Cost and Coverage: The Impact of Implementing Various State Health Care Reform Proposals Nationally. Modest Fair Share Assessments

06/01/2008

With assessments this small, workers of firms who pay the assessment are not automatically enrolled in an alternative plan.  Assessments of this level do not generate enough revenue to cover enrollment into alternative insurance programs.  Therefore, the reduction in the uninsured is fairly low, and the cost of the program is really born by employers and revenue generating for the government.  

Coverage impact.  An employer mandate with an assessment of $295 per employee for firms with 11 or more workers would result in a net reduction in the uninsured of 900,000 (Figure 5).  An additional 300,000 individuals would drop non-group coverage in order to enroll in an employer plan, resulting in 1.2 million people newly covered by ESI.  Approximately 200,000 employees would take up coverage newly offered by firms that did not previously offer but implement a health insurance benefit as a result of the mandate, while approximately 700,000 previously uninsured individuals gain coverage as a result of an employer expanding coverage to part-time workers.

An employer mandate with an assessment of a 4% payroll tax for firms with 11 or more workers would result in a net reduction of the uninsured of 1.1 million, only 200,000 more than the $295 assessment.  As mentioned, a mandate with a fairly small penalty such as this does not create a significant reduction in the uninsured.

  $295 per Worker per Year 4% Payroll Tax
Figure 5. Changes in Enrollment under an Employer Mandate with Various Employer Assessments (in millions)
Number of People Newly Covered by Employer by Prior Insured Status 1.2 1.5
  Previously Uninsured 0.9 1.1
  Previously Non-Group 0.3 0.4
Number of People Newly Covered by Employer by Employers Insuring Status 1.2 1.5
Currently Insuring Firms Offer Coverage to
  Part-time Workers
1.0 1.0
  Previously Non-Insuring That Now Offer Coverage 0.2 0.5
Net Reduction in Uninsured 0.9 1.1
Source: Lewin Group estimates using the Health Benefits simulation model (HBSM).

Cost impact.  This type of health reform initiative costs money for employers instead of the Federal and state governments.  An employer mandate with an assessment of $295 per employee for firms with 11 or more workers would generate net Federal revenue of $3.1 billion and achieve net state savings of $100 million, generating total government revenue of $3.2 billion (Figure 6).  A mandate with a 4% payroll tax assessment for firms with 11 or more workers would generate net Federal revenue of $7.4 billion while costing states $300 million, generating total government revenue of $7.1 billion.  With a 4% payroll tax, a significant number of employers elect to offer coverage instead of paying the tax, resulting in reduced wages.  The effect of the reduced wages is substantial enough that states experience reduced income taxes, resulting in the mandate costing them more than they save in other state programs.

Employers, on the other hand, would see increased costs with a mandate and this level of penalty in place.  Under an assessment of $295 per worker, employers would spend an additional $6 billion a year, while under a 4% payroll tax they would spend an additional $14.6 billion. 

Previously uncompensated care costs would decrease by $400 million under a modest employer assessment.

  $295 per Worker per Year 4% Payroll Tax
Figure 6. Summary of Public Program and Employer Costs under Various Employer Assessment Amounts (in billions)
Net Public Costs ($3.2) ($7.1)
Spending by Program
Federal Government Costs ($3.1) ($7.4)
   Employer Assessments ($3.2) ($11.7)
   Tax Revenue Loss/(Gain) Due to Wage Effects $0.1 $4.3
State and Local Government Costs ($0.1) $0.3
   Other State and Local Programs ($0.1) ($0.2)
   Tax Revenue Loss/(Gain) Due to Wage Effects $0.0 $0.5
Change in Spending for Employers a/
Change in Spending for Employers $6.0 $14.6
   Currently Insuring Firms $2.5 $2.6
   Previously Non-Insuring Firms $3.5 $12.0
Uncompensated Care
Net Reduction in Uncompensated Care ($0.4) ($0.4)

a/ Includes public and private employers.

Source: Lewin Group estimates using the Health Benefits simulation model (HBSM).

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