Two of the three leading health care reform proposals being considered by Congress—the House “Tri-Committee” health care reform legislation and the Senate Health, Education, Labor, and Pensions (HELP) Committee’s reform legislation—include sensibly designed “play-or-pay” provisions that require employers to pay an assessment if they do not offer insurance to some or all of their employees. The third leading health care reform proposal—the bill proposed by Sen. Max Baucus and currently under consideration by the Senate Finance Committee—also includes a play-or-pay requirement, but it is poorly designed and would be unfair to employers, harmful to employees, and impose wasteful expenses on taxpayers.health care

Shawn Fremstad

English

Research Papers in Economics

 
Issue Brief ￿ September 2009 
 
*Shawn Fremstad is Director of Bridging the Gaps at the Center for Economic and Policy Research in 
Washington, D.C. 
 
Three Big Problems with the Baucus  
Play-or-Pay Provision 
1)  Creates  a  new  financial  incentive  for 
employers  to  convert  full-time  jobs  that 
middle- and working-class families rely on to 
part-time jobs.  
2)  Doesn’t  fairly  or  accurately  target  “free-
rider”  employers.  Many  of  the  worst  free 
riders  would  experience  limited  or  no 
penalties. 
3)  Would likely result in a massive increase in 
costly  lawsuits  and  complaints  filed  by 
unsuccessful  job  applicants  and  terminated 
employees with family incomes between 100 
and 400 percent of the federal poverty line.  
 
Reimbursement Roulette  
The Baucus Bill’s Too Playful Approach to “Play-
or-Pay” in Health Care Reform 
 
 
Two of the three leading health care reform proposals being considered by 
Congress—the House “Tri-Committee” health care reform legislation and 
the Senate Health, Education, Labor and Pensions (HELP) Committee’s 
reform legislation—include sensibly designed “play-or-pay” provisions that 
require employers to pay an assessment if they do not offer insurance to 
some  or  all  of  their  employees.  The  third  leading  health  care  reform 
proposal—the  bill  proposed  by  Sen.  Max  Baucus  and  currently  under 
consideration by the Senate Finance Committee—also includes a play-or-
pay requirement, but it is poorly designed and would be unfair to employers, 
harmful to employees, and impose wasteful expenses on taxpayers. 
 
The Baucus Bill’s “Reimbursement Roulette” Approach to 
Employer Play-or-Pay 
The  Baucus  bill  would  expand  eligibility  for  Medicaid  to  all  non-elderly 
individuals and families with incomes below 133 percent of the poverty line. 
Individuals  and  families  with  incomes  between  100  and  400  percent  of 
poverty  who  enroll  in  health  insurance  plans  offered  through  a  state 
exchange  would  be  eligible  for  a  new  health-insurance  tax  credit.  All 
individuals would be required to have health insurance.  
 
The two other leading bills include similar expansions of health-insurance 
assistance, with the important difference that both would make coverage 
generally more affordable for individuals and families than the Baucus bill. 
They  also  include 
conventional  play-or-pay 
provisions  that  require 
employers  who  do  not 
provide health care to pay 
an  assessment  based  on 
either  on  their  payroll 
(House  version)  or  the 
total  number  of 
employees  who  are  not 
offered  affordable 
coverage  (Senate  HELP 
version).  
Center for Economic and 
Policy Research 
1611 Connecticut Ave, NW 
Suite 400 
Washington, DC 20009 
tel: 202-293-5380 
fax: 202-588-1356 
www.cepr.net 
BY SHAWN FREMSTAD* CEPR  Reimbursement Roulette ￿ 2 
 
By contrast, the Baucus bill adopts a more complicated and limited version of play-or-pay. It would 
require employers with more than 50 employees that do not offer affordable coverage to pay an 
assessment to the federal government for each full-time employee (defined as more than 30 hours a 
week) who receives coverage that is subsidized through the individual tax credit created by the legislation. 
This assessment would not apply to uninsured part-time employees or employees who receive other 
forms  of  publicly  subsidized  coverage,  such  as  Medicaid  or  the  Children’s  Health  Insurance 
Program.   
 
For each full-time employee enrolled in a state exchange and receiving a tax credit, the employer 
would be required to pay a flat dollar amount equal to the average tax credit provided to people 
insured through the state exchanges.  The total amount an employer would be required to pay would 
be capped at $400 multiplied by the total number of employees, including those who do not receive 
tax credits and/or are covered though Medicaid or other public programs. 
 
Because it seemingly attempts to more closely target the “pay” requirement of play-or-pay on free-
rider employers who do not provide health insurance, the provision is sometimes referred to as a 
“free-rider” penalty. But “reimbursement roulette” would be a more accurate description of the 
provision’s actual effect. Instead of narrowly targeting free-rider employers, the provision will lead to 
a lottery-like penalty system that is difficult to rationalize. Whether or not an employee is eligible for 
a subsidy that is subject to the penalty depends both on the income they receive from their employer 
and  the  amount  of  income  of  other  family  members.  Because  employers  cannot  legally  base 
decisions to hire or fire on the income of other members of a potential hire’s family,
1 they have only 
partial control over the precise extent to which they “free ride.”  Thus, two employers with identical 
numbers  of  employees,  compensation  costs,  and  profits  could  end  up  paying  widely  different 
amounts in penalties based on a fact—the income of other members of an employee’s family—over 
which they have no control and may have no knowledge. 
 
