Creating an employer mandate to provide healthcare coverage is a mistake that would be costly in terms of both money and jobs. In fact, a study recently released by the National Federation of Independent Business Research Foundation indicated that an employer mandate related to healthcare coverage would eliminate 1.6 million jobs in just five years and reduce the GDP by around $200 billion.

Furthermore, in order to mandate healthcare coverage, a key question would have to be answered: what do we mandate? The predictable outcome of the legislative and regulatory process of answering that question will be for the mandate to grow, shaped not by science and experience, but rather by the political process.

While we agree that it is important for everyone to have coverage and access, this goal is better accomplished by providing incentives as opposed to mandates. First, every individual and every small business should have the same tax benefits for buying health insurance as big business receives. Second, individuals should have the option of buying into a very wide range of groups and associations, including allowing existing insurance companies to offer association plans. Third, small businesses and individuals should have the same ERISA protections that are provided to large businesses, allowing them to purchase more affordable insurance across state lines. Fourth, individuals who can’t afford coverage should be provided with vouchers or subsidies in order to do so.

Finally, it is important to remember that having coverage for all Americans is only one of the challenges we face. If that’s all we do, we will continue to lose lives and spend money at a rate that is unsustainable. We must also make sure the system is an individual-centered one, focused on prevention and wellness and driven by quality and Information technology – what we at the Center for Health Transformation call a 21st Century Intelligent Health System that saves lives and saves money.

The biggest mistake policymakers could make when it comes to an employer mandate is… to enact one. An employer mandate is backwards in both results and philosophy. Above all, it would do great harm and little good.

There are three core arguments against an employer mandate:

1. It is a highly regressive tax that falls mainly on low-income individuals who will pay for this mandate through job loss, depressed wages and erosion of other benefits.
2. A mandate is inefficient because it is unable to distinguish between those needing and those not needing assistance to purchase health insurance.
3. It is unfair to small businesses and their employees because it imposes punitive costs while ignoring their central problem–high costs resulting from their lack of market power and the absence of a competitive insurance market.

An employer mandate is destructive in any economic environment but in these incredibly trying times it is absolutely lethal. And it would hardly have the positive effects so many are eager to claim. A mandate is a job killer, plain and simple. A recent NFIB research project found that an employer mandate (with a 50 percent minimum required contribution) would destroy more than 1.6 million jobs. Small firms suffered the most, accounting for 66 percent of the jobs lost. I’d challenge you to think about it like this because it may give you pause: An employee doesn’t have health insurance, nor can he afford it, if he doesn’t have a job anymore. In a time when we are looking to our country’s job creators–let’s not forget small business creates two-thirds of new jobs each year–now is not the time to impose a new burden on the very people we are counting on to lead us out of this recession.

Massachusetts offers tremendous evidence that you cannot fix coverage without first addressing costs. A recent New York Times article (“Massachusetts Faces Costs of Big Health Care Plan,” 3/16) highlights that “officials (in Massachusetts) agree that their plan will not be sustainable over the next 5 to 10 years if they do not take significant steps to arrest the growth of health spending.” Massachusetts put the cart before the horse. By putting mandates and coverage before market reforms, competition and lower costs, their state is now hemorrhaging money, threatening the very system the reforms were meant to improve. Making the same mistake on a national level condemns us to the same problems (on a much larger scale) and continues the cycle of unsustainable costs in an economic environment that simply cannot maintain that.

If you want to help Americans access healthcare, we need to tackle the real problem–cost. We need to transform the broken marketplace of today into one where quality, affordable health insurance is available in the private market.

To see the full case, laid out by our expert research staff, I would encourage readers to visit NFIB’s Research Foundation paper on this topic (authored by Senior Fellow Denny Dennis) at http://www.nfib.com/object/IO_39886.html.

As we approach health reform in the midst of an economic crisis, we should think about what changes to our health system and its financing structure will both accomplish our goals and allow our business sector to thrive. As such, I believe we must seriously consider reducing our reliance on employers to finance our health system.

Health care costs are a weight on U.S. employers and one of the largest impediments to small business creation. Many entrepreneurs fear being able to afford health care for themselves and their workers. Likewise, many small business owners (and potential owners) cannot imagine recruiting the types of workers they want without providing health care.

Furthermore, U.S. manufacturing firms spend more than twice as much as their foreign competitors per worker per hour for health care benefits. Health care costs rise so quickly and so unpredictably and global competition is so fierce that it is impossible for firms to push these increases into wages or prices in the short run. CEOs are hyper-focused on the short run, not the long run (as economic textbooks and theories sometimes assume). Therefore, even if wages are reduced to pay for health care costs in the very long run, it does not change the fact that the short-run bottom lines of many employers’ income statements are being threatened by health care cost growth. This is why companies as successful as Wal-Mart are creating new coalitions to speak directly to policy makers about the urgent need for health care reform.

