much just scam the their employees by only hiring part-time employees. Remember that with the ACA movement in effect, full-time employees who do not have enough money for insurance and health care are provided these things by their employer. The Affordable Care Act (ACA) provides Americans with better health security by putting in place comprehensive health insurance reforms that will expand coverage, hold insurance companies accountable, lower health care costs, guarantee more choice, and to… Read more »

Perry
Guest
Perry

James, ESI has only been around since the post-WWII period and on reflection, while beneficial at the time, has only served to help put us in the mess we have now. The sad part is that even with the ACA,many people can still not really afford insurance or medical care. I fear anything that is done from here on out will only worsen the situation. Tackling healthcare and doing it appropriately without causing extensive complications and confusion is a long, drawn out process that has to take in to account many consequences. Also at stake, huge amounts of money to… Read more »

John Ballard
Guest

Those who have seen this before, please forgive me, but I just have to put it up again. That last string of special interests can’t pass without notice. “…no one wants to be worse off, not patients, not the government, not hospitals, not insurers, not providers.” Certainly not, but don’t stop there. The footprint of most health care systems in America is often as big as an industrial park. There are so many clinics, labs, private practices, specialty centers, agencies, imaging centers, retail outlets selling durable equipment and disposables, pharmacies, the list is endless… And that doesn’t take in to… Read more »

Perry
Guest
Perry

John, here’s a physician’s point of view. From 100 years ago, before we had all these medical institutions and the health industrial complex, there were pretty much just doctors and patients. Most doctors just wanted to treat and help patients and be able to pay their bills and feed their families. Many took on charity cases or treated for minimal payment, or bartered. Those patients that couldn’t afford medical care for chronic serious diseases often died or if lucky received treatment from a charity facility. Of course, we know what happened mid-20th century when EPI came on the scene, and… Read more »

Barry Carol
Guest
Barry Carol

Perry, Thanks for the excellent summary of how we got to where we are. My two questions are (1) what can we do about bringing prices per service, test, procedure and drug outside of Medicare and Medicaid into closer alignment with prices paid in other developed countries and (2) what would you recommend that we do to simplify the system in a way that works for both providers and patients? I’m especially interested in your view or perception of the impact the U.S. litigation system has on overall healthcare costs from malpractice premiums to court awards to tests intended mainly… Read more »

Perry
Guest
Perry

Barry, No reply below your comment so I’ll reply up here: To answer you first question, I would say there should be some type of consensus on reasonable costs or charges for certain services, how this is done, I don’t know. I know the charge for a CT at my wife’s hospital is $4000, and the insurance company barters for almost half of that off, so what does it really cost? An MRI in the city hospital where I practice is about $1400, in the outpatient Orthopedic center is about half that. Of course, like Macy’s vs Target, the same… Read more »

John Ballard
Guest

My thanks as well for your candor and insights. I look forward to your thoughts about Barry Carol’s questions. As I read your comment I was reminded of a couple of doctors who just broke with the system and followed their own path. Dr. Rob Lambert has shared lots of posts here at THCB about his experience. And Dr. Lumi St. Clair hit early burnout and shifted gears a few years ago. In both cases the outcome has been a tough slog but deeply rewarding overall. Dr. Lumi’s blog has few enough posts to be read in a short time.… Read more »

Perry
Guest
Perry

John,

Thanks, I have read Rob’s writings on here also, and agree he has some good insights and experiences. I went a different path a number of years ago in to Occupational Medicine, but I still have close ties through friends and colleagues to Family Practice and Primary Care.

Barry Carol
Guest
Barry Carol

Perry, Thanks for taking the time to respond to my questions. Since I’m not a doctor and have never even worked in the medical field, I especially appreciate the opportunity to get the perspective of and learn from real world practitioners. I spent my career in the money management business so I’m especially interested in the financial side of medicine and its implications for resource allocation across the economy. To the extent that we can make the system more cost-effective without sacrificing quality, it could free up resources for other worthwhile and important priorities both public and private. Thanks again… Read more »

civisisus
Guest
civisisus

“Shame on you Mr. President. First, Staples is only doing this because of your policies.” Jesus, do the authors of this tripe even have any idea who was the money guy for Staples? Do I have to strap you atop the family station wagon to help you figure it out? Staples did what Staples did for more reasons than “only” ACA. Matt you have GOT to get someone to occasionally weed out some of this crap, or risk your own reputation at the hands of goobers like these Kellogg hacks. And for the clods who imagine that somehow employers are… Read more »

John Ballard
Guest

Chill, guy. Mid-terms are over. The residents now run the asylum — both houses. They mean well (I hope). They’re just trying to attack expenses from a different angle. Don’t blame Matthew. He’s just the host, trying to be polite to everybody. Pull out your copy of Desiderata and remind yourself of that line about “…even the dull and ignorant; they, too, have their story.”