A  related  issue  that  limits  the  targeting  precision  and  equity  of  the  Baucus  provision  is  that  it 
excludes employees whose health insurance is subsidized through various other public programs, 
including those with incomes under 133 percent of the poverty line who receive insurance that is 
publicly subsidized through Medicaid. Thus, there is no penalty for one major category of free-
riding, one that is likely associated with the lowest-paying employers and, often, the largest public 
subsidization. There is no sound economic basis for this distinction if the purpose is to target free-
rider employers.  
 
Targeting Free Riders or Making More Workers Part-Timers? 
Another major problem with the Baucus provision has to do with its limitation to uninsured full-
time workers. This creates an incentive for employers who want to free ride to increase the hiring of 
part-time and temporary workers and reduce the hiring of full-time ones.  
 
Research  conducted  on Hawaii’s employer mandate to provide coverage to full-time employees 
suggests that “employers’ primary response to the mandate was increased reliance on the exempt 
class of workers who are employed for fewer than 20 hours per week.”
2 Both the Senate HELP and 
House  provisions  avoid  creating  this  kind  of  perverse  incentive  by  applying  play-or-pay  to  all 
employees.  
 CEPR  Reimbursement Roulette ￿ 3 
 
Targeting Free Riders or Job Creation for Lawyers? 
The  “reimbursement  roulette”  provision  would  likely  result  in  a  massive  increase  in  costly 
discrimination lawsuits and complaints filed by potential job applicants and terminated employees 
with family incomes below 400 percent of the federal poverty line. This is because Title VII of the 
Civil  Rights  Act  of  1964  prohibits  employment  practices  that  have  the  effect  of  discriminating 
against individuals because of their race, color, national origin, religion, or sex, even if the practices 
are not motivated by any intent to discriminate on the basis of race of other protected categories. 
Given existing racial, ethnic, and gender disparities in income, there is little question that employers 
who try to avoid free riding penalties by basing their hiring decisions on the income of family 
members of a potential employee would violate Title VII.
3 Even in cases where employers didn’t 
overtly  try  to  obtain  information  about  spouses  or  other  family  members,  lawsuits  would  be 
inevitable as well as costly and difficult to defend. 
 
Finally, the Baucus provision is considerably less efficient than the other two provisions because it 
would be much more costly to administer per dollar of revenue realized. As former CBO director 
Robert Reischauer explains:
4 
 
If we’re talking about systems in which the employer that doesn’t provide health insurance 
has to pay a set fee of “x” dollars or “y” percent of payroll to the subsidy-granting entity or 
to the exchange, those are fairly simple kinds of payments to work out and aren’t particularly 
intrusive. When we think of going down to the individual level, which is in effect what the 
[Baucus] proposal would do, it gets administratively horrendously complex as well as quite 
intrusive. We’re in a situation in which we’re trying to have an exchange figure out how 
much is owed to it for subsidies from hundreds, possibly thousands, of different firms. It 
has to accurately identify the workers with the firms and differentiate workers who have 
subsidies from those who don’t. 
 
Conclusion 
Instead of reimbursement roulette, the Senate Finance bill should adopt a fair and conventional 
play-or-pay provision.  The House bill provides the best alternative.  It would require employers 
who  do  not  offer  coverage  (and  contribute  at  least  65  percent  of  the  premium  cost  of  family 
coverage and 72.5 percent of individual coverage) to pay 8 percent of their payroll into a Health 
Insurance  Exchange  Trust  Fund.  The  assessment  would  be  reduced  for  employers  with  annual 
payrolls of less than $400,000 ($750,000 in the version of the bill approved by the House Energy 
and Commerce Committee), and eliminated completely for employers with payrolls below $250,000 
($500,000 in the Energy and Commerce Committee version). As a result, the House would be fair 
for employers and workers, and not impose wasteful expenses on taxpayers. 
                                                 
1  See discussion below of Title VII of the Civil Rights Act of 1964. 
2  Tom Buchmuller, John DiNardo, and Rob Valletta, Employer Health Benefits and Insurance Expansions: Hawaii’s 
Experience, Federal Research Bank of San Francisco, June 29, 2009, 
http://www.frbsf.org/publications/economics/letter/2009/el2009-21.html. 
3 Title VII also prohibits decisions to hire based on whether or not someone is a sole income earner in a two-parent 
family or a single parent, if the decisions have a disparate impact on a protected class. 
4  Remarks of Robert Reischauer at August 5, 2009 press briefing, quoted in Robert Greenstein and Judith Solomon, 
“Employer Requirement in Baucus Health Reform Plan Would Pose Larger Problems than Previously Realized,” 
Center on Budget and Policy Priorities, September 16, 2009. 

Reimbursement Roulette: The Baucus Bill’s Too Playful Approach to “Play-or-Pay” in Health Care Reform

http://www.cepr.net/documents/publications/reimbursement-roulette-2009-09.pdf

Reimbursement Roulette: The Baucus Bill’s Too Playful Approach to “Play-or-Pay” in Health Care Reform

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics