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CBO Gives Us the Key to Health-Care Reform: The Employer Mandate


The big news of the morning is a new version of the Senate HELP Committee's health-care reform bill that seems to have everyone confused. The short version is this: CBO estimates that by 2019 the bill will cover 21 million people at a cost of $597 billion. But -- and this is important -- the HELP Committee's bill doesn't include the Medicaid expansion, because Medicaid is under the sole jurisdiction of the Finance Committee. But if Medicaid is expanded to 150 percent, it will cover an additional 20 million at a cost of about $1 trillion. Add in the savings that Finance is expected to get from reforming Medicare and you're looking at a bill that will cost $1 trillion to $1.3 trillion and cover 42 million people (which would mean 97 percent of the legal population in 2019 would have health insurance) by 2019.

The importance of this set of numbers can be understood only in terms of the catastrophe that was the last set of numbers. On June 15, the Congressional Budget Office scored an incomplete version of this bill. The office estimated that it would cost $1 trillion over 10 years and cover 16 million people. It would've cost, in other words, 70 percent more and covered 20 percent fewer people. The big question, then, is what accounts for the change? And luckily, there's a simple answer: the employer mandate.

The June 15th proposal didn't include an employer mandate. And without one, the news was grim: Employers would drop coverage for 15 million employees and send them to the Health Insurance Exchange where they would need government subsidies to afford health insurance. That meant costs exploded and coverage contracted. Health reform looked like a bum deal.

But oh, what a difference a mandate makes: The new version of the HELP bill includes an employer mandate for firms with more than 25 workers. Every full-time worker who isn't given health-care coverage triggers a penalty of $750. Every part-time employee not given coverage costs $375. Doesn't seem like very much, does it? But it's enough. In Massachusetts, the employer mandate has been a success with a piddling $295 penalty. Indeed, the evidence we have suggests that the small penalty creates a massive change in behavior.

And you see the result in CBO's latest score. The June 15 report estimated that 15 million Americans would lose their employer-based coverage under HELP's bill. Today's report estimates that a mere 150,000 will lose their coverage. That's nothing. And it means that a lot more Americans end up insured and the government spends a lot less in subsidies.

I'll have much more on other provisions of the bill later. But the overarching lesson of these CBO reports is simple: You can't do health-care reform -- at least not this kind of health-care reform -- without an employer mandate.

For more: See Jon Cohn's guide for the perplexed.

Photo credit: AP Photo/Harry Hamburg.

By Ezra Klein  |  July 2, 2009; 10:24 AM ET
Categories:  Health Reform  
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This is a big news and all those who criticized HELP earlier, including myself, will have to acknowledge this change. At least this is moving the debate in right direction.

Cost is still bit high for the coverage of 47 million additional people. Also the problem of counting 'saving' before it's realization is still there. It is not clear whether there is a provision to automatically control Fed subsidy to Medicaid, Medicare programs if costs spiral out (MEDPAC and legal binding even Sen. Backus talked).

But for sure better than earlier attempt where it was a disaster. At least this will put some pressure on Finance Committee proposal (and 60 Dems in Senate should further tighten the screws).

Posted by: umesh409 | July 2, 2009 11:01 AM | Report abuse

Thanks Ezra.

At first glance allowing the original scoring of the partial HELP bill seemed like a blunder, but I started suspecting it was actually a shrewd move. Senate Republicans (who don't seem very bright frankly) seized on the 18 million/$1.6 trillion and extrapolated to think that covering 48 million would take up to three times as many dollars. I saw them toss around figures of $2.3 trillion and more and blaming it all on the public option apparently not realizing that the partial bill didn't include that option to start with.

If like me you believe the key to controlling cost is precisely the public option with some sort of employer mandate you have to believe that a rescore of the HELP bill with the option added or of the House Tri-Committee bill would cut the opposition off at the knees. And that seems to be what is happening here, The 'sensible' 'centrist' minimalist position pushed by supposed deficit hawks is turning out to be more expensive than the 'radical' 'leftist' maximalist/mandate position. Hopefully making 'Government is the problem' heads explode from sheer cognitive dissonance.

BTW I don't know if you have seen this post which references a study from Heritage ostensibly showing that Medicare is more administratively inefficient than private plans.
I clicked through and the whole thing was so dishonest on so many levels while maintaining surface plausibility that I didn't even want to try to address it from my modest post in the blogosphere, but it does need to be stomped out. Near as I can see it wants to measure efficiency as cost per covered individual and opposed to cost per billing event and simply subtracts out industry profits from overall cost. But an effective push back needs to come from someone above my paygrade.

Posted by: BruceWebb | July 2, 2009 11:12 AM | Report abuse

Just a thought, but does Ezra or anybody know if the proposed penalties are to be indexed for inflation? Maybe it's just me, but it wouldn't even have occurred to me -- were I one of the Washington grandees composing this proposal -- to handle a play or pay tax in this manner. My strong intuition is that a simple percentage-of-payroll tax makes more sense, in that an inflation kicker is automatically present via the long term increase in wages. I also think it's easier to base the cutoff threshold on total payroll dollar amount (say, $500,000) rather than number of employees.

Posted by: Jasper99 | July 2, 2009 11:32 AM | Report abuse

So it's no longer as expensive for America because government's share of the bill is lower?

Meanwhile, employers will be out there passing the cost of a mandate through to employees and customers.

I knew they'd figure out a way to do it for free!

Posted by: whoisjohngaltcom | July 2, 2009 11:52 AM | Report abuse

In retrospect, I think they should make the penalties lower, because I suspect that per-capita premiums will magically appear on the market at just about whatever the price of the penalty is.

Posted by: whoisjohngaltcom | July 2, 2009 11:55 AM | Report abuse

Sorry - have no idea what this bill is about! Today, we have 42 million people who are uninsured. If this bill goes into effect, it will cover, by 2019, 21 million people for about a half a trillion bucks.

Huh? Don't understand the math at all!

And I obviously missed a big news story - why is Medicare seeing such a huge expansion?

Is the employer tax credit for health insurance premiums to remain or do we bid farewell to that rather hefty subsidy?

When employers no longer provide coverage, will they be boosting employee salaries to reflect that fact? I.E. - today, the fact that the employer pays for the employee's insurance is considered part of the employee's overall income.

So if employers no longer pay for health insurance, won't employees then get more money to then pay for the new way of obtaining health insurance?

Or will employers just pocket the difference?

Is the idea that to reform health care, no one will pay premiums any more? Government takes over completely?

None of this makes any sense to me at all. We seem to be spinning in the wind of nonsense.

Posted by: anne3 | July 2, 2009 12:14 PM | Report abuse

The Country is broke. We have an estimated 60 trillion in debt. No more trillion dollar debts. Fix Medicare and Social Security. Fix the budget and stop spending money. Where is there any discussion of cutting entitlement programs? We do not need to keep adding spending.

2010 we need fiscally responsible representatives. Vote out of office anyone that voted for the bail-out bill without reading it. Vote out of office anyone that voted for the cap and tax bill without reading it.

Posted by: Bubbette1 | July 2, 2009 2:15 PM | Report abuse

"Meanwhile, employers will be out there passing the cost of a mandate through to employees and customers."

I love this conservative line of reasoning, primarily because it suspends decades of accumulated economic knowledge and substitutes it with concern trolling - the only tactic the GOP has left to deal with most modern issues.

Posted by: BigTunaTim | July 2, 2009 2:53 PM | Report abuse

"Where is there any discussion of cutting entitlement programs?"

It's over by the same water cooler where they're discussing cutting military spending.

Posted by: BigTunaTim | July 2, 2009 2:59 PM | Report abuse

"suspends decades of accumulated economic knowledge"

LOL. Knowledge like what? Like payroll costs aren't passed through to employees? Where, exactly is such knowledge "accumulated"? Democratic Underground???

You realize, of course, that everything here is in a very singular context of producing exactly the same outcome, and all that's newsworthy in this post is that somebody's finally found a way to route the money around government so it won't look like it costs as much? This, of course, is perfectly alright with you, and anyone who observes the absurdity is simply a troll, huh???

The stupidity that passes for reason is mind-boggling.

Posted by: whoisjohngaltcom | July 2, 2009 4:24 PM | Report abuse

"I love this conservative line of reasoning, primarily because it suspends decades of accumulated economic knowledge..."

You're joking, right? I mean, you can't be serious. Are you?

Posted by: Hawk10 | July 2, 2009 5:35 PM | Report abuse

"You're joking, right? I mean, you can't be serious. Are you?"

Hawk, these are the people who invented Social Security's "employer match." What do you think?

Posted by: whoisjohngaltcom | July 3, 2009 6:33 AM | Report abuse

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