Cost and Coverage: The Impact of Implementing Various State Health Care Reform Proposals Nationally. Existing Employer Mandates


Two states and one locality have successfully legislated and implemented employer mandates. 

Hawaii.  The oldest employer mandate that is still in place is in the state of Hawaii.  In 1972 the legislature passed the Prepaid Health Care Act that requires certain employers to purchase health insurance for all employees who work at least 20 hours per week.  Exempt employers include government entities and small family businesses.  The mandate is enforced through audits, employer reporting, and data matching, and the penalty for noncompliance is the greater of $25 per day or $1 per day per employee not in compliance (Glied, Hartz, & Giorgi, 2007).

Hawaii’s employer mandate does not violate ERISA because it received a special exemption granted by Congress.  Even with the mandate, however, Hawaii still has an uninsured rate of 8.6% (CPS, 2007).  This is because the mandate does not reach all uninsured populations, but rather focuses on full-time workers, and therefore does not create universal coverage in the state.

Massachusetts.  In 2006 Massachusetts passed a comprehensive health reform bill that included an employer mandate.  While it is technically a pay-or-play mandate, because the penalty amount for not “playing” is so small and not tied to payroll taxes it is referred to instead as a “fair share contribution” or an assessment.  Employers with 11 or more full-time employees are required to have 25% of their employees enrolled in the employer-sponsored health benefit plan and pay for at least 33% of premiums (Marathas, Rachal, & Montgomery, 2008).  If they do not meet these requirements, employers are required to make an annual “fair share contribution” of $295 per employee.  While technically this requirement could be challenged as a violation of ERISA, no such challenge has yet to be made, possibly because of the relatively low amount of the fees leading the business community to not object.

Massachusetts also requires all employers that have 11 or more employees and do not pay the full cost of health care premiums for employees to establish Section 125 plans so that their employees can purchase health insurance with pre-tax dollars.  In addition, employers face a “free-rider” surcharge if their employees use a significant amount of health care services provided through state-funded programs.  The surcharge amount is determined based on the number of employees, the number of visits per employee, the cost of services per employee, and the percentage of employees enrolled in the employer-sponsored plan.

San Francisco.  Also in 2006, San Francisco became the first city to mandate that employers make health insurance payments.  The city ordinance requires that for-profit firms with 20 or more employees and non-profit firms with 50 or more employees make health insurance payments on behalf of any employee who has worked for the firm for 90 days or longer, works a minimum of 10 hours per week, and is located within the boundaries of the city and county of San Francisco.  The ordinance requires an expenditure rate per employee of $1.17 per hour for firms with 20 and 99 employees and $1.76 per hour for firms with 100 or more workers, beginning April 1, 2008.  The ordinance further requires that as of January 2009 the rates increase to $1.23 per hour for firms with 20 to 99 employees and $1.85 for firms with 100 or more employees.

Failed attempts.  Several states have enacted and then repealed employer mandates in the past 20 years.  Massachusetts, Oregon, Washington State, and California all passed legislation mandating employers to provide or contribute to the purchase of health insurance coverage for employees that was repealed before being enacted.  While Massachusetts recently passed another employer mandate that has thus far been successfully implemented, California attempted for a second time in 2007 to pass an employer mandate but the legislation failed to garner enough support.

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