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April 07, 2006

Of Tiny Penalties

Eric Novack makes a good point on the shockingly low employer penalty in MA's universal health care program:

I want to focus briefly on the employer mandate. The law, if unchanged, states that employers who do not provide health insurance would be assessed $295 per employee per YEAR. That’s right. Employers would pay about $300 per year per employee if coverage is not offered.

Does anyone see the problem? Most small businesses spend close to $300 per MONTH per employee now, for ‘good’ coverage.

Math never looks good in print, so I’ll make this example brief. Small business, ‘Matt’s Place’, has 20 employees. Currently, covering health insurance for those 20 costs 20 x $300 x 12 months = $72,000 per year. (That’s $6000 per month.)

Under the Massachusetts plan, if ‘Matt’s Place’ did not provide coverage, it would cost about 20 x $300= $6000 per year.

Hmmm. $72,000 versus $6000. And the employees would still be covered with insurance. And the company saves $66,000. A small business. Hmmm.

Any idea what is likely to happen?

On the other hand, I tend to like things that'll sever health care from employers, so maybe the end result will be positive.

April 7, 2006 | Permalink

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Comments

Are businesses with 20 employees covered at all under the current law? I hate the law and think it is just as bad in its effects on big firms, but big firms were already excluding coverage for employees by reblabelling them "contractors" and getting them off the books.

aimai

Posted by: aimai | Apr 7, 2006 10:23:37 AM

In addition [to the a per-employee annual fee of $295], employers whose uninsured workers make multiple use of emergency room care -- "free riders," in the bill's parlance -- would have to pay between 10% and 100% of the portion of those medical bills exceeding $50,000. WSJ

Don't they also assume this unquantifiable risk.

Posted by: Katie | Apr 7, 2006 10:35:02 AM

If Novack is predicting that employers who already offer coverage will start dropping it based on this law, I thats just wrong. There IS still competition in the job market and health benefits are just part of it. The current model makes providing it (for those small businesses that already do) just part of the cost of doing business. My company employes 15-18 people. If they dropped insurance, I'd expect a revolt against the President and CEO. And in a small business, the higherups often work in closer relationships with the entire company. Can you imagine the resentment? I'm not buying it.

Posted by: Adrock | Apr 7, 2006 10:51:08 AM

Adrock is correct.
That kind of 'thinking' comes from those who frame the employment relationship as a constant war between the workers who are innocent lambs and the owners who are wolves always looking for a way to fuck 'em in the short run. It is a child's viewp. I think they have been reading too much "commondreams".

Posted by: Fred Jones | Apr 7, 2006 11:19:28 AM

Employers never fuck their employees, they "face reality".

Posted by: spike | Apr 7, 2006 11:24:46 AM

I think the question is less whether small businesses will drop coverage than the notion that the fine still makes it cost effective for those that don't offer it to just pay the fine. Which dovetails with my suspicion that the part that may get more negative play is the individual fines for not getting coverage -result: lots of fine paying, and no clear sense that it's improving the insurance picture... and that would make this a net loss, it seems to me; but the proof of that would take several years at least while Romney could crow about successfully picking the lock on the health care issue.

Posted by: weboy | Apr 7, 2006 11:42:13 AM

The end game here is playing out right now in Tennessee, where again the state is suddenly faced with the choice of raising taxes, raising fines, or cutting health benefits.

Given the strong pro-UHC lobby and the different political landscape in Massachusetts, I suspect what you would see is a raising of fines, or some move towards a payroll tax to pay for the thing, rather than the wholesale cutting of benefits as in Tennessee.

Posted by: Nicholas Beaudrot | Apr 7, 2006 12:42:45 PM

The fine is low for the obvious reason that businesses don't like fines and they have influence.

What may not be obvious is that by having a fine, instead of other legal relief, the businesses neatly avoid more adverse consequences. It could have been a criminal penalty, or it could have been authorization of injunctive relief against law breakers.

Spike has it right: Employers never fuck their employees, they "face reality". "We'd love to obey the law, but that would make us uncompetitive against Thailand, Muramar, and Haiti."

Posted by: JimPortlandOR | Apr 7, 2006 1:44:35 PM

But this law gives the employers a chance to drop the benefit, save a lot of money, and NOT be causing their employees any harm, since the state will guarantee their coverage. If they make too much for a subsidized plan, they will be on their on. If they make a low enough wage, the state will even pick up part of the tab. I think this will enable employers to drop health insurance as a benefit without feeling too guilty about it, maybe while sharing some of the savings with the employee. Heck, even if you give it all to the employee, you still come out better not facing the 15% in health insurance costs on a year-to-year basis.

Posted by: G. Hinson, MD | Apr 7, 2006 2:04:28 PM

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