Pay Now or Pay Later

by Newt Gingrich and David Merritt

Of all the proposals floating around the health reform debate to expand insurance coverage, there is one in particular that should give American businesses pause: the employer pay-or-play mandate.  Businesses would be required to offer either health insurance coverage to their employees or pay them (or a government entity) a prescribed amount toward their care.  This would turn employer-sponsored care from a voluntary benefit, which it has been for more than 60 years, into a federal requirement.  This is not only bad policy, it is currently illegal.

The idea of forcing employers to provide coverage or specific benefits is not new.  States and localities have often tried to regulate employer-sponsored health benefits.   The idea picked up steam in the last presidential campaign, as Hillary Clinton, John Edwards, and then Senator Obama all made pay-or-play a cornerstone of their health reform plans. 

This flies in the face of more than three decades of law and judicial precedent.  Since 1974, with the passage of the Employee Retirement Income Security Act (ERISA), the power to regulate employer-sponsored health benefits rests exclusively with the U.S. Department of Labor.   

ERISA gives businesses the ability to offer uniform benefits to their employees nationwide, regardless of where they live or work.  Without this protection, businesses would have to comply with every restriction and requirement mandated by every state and locality. 

Nearly every attempt by any authority other than the Department of Labor to regulate employer-based plans has been struck down on ERISA grounds.  The state of Maryland was blocked from requiring Wal-Mart to spend at least eight percent of its payroll on health insurance for its employees. 

The most recent attempt was the city of San Francisco with its passage of the Health Care Security Ordinance.  Masquerading as a wage law, the Ordinance regulates the health benefits of medium and large businesses by requiring them to either offer health insurance to their employees or spend a prescribed amount on their healthcare.

The law requires businesses with more than 100 employees to spend at least $1.76 per hour on healthcare for every full-time, covered employee—more than $3,600 per person per year.  Medium-sized businesses must spend more than $2,400 per employee per year.  In addition to onerous reporting and administrative requirements, the city gave itself broad powers to investigate and audit any business to ensure compliance.

For businesses that do not comply, the city can levy fines up to one-and-a-half times the amount that was mandated plus as much as 10 percent interest.  These fines will pay for a new government-run health program. 

Not surprisingly the UC Berkeley Labor Center issued a glowing report saying the law requires businesses to "pay their fair share" and prevents them from "dumping" their employees into the public system.

Thirty-four years of case law didn't stop the Ninth Circuit Court of Appeals from siding with the city of San Francisco.  After a district court followed precedent and ruled that the law violated ERISA, the Ninth Circuit recently overruled that decision. 

(It is likely that the Supreme Court will hear an appeal in the case and overturn this egregious decision—just like when it overturned the Ninth Circuit's ruling that the phrase "one nation under God" was unconstitutional.) 

Perhaps pay-or-play advocates will seek this kind of model, where state and local officials could regulate benefits.  With more than 22,000 counties and municipalities in the United States, even a small fraction of them introducing new mandates would be catastrophic for American businesses. 

It would shatter ERISA, and the consequences will hit more than one-third of all Americans—133 million—who receive health benefits through an employer.  And the additional cost to businesses to comply with possibly tens of thousands of new regulations will undoubtedly be passed onto their employees and customers. 

In addition to mandating specific spending levels, think of how this regulatory framework would cripple a company's ability to transfer an employee to another state, county or city.  What about an employee who lives in one jurisdiction but works in another?  Which entity has primary regulatory authority? 

Perhaps pay-or-play advocates will simply change ERISA at the federal level and dictate uniform requirements from Washington.  That, too, is perilous for businesses. 

For more than thirty years, ERISA has given companies of all sizes the flexibility and freedom to design their benefits as they see fit.  Some businesses may choose standard insurance product or something innovative, like a high-deductible health plan with a Health Savings Account.  Still others may choose alternative forms of assistance, like health reimbursement accounts.  Some may choose not to provide coverage at all because they cannot afford to do so. 

Federal pay-or-play would hinder this flexibility, and throw the door wide open to bureaucrats in Washington deciding what's best for America's employers and their employees. 

More regulation.  More complexity.  And even higher costs.  Is this the recipe that will help businesses navigate today's troubled economy?  Let's get serious about expanding insurance coverage, improving care, and bringing down healthcare costs, but do so in a way that's smart and innovative—not command and control.

Former Speaker of the House Newt Gingrich is founder of the Center for Health Transformation (CHT). David Merritt is vice president and national policy director at CHT.

Comments

[leslie]

I own a small retail shop & I support universal health care. The problem for employers is that all of our health care $ goes to Workers Comp that only insures workers for injury during working hours. This leads to fraudulent claims, people who aren't covered for illness & does not insure families. We would have money available for full time health care if we weren't paying for WC, add in the $ I spend to insure my family & I would be happy to have my money go to real insurance.

[Joellyn Robinson]

We are a small furniture store business employing 14 full-time employees. We cannot afford insurance. I checked in to it and found that Nevada is way higher in insurance than most states.

We have been harder hit than most--luxury or bigger ticket items just are not selling. Our profit margin is way down. We own the land and do not take rent or paychecks, as we are just trying to survive in this market at this time.

If this law is passed, we will either have to let 3-4 of the staff go and get down to a skeleton crew, or we will have to sell the business with the land. What good is that?

Something is way wrong here--years of working to be told what to do from people who screwed up the economy in the first place!