A primary goal of health care reform is system-wide cost reduction. This will certainly ease the employer health care burden. Nevertheless, we should be mindful of the demands of a 21st century global economy and approach with caution any reforms that might hinder the ability of U.S. firms to compete internationally. I recognize, however, that Congress may decide to include some sort of employer requirement or “pay or play” in health reform legislation. If this does end up being the case, I offer the following suggestions and observations:

The vast majority of large firms offer coverage. Likewise, most small, high-wage firms (law firms, consulting firms, etc.) also offer coverage to attract and retain workers. Therefore, in a pay or play scheme, the only firms who will be required to “pay” the tax would be small and low-wage. Workers or owners in these firms do not have much ability to pay by definition. Too high a tax rate on small, low-wage firms risks forcing layoffs or even closings. Therefore, the tax rate on these firms would have to be relatively low. In my view, there is just not enough potential revenue in this scenario to justify the very high political cost of forcing employers to contribute to health costs against their will. One possible compromise approach could be to make the “pay” requirement a function of firm size and revenue per worker and exempt the smallest and lowest wage businesses.

Again, I do not believe that it is necessary to have an employer requirement to finance a sustainable health system for all, but I also understand that this approach has political resonance because of the simple and profound logic of shared responsibility. If all sectors would benefit ultimately from having health insurance guaranteed for all, why not have all people, employers, and health providers pay their fair share of the cost? I understand the symmetric appeal of this argument. But I do worry about the economic and political implications of applying symmetric pay requirements that ignore implications for job creation and loss.

President Obama and others have framed health reform as an investment in our nation’s long-term fiscal future. As such, we should be careful that any changes to our health system will be sustainable economically. Part of this is ensuring that reforms strengthen our economy and the ability of employers to be successful. We can identify far more progressive ways to finance health reform than taxes on small, low-wage firms that do not offer health insurance.

Wage Effects and Job Loss under an Employer Mandate

The biggest problem with an employer mandate is its effect on worker incomes. The employers’ cost of complying with the mandate will be passed-on to the worker as reduced wages, probably in the form of reduced wage growth. If the employer cannot reduce wages, as in the case of minimum wage workers, some of these workers will lose their jobs.

This assessment squares with economic theory and research. The theory in a nutshell is that workers are ultimately paid on the basis what the worker’s productive outputs can be sold for. Requiring an employer to provide insurance adds to labor costs for the employer. If the employer can not increase their prices, the employer’s cost of the mandate would take the form of reduced profits or actual losses.

Because uninsured workers tend to be in small firms with little control over the prices charged in their markets, employers can be expected to respond to the mandate by reducing wages or other worker benefits. Of course, market forces are complex and there are exceptions. But the research generally supports this conclusion. For example, unions have lamented for years that the rising cost of health care is the primary reason for slowed wage growth.

Because employers are prevented by law from reducing wages below the minimum wage, the employer may decide to reduce their workforce through attrition or layoffs. For example, economic studies of the minimum wage have documented that increases in the minimum wage result in a small reduction in employment, although only a fraction of all minimum wage workers. Based upon this research, we have estimated a loss of between 300,000 and 800,000 low-wage jobs under a “pay-or-play” mandate where employers must either provide insurance or pay a payroll tax (6.0 percent).

Plainly stated, the employer mandate is a requirement that workers take a greater share of their compensation in the form of health benefits and less in wages. Of course, this is true of other government policies such as the employer contributions to Social Security and unemployment insurance, which are pretty popular programs. But it seems unfair to fund reform with the wages of those least able to afford it.

Reinforcing employer-shared responsibility for financing is a crucial element of any comprehensive health reform package in this country. Businesses have historically invested in the health and productivity of the American workforce by contributing to the cost of insurance coverage for employees and their families. To build on this foundation and ensure stability for the millions who currently have job-based insurance, the Commonwealth Fund Commission on a High Performance Health System recommended that firms offer coverage or contribute to a national trust fund.

While costs will initially increase for employers who do not presently shoulder some of the responsibility for providing coverage, businesses of all sizes stand to gain under the Commission's Path framework. Employers that currently offer insurance to their employees would realize significant and immediate savings due to lower premiums and more equitable sharing of costs across firms. Over time, other system reforms that will slow health care costs would offset insurance costs for all employers and workers, with net cumulative employer savings of $231 billion by 2020. In short, there is a compelling business case for comprehensive reform for firms of all sizes.

