Category: Subsidies

Wal-Mart’s recent announcement that it will snatch health coverage away from 30,000 part-timers is not just the latest in a long series of Scrooge-like actions by the giant retailer. It is also a sharp reminder of both the necessity of the Affordable Care Act and the deficiencies of that law.

If we think back to the time before Obamacare became a political lightning rod, we may recall that it was precisely the behavior of corporations such as Wal-Mart that created the need for healthcare reform.

In addition to paying low wages, Wal-Mart had long been criticized for providing inadequate benefits to its employees. In 2003 the Wall Street Journal published an article describing the various ways in which the company kept its spending on health benefits as low as possible. This was explored in more detail in an AFL-CIO study that came out about the same time.

This evidence, combined with reports that the company was encouraging its workers to apply for Medicaid and other government social safety net programs, prompted critics to argue that Wal-Mart was in effect shifting some of its labor costs onto taxpayers. In 2004, the Democratic staff of the House Committee on Education and the Workforce published a report estimating that the average Wal-Mart employee used federal safety net programs costing $2,103 per year.

Over the following few years, state governments were encouraged to reveal which employers accounted for the most enrollees (including dependents) in Medicaid, the State Children’s Health Insurance Program and other forms of taxpayer-funded health coverage. For those states that did disclose those lists, Wal-Mart was almost always at or near the top. My colleagues and I at Good Jobs First still maintain a compilation of these disclosures, though most of the data is now woefully out of date.

Healthcare reform should have put an end to all this, ideally by creating a system of Medicare for all funded with higher taxes on business. Of course, what we got was something else. Ironically, one of the most positive aspects of the Affordable Care Act – the expansion of Medicaid eligibility in some states – may be increasing the amount of hidden taxpayer costs generated by employers such as Wal-Mart. Yet that’s less important that the extension of those benefits to families desperately in need.

The ACA’s impact on the large portion of the workforce not enrolled in public programs is even more complicated. Although the law depends heavily on private insurance, it does not, strictly speaking, require employers to provide group coverage. Instead, what is often called the law’s employer mandate is a half-baked arrangement that will simply require larger companies (50 or more FTEs) that fail to provide adequate group coverage to pay a penalty.

That penalty is likely to be less than the cost of providing coverage and it will kick in only if at least one full-time employee of a company ends up getting federally subsidized coverage through the state or federal exchanges created by the ACA. It thus appears that companies such as Wal-Mart, Target and Home Depot that dump part-timers from their plans will be able to avoid the penalties, which in any event are not yet in effect as a result of several postponements by the Obama Administration.

While the ACA is helping more people get coverage, it does nothing to thwart low-road employers from continuing to shift what should be their health coverage costs onto taxpayers. It also appears to do nothing to help us discover which corporations are guilty of this practice, since there are no explicit provisions for making public the coverage reports that large employers will be required to file with the IRS.

Not only does the ACA fail to impose a meaningful employer mandate; it also misses an opportunity to shame those freeloading employers which expect taxpayers to pick up the tab for their failure to provide decent coverage to all their workers.

Along with the scandalous number of the uninsured, one of the biggest healthcare outrages in the United States is the ability of large companies employing low-wage workers to avoid providing reasonable group coverage, letting those employees enroll instead in public programs such as Medicaid.

Those programs were meant for poor people not in the labor force or those working for marginal employers.  In the absence of any legal obligation to provide workplace coverage, giant prosperous corporations such as Wal-Mart exploit the public programs and thus shift costs onto taxpayers.

A recently updated report by the Democratic staff of the U.S. House Committee on Education and the Workforce estimates that the workforce of a typical Wal-Mart Supercenter costs taxpayers some $250,000 a year in Medicaid costs (as part of at least $904,000 a year in overall safety net costs per store).

One might think that this is going to change under the Affordable Care Act that is gradually taking effect. While the law contains a requirement for individuals to have coverage, there is no real employer mandate to provide that coverage to workers. Instead, the ACA imposes penalties on certain employers for failing to provide affordable and inadequate coverage. Yet there are no fines levied when a boss pushes a worker onto the Medicaid rolls.

In fact, the ACA’s provisions encouraging states to adopt expanded Medicaid coverage, while a good thing for the uninsured, will make it easier for low-wage employers both to avoid providing group coverage and to escape penalties for doing so. This largely overlooked fact is worth keeping in mind when businesses complain about the supposedly onerous employer penalties in the ACA—penalties whose implementation the Obama Administration announced in July will be delayed for a year. (Also being delayed, we just learned, are provisions limiting the out-of-pocket costs insurance companies can impose.)

The ACA’s employer penalties have an exceedingly narrow scope. They will apply only when an employee of a firm with 50 or more full-time workers (the law’s definition of a “large” employer) seeks non-group coverage from an insurance company through one of the new state Exchanges that are being constructed and the employee qualifies for a premium or cost-sharing subsidy based on his or her household income.

Those individual subsidies are available only for workers whose household income is between 100 and 400 percent of the federal poverty line (FPL) for their family size and whose employer either fails to provide any group coverage or provides coverage that is unaffordable or inadequate. Coverage for people in that income range is deemed unaffordable if the premium (for self-only coverage) exceeds 9.5 percent of household income or the plan covers less than 60 percent of medical costs.

This means that employers of people earning less than the FPL or more than 400 percent of the FPL face absolutely no risk of penalties for failing to provide decent coverage, while the workers in those income ranges are denied subsidies from the Exchanges. Those earning less than the FPL may or may not be eligible for Medicaid, depending on the state. Those earning more than 400 percent of the FPL are not eligible for Medicaid in any state.

Penalties may also not apply when “large” employers fail to provide affordable coverage to those in the 100-400 percent of FPL range. That’s because some of those workers will for the first time qualify for Medicaid if they live in a state that accepts the optional federal incentives in the ACA for expanding Medicaid eligibility.

Do those conservative state legislators refusing to go along with Medicaid expansion realize that they are increasing the likelihood that employers will have to pay ACA penalties?

Some concern has been expressed about the potential coverage gap for those low-income families which are not eligible either for an Exchange subsidy or Medicaid, but much less attention has been paid to what amounts to an employer penalty gap.

A primary aim of the ACA is to reduce the ranks of the uninsured, but the rejection of a single-payer system means that workplace-based coverage needs to be strengthened. That should have meant a rigorous employer mandate. Instead, the ACA went with a pay-or-play system whose penalties turn out to be full of holes. Companies such as Wal-Mart may thus find it easy to continue shifting their healthcare costs onto the public.

At the state level, one of ways activists have sought to fight such cost-shifting has been to push for the disclosure of data showing which companies account for the largest number of enrollees in Medicaid and other public plans. Such shaming lists have been published for about half the states, with Wal-Mart or McDonald’s typically appearing at the top.

The ACA will require “large” employers to file reports indicating whether they provide group coverage (the effective date of this has also been pushed back). There is no indication in the ACA itself whether these reports can be made public, but given that they will be submitted to the IRS, it is likely that they will be treated as confidential. Not only does the ACA fail to impose a real employer mandate; it also appears to miss an opportunity to shame those freeloading employers which expect taxpayers to pick up the tab for their failure to provide decent coverage.