The folly of health insurance mandates

Legislation has been proposed in several US states to impose a play-or-pay mandate – requiring employers either to offer group health insurance or to pay into a government fund that subsidises health coverage. Thus far, the city of San Francisco and the state of Hawaii are the only governments that have imposed such mandates – San Francisco, because of a favourable appeals court ruling, and Hawaii because of an exemption from federal law, says Devon Herrick, a senior fellow with the National Center for Policy Analysis.

Employer mandates are a tax on employees, says Herrick:

  • Benefits substitute for cash wages in a worker's compensation package.
  • If workers are unwilling to forgo wages in return for health insurance, firms are unlikely to offer coverage.
  • Forcing employers to provide health benefits to workers who are unwilling to bear the premium costs themselves is tantamount to a tax on labour, forcing employees to accept a health insurance fringe benefit in lieu of wages.
  • This doesn't make coverage more affordable, instead, it forces employees to bear the cost – whether they like it or not.

    Employer mandates are limited by federal law, says Herrick:
  • Another problem with play-or-pay mandates is that most large employers are exempt; the mandate can be imposed on businesses that purchase health insurance coverage in the small group market.
  • However, the federal Employee Retirement Income Security Act (ERISA) precludes state and local governments from regulating the health plans of employers who self-insure — that is, pay their employees' health claims themselves.
  • ERISA is the basis for an ongoing court challenge to San Francisco's employer mandate.
  • Hawaii is exempt from ERISA because its employer mandate was enacted before the federal law, however, the state still has a significant percentage of uninsured residents, and health insurance is just as expensive as in other states.

    Source: Devon Herrick, The Folly of Health Insurance Mandates, National Center for Policy Analysis, Brief Analysis No. 652, April 9, 2009.

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    FMF Policy Bulletin/ 14 April 2009
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