Early analysis of the Massachusetts experience confirms that employers will continue to offer coverage with even minimal requirements. A Commonwealth Fund-sponsored study conducted by Sharon Long and Paul Masi found that firms in Massachusetts have not dropped coverage, restricted eligibility, changed the scope of benefits, limited the range of provider choices, nor undermined the quality of care available under their plans. In fact, those covered by employer plans increased as a result of the individual mandate inducing more employees to take-up coverage when offered. Meanwhile, a study led by Jon Gabel showed that the number of businesses offering coverage increased while the number reporting that the reforms are a financial burden fell to 29 percent. Similarly, Robert Blendon has shown that public support remains strong, with 69 percent of residents viewing the overhaul favorably.

While the Massachusetts experience has shown that employer-shared responsibility for coverage is a broadly accepted principle, policymakers must move beyond the minimal requirements imposed on firms if meaningful reform is to take place. Analysis of the Commonwealth Fund Commission’s proposal shows that employer contributions of 7 percent of payroll (up to $1.25 a hour), along with a comprehensive set of payment and delivery system reforms, will return substantial savings to businesses and reduce cumulative national health expenditures by $3 trillion over 11 years. Policymakers seeking to bring stability to our uneven system of coverage and equity to our system of finance must build on the nation’s foundation of job-based insurance by ensuring that all Americans have the opportunity to purchase coverage through their employer.

John Arensmeyer, founder and CEO of Small Business Majority, a national nonprofit advocacy organization run by small business owners, says that mandates are not his greatest concern. Here’s what he has to say:

“The primary issue for small businesses is the cost of healthcare, not mandates. Indeed, the focus on mandates in isolation obscures the most important need for small businesses – comprehensive reform of the healthcare system to ensure affordable care for all, including small business owners and their employees.

Our scientific research of small business owners shows that they are bottom-line oriented. They want a solution that creates an affordable healthcare system. The majority is not monolithic or ideologically driven. Small businesses are open to a variety of pragmatic solutions. And, they overwhelmingly endorse the concept of shared responsibility among government, individuals, businesses and the healthcare industry – including a majority who say they would be willing to contribute something to a reformed system.

So, the question is – how do we pay for healthcare reform? In the long-run, cost containment is the single most important factor. But, in the short-term there is a need for the government to finance an expansion of coverage. One solution to reduce the size of government financing is a system of shared responsibility – a solution to which, as noted above, the majority of small businesses are open. This can work if the result is truly affordable for everyone involved. Messrs. Goodman and Gelfand are correct to express concern for the health of small business in their previous blog posts, but they posit doomsday scenarios that don’t have to be the case with a well-planned solution.

When it comes to small business’s role in a system of shared responsibility, many questions must be answered before we can dismiss the possibility out of hand. Will there be a tax credit or other form of premium assistance for small businesses? Will there be a sliding scale of required contributions similar to what was proposed in California last year? Will the smallest businesses be exempt? Will the playing field be leveled for large and small businesses to eliminate the existing 18% cost disparity? Will the current 15.3% payroll tax penalty on the self-employed be eliminated? And, will substantial cost controls be implemented? Without answering these questions it is impossible to determine if a system of shared responsibility will work."

For once, I'm in agreement with Mr. Gelfand, at least the first part of his post, before he goes on to defend the status quo.

What was enacted in Massachusetts was not real health care reform, or at least not what we'd want to see as a national model. Now, what Massachusetts did was a huge accomplishment.

, and for a good number of people, life has gotten better. But the Massachusetts model failed to really address the issue of cost because it failed to create real competition with a public health insurance option, and as such, is infeasible for national health care reform.

Costs and mandates work hand in hand. We must all take responsibility for our health care system. Employers should pitch in, just like individuals and state and federal governments should pitch in. But mandates are a realistic policy only if costs are controlled as well. It is wrong to ask individuals or employers to purchase health insurance if that insurance is not affordable, and beyond that, a mandate attached to unaffordable insurance means that somebody - individuals, employers, or the taxpaying public - has to shoulder the extra burden.

Cost is the key to this entire equation, which is why it is imperative health care reform increases choice and competition in the insurance market. A public health insurance plan, competing on a level playing field with private insurance, will be a strong competitor and an option open to all. By increasing choice and competition with that public health insurance option, we can create a uniquely American solution that controls costs while offering increased benefits to consumers. In fact, the public health insurance option, using the levers of competition, is the only way to decrease health care costs short of regulation so oppressive it would be essentially unenforceable.

If costs are controlled and employers are offered a generous array of choices in health care plans, including an affordable public health insurance option, they should be asked to share the responsibility of providing health care coverage to everyone in America.

