Health Reform: Weighing Up the Employer Mandate

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Alan Copson / Corbis

Of all the aspects of the new Patient Protection and Affordable Care Act that critics fiercely object to, few generate more ire than the mandates. The health-reform law's individual mandate — requiring every legal U.S. resident to carry health insurance (with some limited exceptions) — has prompted a multistate lawsuit challenging its constitutionality, while the requirement that employers with 50 or more employees provide coverage to workers or pay a stiff fine is despised by business groups.

The Chamber of Commerce is warning that the new rule, which will go into effect in 2014, will force companies to drop coverage or go out of business altogether. It's the "job-killing employer mandate," in the words of Republican Senator Orrin Hatch. Critics say the employer mandate will eliminate the flexibility employers have now to structure benefits — the Affordable Care Act sets a minimum baseline of coverage and minimum employer contributions to premiums.

But at least in San Francisco, where an employer mandate was instituted in 2008, most business owners are embracing the new rule and reporting it's had little impact on their operations. A new analysis of the city's mandate, written by three economists, reports that although three-quarters of employers were forced to bump up their health-insurance spending, 64% still support the law. "Employers have found that it's actually become easier to pay for it than they thought," says Arindrajit Dube, one of the authors and a labor economist at the University of Massachusetts at Amherst.

That's not to say that the mandate hasn't been a point of contention. In fact, the long-term viability of the San Francisco employer mandate was in doubt until June when the Supreme Court declined to hear a case challenging its legality. The Golden Gate Restaurant Association had filed a lawsuit saying it was illegal for the city to impose an employer mandate and argued the rule would hurt its businesses.

But according to the new report co-authored by Dube, 61% of San Francisco restaurants are very or somewhat supportive of the mandate. This may be because restaurants in the city have found a way to pay for their increased benefit costs without absorbing the expense: many have added a 3% to 4% health care surcharge to customers' bills. In addition, at the same time that the mandate was passed, a de facto public option was implemented. Employers that opt not to provide coverage must pay $1.23 to $1.85 per hour per worker to help fund the public plan. This public option, which only covers care from some doctors and facilities in the city of San Francisco, has proven popular with employers, with 21% using it for workers. Already the San Francisco public option has enrolled a majority of the city's previously uninsured residents, more than 50,000 people. And according to a survey conducted by the nonpartisan, nonprofit Kaiser Family Foundation, 94% of those participating in the program are satisfied with the results.

While many critics may suggest that San Francisco's liberal politics make it less than an ideal laboratory to test the success of an employer mandate, Dube says this is a red herring. "Employers certainly didn't go into it thinking it was a fantastic thing just because we're all liberals in San Francisco," he says. After all, the city's minimum wage — $9.79 per hour compared to the federal level of $7.25 — already puts employers in a tighter spot financially than those elsewhere.

San Francisco is not the only place that's testing an employer mandate ahead of the new federal rule's implementation four years from now. Hawaii launched a mandate in 1974 and Massachusetts did so in 2007. In both states, the mandate has successfully lowered the rate of the uninsured far below the national average, without substantially adversely affecting businesses.

Hawaii's rule, which only applies to employees working 20 or more hours per week, has made the state second only to Massachusetts in providing near universal coverage. Just 8% of Hawaiians lack insurance, compared to 15% nationwide.

Massachusetts has the highest rate of insurance, at about 95%, despite an employer mandate that's actually fairly weak. Businesses need only pay about $300 per year for every uninsured worker. Perhaps as a result of this small penalty, the Boston Globe says it's found anecdotal evidence that employers are eliminating coverage and paying fines instead, a concern some experts have about the federal mandate as well. When this happens in Massachusetts, employees are often rerouted to Commonwealth Care, a state program in which residents can buy publicly subsidized private insurance. All is not perfect in Massachusetts, however. Costs for medical care and insurance are rising and a crush of newly insured residents is taxing the state's supply of doctors.

No one would argue that the success of a small-scale employer mandate means such a requirement will gain corporate fans on the national level. Private health care spending in Hawaii, for instance, is lower than it is in most other places due to the more active lifestyle of residents, a large military presence that provides federal coverage to many Hawaiians and the state's remote location. While many hospitals on the mainland build high-tech, expensive facilities to attract patients from out of state — driving up spending — this is impossible in Hawaii.

Democrats who designed the new health-reform law included an employer mandate, in large part, to shore up the existing system of private insurance. Some 160 million Americans get coverage through their jobs now and, while this system is far from perfect, the employer mandate means it will remain stable.