December 27, 2007

The employer mandate

It shouldn't come as much of a surprise that Federal District Court Judge Jeffrey White has ruled that San Francisco's new health care benefits law violates federal law because it requires employers to spend a certain amount on health care for their workers or else pay a fee for the city. The bigger mystery is why state officials -- especially Gov. Arnold Schwarzenegger and Assembly Speaker Fabian Nunez -- have been pursuing an almost identical strategy, knowing it would probably eventually suffer the same fate. One answer is that they hope the Congress and the next president will repeal the law that preempts state and local programs, or at least give California permission to experiment with a federal mandate.

But White, at the very end of his ruling, suggested there might be another way for state officials to skin the same cat. He suggested tax credits. This is something I have wondered about in the past. It would work like this: every employer would have to pay a higher payroll tax, or fee to the state. Let's say it's six percent. They have to pay regardless of whether they offer health benefits to their workers. And then, in a separate part of the law, every employer would be entitled to a tax credit of six percent of payroll to offset the cost of health care they provide their workers. Such an approach pursues and delivers the same result but with only a little more finesse. White's opinion indicates that, at least in his court, it might survive a challenge.

But I still think it would be better for the state to stop trying to prop up our archaic system of employer-provided benefits and instead offer more incentives for individuals to buy their own insurance, possibly through large risk-sharing pools that give them the same, or more clout in the marketplace that employers now enjoy.

Posted by dweintraub on December 27, 2007 6:32 AM