A better approach than employer mandates is to require that all individuals purchase their own health insurance that will be portable (traveling with them from job to job and throughout their lives), affordable, and free of pre-existing condition exclusions. Individuals should own and control their health insurance similar to what we require for auto insurance today.

Does that mean there is no role for employers? Of course not. The savvy employers will quickly discover that they will attract and retain the best employees by offering to assist with premium payments, offering wellness and preventive health incentives and rewards, and offering other related benefits. The government can assist those who cannot afford insurance with sliding scale subsidies and by creating a politically-insulated insurance purchasing exchange similar to what exists today for Federal employees. Through an exchange, individuals could choose the insurance that best meets their needs based on cost, value (higher quality for lower cost), and the benefits offered.

The significant issue here is that individuals should own their insurance. People should no longer have to stay in jobs only because of their health insurance, or fear losing their coverage when they are laid off or otherwise unemployed. Individuals should have the freedom to choose the type and amount of insurance they want, and should be able to carry it with them or change to another plan as they choose.

A mandate on employers, similar to one proposed by the Commonwealth Fund and endorsed by Barack Obama during the campaign, would be very bad.

A tax on wages of 6% up to $1.25 an hour, in lieu of health insurance, pretends to be a burden for employers. In fact it would be a tax on labor. If combined with the opportunity to buy insurance in an external Exchange at no more than 10% of income, it would cause the current employer-based system to unravel.

Employers would drop their coverage in droves. They would pay the fine and give workers the remainder in taxable wages. Workers would then have the opportunity to buy their own coverage on the cheap.

Everyone would game the system and the loser would be the taxpayer. Ironically, the number of uninsured might go up, not down.

At a May 2008 briefing organized by the Alliance for Health Reform, speakers discussed the Massachusetts health reform law. The presentation I found most interesting was by Matt Fishman of Partners HealthCare, who explained the inside baseball of what went on in putting together the legislation:

“So the stakeholders involved focused on coverage first… The 1988 Employer Mandate had not worked… We also knew that we would not reach agreement on a package if we try to do coverage and cost in the same vehicle.”

There you have it – what they passed in Massachusetts was not real health reform. It was an effort to lock in payers, to force employers to pay more into the system, and to force the young who opted out to subsidize the costs of others. Governor Romney deserves praise for using his line-item veto to try to remove the employer mandate, but his veto was easily overridden.

Now we have seen the results of this “reform” plan – costs skyrocketing, provider shortages, and a flocking to government-subsidized health insurance.

On the national level, it is imperative that we have real reform, not just lock in stakeholders to subsidize an unaffordable system. Real reform focuses on rebuilding our broken health care delivery system, structuring a reimbursement system driven by value, ending incentives for waste, eliminating fraud, reforming flawed government programs, and reshaping our health care work force.

Mandates work against all of these goals. Mandating a certain set of benefits will take away flexibility and stifle innovation – do employees at a mining company need the same kinds of coverage as computer technicians? Mandating a certain spend (be it percentage of payroll, dollar per hour, etc.) kills the desire to innovate cost-controls and improve quality and efficiency. Forcing individuals to purchase health insurance is a way of ignoring the real problem – individuals either cannot afford coverage or do not want it because of its costs, limitations, or a lack of insurance products that appeal to them.

Worse, mandates force more money to be spent on administration instead of on health care – new forms to fill out, new agencies to evaluate compliance, benefit redesigns and proof of creditable coverage. And yet the same parties who howl about the administrative costs at private insurers will howl in favor of mandates on employers. Did you know the Massachusetts law doubled administrative costs, forcing employers to engage in a whole new, duplicative reporting scheme?

Perhaps the most important argument against employer mandates is that they are a job-killer; in a time when people are losing their jobs, do we want to force employers to increase their spending on benefits? This will result in further workforce reductions, and for some companies, bankruptcy. Now it is more important than ever to focus on global competitiveness, and it is not the time to be saddling American businesses with more spending requirements.

When President Obama promised Americans he would let them keep the coverage they have, he knew he was dealing with a sleeping giant. If health reform legislation forces employers to redesign their benefits – or to discontinue their offer and just contribute to a public plan or connector – the 170 million Americans who currently get health insurance from employers might well be in an uproar.

At the U.S. Chamber of Commerce we are committed to preserving the voluntary employer-sponsored system that continues to serve so many workers and employers so well. We believe health reform can be enacted without breaking the parts of the system that work. And we believe real reform centers on building a health care system that is driven by value – not on locking in payers to an unaffordable system or saddling Americans with a one-size-fits all package.