Wednesday, November 13, 2013

The Slow Death of the Employer Mandate

Copyright, The New York Times Company

Students of health reform can be informed and entertained by revisiting a book by the health reform champion John E. McDonough.

As a member of the Massachusetts House of Representatives from 1985 to 1997, Mr. McDonough had worked for state health reform well before the now famous Romneycare health reform of 2006. During that time he also earned a doctorate in public health.

Like many other former legislators, he wrote a book about his experiences and relationships in office. “Experiencing Politics” (published 13 years ago) organizes his stories around social science models of the political process, including the principal-agent model and punctuated equilibrium theory.

The models are known by fancy phrases in the academic literature, but Mr. McDonough quickly brings them down to earth with explanations that are nontechnical and addressed to the general public. His stories are engaging and bring the models alive, even to social scientists who have seen the models on paper, yet may be dubious that they have much practical value.

Mr. McDonough is not trained as an economist, but usually shows good economic instincts in the book (though he does not mention that per-employee penalties and minimum wages might reduce employment among low-skill workers).

Why is politics so contentious and polarized these days? Mr. McDonough explains that there’s a lot at stake: “We invest enormous authority and trust in our government” and “we give our legislatures remarkable powers to pass laws that govern our own behaviors, from the trivial to the profound.”

Of particular interest today are his Chapters 6 and 7 on Massachusetts health legislation between 1988 and 1997. Mr. McDonough describes how the state’s previous system of hospital rate regulation had been put in place for the purpose of controlling medical spending and how he believes it might have worked for a time.

But he says the academic studies on which he relied became outdated. “I didn’t see it coming,” he says, adding, “Massachusetts government lost the ability to manage its hospital regulatory system with discipline and integrity.” He and other legislators concluded that “market-based contracting, organized around managed care, could correct the worst aspects of market failure, not perfectly but far better than regulation.”

Mr. McDonough describes how Gov. Michael Dukakis’s 1988 law sought to achieve universal coverage in Massachusetts with a legislative package that included a $1,680 penalty (per employee, per year) on employers who did not provide health coverage to their employees. Adjusted for inflation, that would be like proposing a $2,863 penalty in 2006, when Romneycare was passed with a mere $295 employer mandate.

The Dukakis package passed narrowly, and to gain legislative approval the final law delayed the employer mandate’s implementation by four years. Does that sound familiar? The national Affordable Care Act was passed in 2010, with an employer mandate to begin in 2014.

Mr. McDonough describes how those four years gave Massachusetts employers time to organize their opposition. Moreover, as 1992 approached, the Massachusetts labor market was weak. Arguably both of these things happened nationally between 2010 and 2013.

As a legislator, Mr. McDonough met with business executives to respond to their concerns over health reform. He recalls one of those meetings where “sitting quietly through my presentation was the owner of a Domino’s Pizza shop.” The shop owner explained: “I compete against pizza stores that pay everything and everyone under the table. I pay unemployment, worker’s comp, FICA, you name it, and you want to add one more thing that I have to dig up while my competitors pay none of those things? Come on.”

Mr. McDonough had no reply to alleviate that concern. With a few months to go until the originally scheduled implementation, Massachusetts lawmakers decided to delay the Dukakis employer mandate for three years. It would be delayed two more times and then, in exchange for business community support for a coverage expansion for children, ultimately repealed.

On the national level, while Congress was not consulted, with six months to go before the originally scheduled implementation, the Obama administration delayed its employer mandate one year.

Although today Mr. McDonough notes the differences rather than the parallels between the Dukakis law and the Affordable Care Act, proponents of the national employer mandate should be worried that it may be approaching the end of its political life.

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