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- Week of January 18, 2010
January 21, 2010
As federal health reform efforts move into 2010, House and Senate leadership continue to meet with White House officials to meld the House and Senate health reform bills into one. On Thursday January 15, the White House and a group of organized labor leaders announced an agreement on modifications to the excise tax on high-cost health plans. While language is not yet available concerning the details of the arrangement, the excise tax would be levied at a higher threshold ($8,900/$24,000), the threshold would be adjusted for age and gender differences, and a 5-year transition window would apply before the tax would apply to collectively bargained plans or state and local government plans. Reportedly, the applicable family threshold would apply for all participants in Taft-Hartley plans.
The White House has scheduled the State of the Union address for Wednesday January 27, 2010. Previously, administration officials had expressed a desire for health reform negotiations to be complete by that date. However, on Tuesday, January 19, in a Massachusetts special election, Republican Scott Brown won the Senate seat that had been held by Senator Edward Kennedy for 42 years. Brown will become the 41st Republican senator. This could have a dramatic effect on the politics of health care reform, because 60 votes are needed in the Senate to move a measure past a declared filibuster. The Massachusetts outcome could also affect support for the program by Democrats from conservative states and districts.
Democrats seeking to finalize health care reform are looking at several alternative procedural strategies. As this process continues, we will continue to provide information on specific health reform topics.
How the Employer Mandate Proposals Would Work
A key provision of the health reform bills is "shared responsibility" — i.e., mandates on individuals to purchase health coverage and employers to provide it. While both bills require individuals to purchase health coverage or pay a tax penalty, the employer mandate provisions of the bills are vastly different. This issue of Stat! examines how the individual and employer mandates in the House and Senate bills would work.
The Individual Mandate
Both House and Senate bills would require individuals to have health coverage that meets minimum standards, or pay a penalty. The penalties on individuals for non-compliance are different in the two bills. Beginning in 2013, the House bill would impose a tax of 2.5% on adjusted gross income (AGI) above the threshold of income required to file a tax return, with a maximum penalty equal to the national average premium for coverage through a health insurance Exchange (single or family, as applicable). When fully implemented in 2016, the Senate bill would impose a penalty of $750 per household member (or, if greater, up to two percent (2%) of income up to the cost of a "bronze" health plan). Families would pay one-half the amount for children, up to a maximum of $2,250 for the family. The penalty would phase in at $95 in 2014, $495 in 2015, and $750 in 2016 (indexed thereafter).
For both bills, individuals whose income falls below certain levels would be eligible for federal subsidies that can be used to purchase health insurance coverage through the Exchange. Among the issues being discussed by House and Senate leaders are the amount of the individual penalty and the amount of federal subsidies to low-income individuals to purchase coverage.
The Employer Mandates
House Mandate: Under the House bill, an employer could either provide both single and family coverage that meets minimum standards for benefits coverage, employer contributions, and actuarial value or pay an amount equal to eight percent of payroll as an excise tax. Employers would have to provide contributions of 72.5% of the premium for single coverage (65% for family coverage) to avoid the penalty, and the amount is prorated for part-time employees. Employers with payrolls between $500,000 and $750,000 would pay a sliding scale excise tax between two and six percent. Those employers with less than $500,000 in payroll would be exempt from the employer mandate. The House mandate would be effective in 2013.
Senate Mandate: The Senate bill mandate, also called a "free rider penalty," would be effective in 2014. Only employers with 50 or more full-time employees could be subject to the penalty. However, a special rule for construction industry employers provides that they would be subject to the penalty if, during the preceding calendar year, the employer employs at least five full-time employees and has a payroll of $250,000 or more. The bill defines "full-time employees" as those employed an average of 30 hours per week, determined on a monthly basis.
The penalties in the Senate bill would be different depending on whether the employer does or does not provide health coverage. In either case the penalty would only be triggered when at least one full-time employee receives a federal subsidy to buy coverage through an Exchange.
Employers that do not provide health coverage that meets minimum standards would have to pay a penalty based on the total number of full-time employees. Specifically, the penalty would be $62.50 times the number of full-time employees the employer had that month ($750 per employee on an annual basis). Therefore, for example, if an employer had 100 employees, and one employee purchased subsidized coverage in an Exchange during a month, the employer would owe $62.50 for each full-time employee, or $6,250, for that month.
Employers that provide coverage that meets minimum standards would also face a penalty if one full-time employee opts out of the employer's plan and receives federal subsidies through the Exchange. In this circumstance, the employer would pay the lesser of $250 per month ($3,000 annually) for each of those employees receiving a subsidy through an Exchange, or $62.50 per month ($750 annually) for each of their full-time employees total. For example, an employer with 100 employees with only one employee who purchases subsidized coverage through the Exchange would pay $250 per month (or $3,000 per year).
Many issues remain to be clarified about the mandates, including the amount of the penalty for individuals who do not meet the standard, which employers the employer mandates apply to, and how the employer mandate would be assessed. These policy issues will continue to be discussed as Congressional leaders proceed with health reform efforts.
Summaries of the House and Senate bill are available on our Web site at the following links: