Who Needs the Employer Mandate?

So, the employer mandate is delayed a year. Why not make it two, three, or infinitely more?

Years ago, I wrote many posts questioning why we should want to encourage the continuation of employer-based health insurance (ESI). I know of no economist who likes the idea of wedding health insurance to employment. It distorts employment decisions. It suppresses small business creation. It obfuscates compensation. It decreases individual choice. It reduces revenue under our tax code, which exempts the premium of ESI from payroll and income taxes. That preferential tax treatment also encourages overly generous coverage.

An employer mandate helps support all these terrible things. Why would we want one?

The only reason I can imagine for wanting an employer mandate is that it may be, superficially, net revenue positive. That is, the cost of exchange subsidies may be higher than the value of forgone taxation of ESI, less any revenue collected from the employer mandate penalty itself. However, once you factor in the other benefits of severing the link between employment and health insurance, it may be a far better world without the mandate, and a better one still without the preferential tax treatment of ESI.

In my view, the Administration should have gone further than delaying the employer mandate. They should have also proposed a bill to remove it entirely, along with capping or removing the preferential tax treatment of ESI. I’d also like everyone to have access to subsidized exchange coverage. It may even be possible to make some version of a combination of these be revenue positive, but I haven’t tried to run the numbers. Of course, such a proposal would ignite a political firestorm. Perhaps only economists would be smiling.

[Originally posted at The Incidental Economist]

Austin Frakt

Austin Frakt is a health economist and an assistant professor at Boston University's School of Medicine and School of Public Health. He blogs at The Incidental Economist.