The folly of health insurance mandates

July 31, 2012

Free Market Foundation

Legislation has been proposed in several US states to impose a play-or-pay mandate requiring employers either to offer group health insurance or to pay into a government fund that subsidises health coverage. Thus far, the city of San Francisco and the state of Hawaii are the only governments that have imposed such mandates San Francisco, because of a favourable appeals court ruling, and Hawaii because of an exemption from federal law, says Devon Herrick, a senior fellow with the National Center for Policy Analysis.

Employer mandates are a tax on employees, says Herrick:

Benefits substitute for cash wages in a worker’s compensation package.

If workers are unwilling to forgo wages in return for health insurance, firms are unlikely to offer coverage.

Forcing employers to provide health benefits to workers who are unwilling to bear the premium costs themselves is tantamount to a tax on labour, forcing employees to accept a health insurance fringe benefit in lieu of wages.

This doesn’t make coverage more affordable, instead, it forces employees to bear the cost whether they like it or not.

Employer mandates are limited by federal law, says Herrick:

Another problem with play-or-pay mandates is that most large employers are exempt; the mandate can be imposed on businesses that purchase health insurance coverage in the small group market.

However, the federal Employee Retirement Income Security Act (ERISA) precludes state and local governments from regulating the health plans of employers who self-insure that is, pay their employees’ health claims themselves.

ERISA is the basis for an ongoing court challenge to San Francisco’s employer mandate.

Hawaii is exempt from ERISA because its employer mandate was enacted before the federal law, however, the state still has a significant percentage of uninsured residents, and health insurance is just as expensive as in other states.

Source: Devon Herrick, The Folly of Health Insurance Mandates, National Center for Policy Analysis, Brief Analysis No. 652, April 9, 2009.

For text: http://www.ncpa.org/pub/ba652

For more on Health Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=16

FMF Policy Bulletin/ 14 April 2009