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Home / Washington Business - January 2006 / Policy: Pay or Play Can Really Hurt |
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Policy: Pay or Play Can Really Hurt |
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Written On: January 2006 |
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Written By: by Mellani McAleenan - AWB Governmental Affairs Director |
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In Washington and 48 other states, employers are not required to provide health benefits for their employees. Most companies, however, provide some level of benefits, either as a competitiveness issue or due to a sense of moral obligation.
The employer’s ability to pay usually dictates the level of coverage. Employers can define a waiting period and other eligibility requirements, and they can determine what portion the employee will contribute as well as other factors.
"Pay-or-play" legislation would change that. Pay or play means that employers either provide health care for their employees (play) or pay a tax to the government that will be used to provide health coverage (pay).
Pay-or-play schemes have recently regained some of the momentum they had back in the early 1990s. With health care premiums rising rapidly of late, taxing employers with the responsibility of providing coverage seems like a quick and easy solution, shielding lawmakers from the reality of addressing the underlying reasons for the increased costs.
A number of states have looked at, or are currently reviewing, ideas similar to the pay-or-play legislation we anticipate seeing in Washington’s 2006 legislative session. According to the National Conference of State Legislatures, such legislation was introduced in at least 11 states, including Washington, in 2005.
This last year, Maryland’s legislature passed a bill that would have required employers with 10,000 or more employees to spend 8 percent of their payrolls on health insurance or pay into a state-controlled fund. Gov. Robert L. Ehrlich, Jr. vetoed the bill, citing concerns similar to those outlined here.
Last year, Californians voted down a pay-or-play proposal. Former Gov. Gray Davis had signed pay or play into law only days before he was recalled, but the bill was defeated in a subsequent referendum.
In the 2005 Washington session, AWB lobbied successfully to defeat the so-called "Health Care Responsibility Act," which would have required employers with 50 or more employees to either provide health care or pay a tax. The Employment Policies Institute estimated that this legislation would have cost Washington employers $1.6 billion in the first year alone and would have put 25,000 people out of work.
This year’s pay-or-play proponents are taking a less dramatic approach. Like Maryland’s bill, Washington’s legislation is called "Fair Share." But, Washington’s bill goes father than Maryland’s. Whereas Maryland employers with 10,000 or more employees would have had to spend 8 percent of their payroll on health care, Washington’s bill would apply to employers with 5,000 or more employees and would require 9 percent of payroll be spent on health care.
There is also a federal question about the legality of such programs. The Employee Retirement Income Security Act (ERISA) covers a wide range of employee benefits and preempts state laws that relate to such plans. For example, Washington passed laws in 1993 that mandated employers with 500 or more employees cover all of their dependents by 1996 and all other employers provide coverage by mid-1999. These so-called "reforms" were never granted the requisite ERISA waiver and were never implemented. In fact, only one state, Hawaii, has received such a waiver, a "grandfathering" exemption because they enacted pay-or-play legislation prior to ERISA.
Pay or play doesn’t make sense at a time when employers face a slowly recovering economy coupled with ever-rising health care costs. Pay-or-play hurts businesses that already provide insurance, because if those businesses fail to meet an arbitrary payroll percentage, they still get taxed. There is no incentive to be a smart consumer of health care and try to negotiate lower costs. And, if an employer does not provide coverage, it is usually because he/she cannot afford it. Requiring those employers to increase their payroll costs puts jobs at risk.
The way to increase coverage is to make available less-expensive coverage, which allows employers to cover more people. The Legislature must provide opportunities for employers to offer affordable, flexible health plans, and employers should be allowed to purchase plans tailored to the needs of their employees. Maryland’s Gov. Ehrlich and the citizens of California got it right—pay-or-play legislation is expensive and damaging to a state’s economy. Such legislation would threaten current jobs and discourage future business growth.
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