Require Employers to Offer Coverage

Analysis of Employer Mandate

An employer mandate is a requirement that all or some subset of employers offer health insurance to all or some subset of their employees. Proposals often include a “pay-or-play” provision—which means that employers may choose to offer health insurance to their employees (the “play” option) or pay a fee or tax into a public fund that is used to cover uninsured workers.

These are the nine performance dimensions against which we measured the employer mandate:

• Spending
• Consumer Financial Risk
• Waste
• Reliability
• Patient Experience
• Health
• Coverage
• Capacity
• Operational Feasibility

Spending

An employer mandate will not have a discernible effect on total health care spending:

• Using our model, we estimate that aggregate health care spending will increase $890 million to $2.01 billion (which is less than 0.1 percent of total spending), depending on the design of the employer mandate.
• From our model, we estimate that firms newly offering coverage will spend $9.12 to $17.89 billion on premium contributions, and penalty payments will be $4.23 to $12.48 billion.
• Our model predicts a negligible change in both consumer out-of-pocket spending and Medicaid expenditures.
• Employer mandates have been tried in only two states; estimates from the literature are sensitive to the design of the mandate.

Employer mandates would not create a discernible change in aggregate national health expenditures. The magnitude of the effect will depend on the design of the policy option, but in all of our modeled estimates, this effect is indistinguishable from no change in spending.

We modeled an employer mandate with the following design:

• The mandate is not combined with any other policy changes.
• Firms above a certain size are required to offer health insurance to their workers. We considered three different minimum firm sizes: 5, 10, and 25 workers.
• Firms that do not offer health insurance are subject to a penalty, which is calculated as a percentage of payroll. We considered three penalty levels: 5, 10, and 20 percent (about 50 percent of firms that currently offer insurance spend more than 11 percent of payroll on health care).
• We allowed people currently on Medicaid or who are purchasing non-group policies to switch to employer sponsored coverage.
• We did not use the revenues generated by the penalty to fund other policy options, such as subsidizing premiums for low income workers in firms that are newly offering coverage.

We made the following assumptions in modeling the employer mandate:

• Firms that newly offer insurance will include plans that have the same actuarial values as plans from similar firms that already offer coverage.
• Newly offering firms will use the same eligibility rules of firms that currently offer insurance (about 80 percent of workers will be eligible for the insurance offer).
• Firms that newly offer insurance will provide the same level of premium cost sharing as similar firms that already offer insurance.
• The take-up, or participation, rate among workers who are newly offered insurance is the same as the take-up rate among similar workers in similar firms who already have an insurance offer.
• Firms will offer insurance in response to the mandate if the cost of providing coverage is equal to or less than the value of insurance to the workers (the penalty is included in the cost calculation). The value of insurance to workers is calculated using a regression model that is estimated based on our simulated status quo population.

Consumer Financial Risk

An employer mandate will not change the proportion of income spent on health care by the non-elderly population, but it will increase the proportion of income spent on health care among persons who are newly insured:

• We estimate that there will be no change in the median percentage of income spent on health care by the non-elderly population as a result of an employer mandate because of the small number of people who would newly become insured.
• From our model, we estimate that the median proportion of income spent on health care will increase among persons who are newly insured by this policy change, because they will pay a share of premiums and will have higher utilization.
• We estimate that the proportion of newly insured families who spend more than 10 percent of their income on health care will increase substantially.

Waste

An employer mandate will have no effect on waste because of the small number of people who would newly become insured:

• No empirical studies directly evaluate the relationship between employer mandates and waste, and related evidence is mixed.
• From our model estimates, which show only a small decrease in the number of uninsured persons, we conclude that employer mandates will have no effect on waste.

Reliability

An employer mandate will have no effect on reliability, given the small number of people who would be newly insured under this policy change.

• In view of our model estimates of the number of people newly insured under an employer mandate and the mixed evidence in the literature, we do not expect to see an effect on reliability.

Patient Experience

The existing literature provides some evidence that, because the uninsured encounter difficulty in obtaining care, the newly insured might have a better experience with care than they previously did:

• No empirical studies directly analyze the relationship between an employer mandate and changes in patient experience.
• Theory suggests that the patient experience of formerly uninsured individuals will improve if those individuals acquire insurance.

Health

We estimate a small gain in life years among those newly insured under an employer mandate:

• We estimate an increase of 220,000 to 400,000 life years, depending on the design of the employer mandate.
• Theory and published studies suggest that, if an employer mandate increases rates of coverage, the health of some groups should improve.
• The magnitude of the effect on health may depend on the health of an individual before gaining insurance and on other socioeconomic factors, as well as on changes in access afforded by health insurance and the reliability of care received.

Coverage

Using our model, we estimate a small increase in the number of people who become newly insured as a result of this policy change:

• We estimate that 1.8 to 3.4 million people would become newly insured under the stand-alone employer mandate option we modeled.
• Published estimates of the magnitude of the increase vary widely and depend on assumptions about the design of the mandate.

Capacity

An employer mandate is not expected to change the overall capacity of the health care system:

• We would not expect this policy option to change the capacity of the overall health system because of the small number of people who become newly insured.
• No empirical studies directly evaluate the effect of employer mandates on capacity.

Operational Feasibility

An employer mandate to provide health insurance would present a moderate degree of challenge for implementation:

• An employer health insurance mandate should be less burdensome to implement than other policy options since the most likely mechanism for implementation, the federal tax system, is already in place.
• Enforcement of an employer mandate would require penalties for noncompliance as well as expansion and improvement of some mechanisms used to administer existing tax laws, which would add complexity and difficulty to implementation.
• Previous experience with an employer mandate is limited and cannot be readily extrapolated to assess the operational feasibility of the mandate we modeled.