Can Kennedy Revive the Debate on Pay or Play?

We know that Ted Kennedy’s Senate Health, Education, Labor and Pensions Committee will be the first to both drop and begin marking up a bill, possibly as soon as June 9 for the draft and June 15 for the hearings and mark-up.  The roughest of drafts on his section on coverage has already started circulating, with a prominent summary in the Washington Post today.  Since Kennedy had already released a summary of his principles, there’s not much surprising here.  But one of the best options for paying for a plan like Kennedy’s seems poised to make a comeback:  employer pay or play.  Will the full release of Kennedy’s plan bring this submerged debate to the surface?

Pay or play is also called “the employer mandate,” and has been a part of the discussion for decades now.  It basically says to employers, you either have to “play” by giving your employees comprehensive, affordable health benefits, or you have to “pay” some fraction of your total payroll costs to the government.  The government then uses that money to fund the subsidies that are given to individuals and families who can’t afford the premiums for plans in the Exchange (or as Kennedy’s bill calls it, the Gateway).  There are exemptions for the smallest of small businesses.  Understandably, small businesses or, for lack of a better term, “underdogs,” even if they don’t meet the technical definition of small business, like this approach.  They’re the ones stuck making the hard choice of giving their employees benefits and finding a way to compete with companies that don’t, or risk losing the best applicants because they don’t offer benefits.  Right now, your employees have nowhere to go – have you seen the rates on the individual market lately?  Paying a portion of payroll that’s less than what you would spend to cover your employees in an insurance plan levels the field.

Large businesses, of course, just flat out hate it.  The Post quotes Neil Trautwein of the National Retail Federation saying business would "do everything we can to block" pay or play.  Indeed, business did everything they could to block an employer mandate in the Clinton plan, and have pulled out all the stops to legally challenge Healthy San Francisco, the city’s excellent public health insurance option for the uninsured which funds itself in part through pay or play.  So far, repeated appeals have only upheld San Francisco’s pay or play law – yes, Neil, even for retailers.

The debate on pay or play hasn’t made the headlines ‘til now, as Congress has instead focused on the employer-based insurance tax exclusion, the White House charitable deductions limitation proposal and other ways of financing health care.  And the draft of Kennedy’s bill quite literally leaves blanks in the sections indicating how pay or play should be calculated.  (You can follow along starting on page 92 of the draft, although a quick warning – this draft is a difficult read, particularly if you’re not used to skimming through legislation.)  But we’re talking real money here – in the range of $50-$200 billion a year is being debated in the House, $300 billion in the HELP committee.  If we don’t do pay or play, we’re going to need to find some other way to fund the subsidies.

All of this sidesteps whether it’s a good idea to build on the basis of the employer-based insurance model in the first place, with its inefficiencies and inequalities.  But pay or play, depending on how it’s structured, could influence that over time as well.  If the “pay” part is significantly lower than the cost of providing benefits, more and more companies will opt to pay, leading to more people in the Exchange.  It could change the status quo as good or better than the tax exclusion.  It would also do so without forcing companies to drop supplying benefits altogether – as bad a deal as that is for employers, many of them enjoy the control and the ability to lure the best job applicants.

I don’t expect this to get much coverage – many accounts will be bedazzled by Kennedy’s more robust public health insurance option.  But pay or play works, it’s legal, and it helps change the game for everyone.  It’s about time we started talking about it.

(Photo credit:  diggersf on Flickr.)