Don Levit
Guest

John
Actually palliative care should be a well paid option with financial incentives for those not choosing costly care which provides little quality of life regardless of the quantity
I presented this idea at a recent conference which was received well by the stop loss insurers
Don Levit

John Ballard
Guest

You and I gave been down this road before, Mr. Levit. Surely we need not go there again.

https://thehealthcareblog.com/blog/2014/09/08/behind-the-cvs-health-decision/

I am something of an evangelist for advance directives, spreading the palliative care/ hospice gospel everywhere I go. I’m more concerned here (as at the link) with health care than insurance. Rather than repeat that other drill, it’s best we agree to disagree,

To be clear, this discussion is more about politics than health care or insurance. Let’s not get distracted.

Don Levit
Guest

Barry
Hopefully no private exchanges offer individual policies
If so those defined contributions have to be post tax according to Tim
Jost who spoke at a convention I attended this week
Don Levit

Barry Carol
Guest
Barry Carol

Don,

Walgreens (now Walgreens Booth Alliance) moved most of its U.S. employees to a private exchange structure at the start of last year. Here is a description of the approach:

http://money.cnn.com/2013/09/18/news/economy/walgreens-health/

Barry Carol
Guest
Barry Carol

One option for employers that’s starting to gain some traction in the market is offering health insurance to their employees through private exchanges. The exchange could include several carriers and several options within each carrier which would give employees a broad range of insurance choices. The employer would provide a defined contribution which would likely be sufficient to pay all or most of the cost of the least expensive plan. Employees who wanted a richer plan would pay the difference in the premium out-of-pocket. If employer provided insurance somehow went away due to tax reform or some other approach, pretax… Read more »

John Ballard
Guest

Yes, I read about private exchanges a couple years ago but haven’t heard much about them since. The idea struck me as one whose time has come, and I’m surprised there hasn’t been more discussion about them. There’s no reason that the private sector shouldn’t come up with a constructive alternative to the systems now in place, considering the tons of money and tax-advantaged arrangements sloshing around. Look how economical drugs get when places like Walmart and Target get hold of them. It didn’t occur to me that an employer contribution would get anywhere, but if you say so… No… Read more »

Saurabh Jha
Guest
Saurabh Jha

Not sure faculty at Harvard would be pleased with getting rid of ESI.

Nor will others.

It will make some people worse off, at least initially. No one wants to be worse off, not even for a nanosecond.

So, good luck!

John Ballard
Guest

Making ESI optional is not the same as forbidding it. I’m sure select groups of employees would retain it and companies would not dare retracting it. At least not right away.

Saurabh Jha
Guest
Saurabh Jha

It’s not the same as forbidding it and it need not be forbidden for it to be widely loved, including by the universal healthcare at low cost brigade.

John Ballard
Guest

Oh, I very much agree. And I’m not winning any friends by saying what I have aloud (especially now that I have matriculated safely into the Medicare ranks). But at some point the public must come to terms with the outrageous costs of health care in America. It’s bitter medicine for sure. But sooner or later it’s gonna have to happen,. The arithmetic is pretty clear that a huge chunk of the costs are incurred during the last year of life. I wish I had some idea how best to make that reality better understood, but that is a big… Read more »

Saurabh Jha
Guest
Saurabh Jha

My broader point, John, is that getting rid of ESI will be a pain for a certain segment of the population, some of who vote GOP and some of who vote Democrat.

This is not an insignificant consideration for reformers and one that means that ESI will be here to stay for the foreseeable future.

John Ballard
Guest

No doubt. Like so many obvious needs, I don’t expect to see this one met during my lifetime. (One of the under-appreciated benefits of aging is getting a realistic view of the future. The real long view runs way out past when we’re gone.)

John Ballard
Guest

I agree. I’ve been an enthusiastic advocate for ACA from the beginning, but only because it was under relentless attack from so many ignorant opponents. Many of us were disappointed all along about (1) no single-payer allowed from the start and (2) no public option when arguments were being made and lost. There was so much animosity that it needed all the support it could get. SCOTUS dealt a savage blow, but by doing so they laid bare the insensitivity of many states to the plight of their poor, uninsured people. The outcome of King v Burwell will be the… Read more »