The REAL Worst Policy in the Bill

Ezra continues to claim that the worst employer incentive in MaxTax is the way it fines employers for not covering employees.

Max Baucus’s bill retains the noxious "free rider" provision on employers. Rather than a simple employer mandate that forces every employer over a certain size to provide health-care insurance or pay a small fee, the free rider approach penalizes employers $400 for hiring low-income workers who are eligible for subsidies.


This isn’t just the worst policy in the bill. It’s one of the worst policy ideas I’ve ever seen. It creates a huge incentive to build a workforce that entirely excludes low-income workers.

Now before we get into whether this really is the worst incentive or not, let me correct something Ezra said. He said:

The employer doesn’t just pay $400 per low-income employee. He pays "$400 multiplied by the total number of employees at the firm (regardless of how many are receiving the state exchange credit)." The bill actually gives an example of how this works: Employer A has 100 employees and does not offer health-care coverage. Thirty of the employees receive subsidies on the exchange. Employer A doesn’t pay $400 x 30 employees, but $400 x 100 employees, for a total of $40,000. 

But that’s not what the MaxTax does or says. Here’s what MaxTax says [update: Ezra has now amended his post to reflect this difference.]

The employer would pay the lesser of the flat dollar amount multiplied by the number of employees receiving a tax credit or a fee of $400 per employee paid on its total number of employees.

For example, Employer A, who does not offer health coverage, has 100 employees, 30 of whom receive a tax credit for enrolling in a state exchange offered plan. If the flat dollar amount set by the Secretary of HHS for that year is $3,000, Employer A should owe $90,000. Since the maximum amount an employer must pay per year is limited to $400 multiplied by the total number of employees (for Employer A, 100), however, Employer A must pay only $40,000 (the lesser of the $40,000 maximum and the $90,000 calculated fee). [my emphasis]

So Ezra’s (and Baucus’) hypothetical employer would pay just $40,000. But say Employer B had just 5 employees who were subsidized, out of the same 100 employee firm. Employer B would pay $15,000, which brings it closer to the costs an employer might incur trying to preferentially hire an employee who might already have health care.

Ezra’s point still holds–to a degree. Both employers have an incentive to avoid hiring low income workers for whom they might be fined.

But that last bit is key: not every low income worker will get an employer fined. In fact, as I’ve pointed out, MaxTax actually includes an even bigger incentive for employers to hire very low income workers–and make sure they remain very low income. That’s because MaxTax does not penalize employers whose employees opt out of their health care by enrolling in Medicaid instead. With the Medicaid eligibility raised to 133% of poverty, it would be a very easy thing for a company like Wal-Mart to ensure its employees remain eligible for Medicaid. And, unlike a few of the scenarios that Ezra describes (such as preferring undocumented workers who can’t be enrolled in the exchange), this one is completely legal. So with the Medicaid provisions, the biggest incentive is for an employer to employ as many employees as possible who qualify for Medicaid, because it’s the one way for a large employer to get the federal government to pay for the employer’s health care for free. 

Mind you, the employer would have to offer some kind of insurance to get this big bonus. But given the captive terms which MaxTax puts employees in, any employer who puts their mind to it can offer an insurance option not only priced precisely to ensure that no employee can opt-out for subsidized exchange coverage (thereby completely eliminating the risk Ezra points to), but priced in such a way as to make Medicaid a far more attractive option.

And this scenario is not far-fetched. It is, in fact, what Wal-Mart already does in states where Medicaid laws permit. This would just institutionalize it on the national level and make it easier for Wal-Mart to manage staffing in such a way as to ensure its employees remain eligible for Medicaid. And given that ensuring low wages is much easier to do on a large scale than trying to game which relatively low wage worker (teenagers and spouses) might already have healthcare, forcing employees onto Medicaid is probably by far the cheapest way for employers to avoid any significant costs to comply with MaxTax.

The reason I say this is a worse policy than the one Ezra points to is that it is much easier to pull off while staying within the law and its got a bigger upside for employers. More importantly, it means the one employer action for which MaxTax provides the biggest incentive is to create huge numbers of jobs guaranteed to keep those working in them in poverty.

The Wal-Mart bonus included in MaxTax would likely set off a race to the bottom among employers–to shift as much of its work force as possible into Medicaid-eligible shit jobs. MaxTax is a Democratic bill rewarding employers for keeping its employees in poverty, and it would accelerate the impoverishment of America’s workers.

Now, ultimately, MaxTax’s entire treatment of workers creates several different incentives, all of them perverse. Employers can minimize costs under MaxTax by:

  • Ensuring entry-level workers never make more than 133% of the poverty level (my concern–one large employers are likely to choose)
  • Avoiding hiring the workers most likely to qualify for subsidies (Ezra’s concern–something more manageable for smaller sized employers)
  • Using employees–who under MaxTax terms will be auto-enrolled in employer programs with limited options to get out–as profit centers for horrible health care that nevertheless meets MaxTax’s crappy requirement levels for healthcare (also a choice for larger employers)

Employers may well employ a mix of these strategies so as to fulfill the requirements of MaxTax with the fewest costs. And, I suspect Ezra would agree, the entire employer requirement would need to be totally reworked to be even minimally acceptable.

But as bad as the MaxTax disincentives to hire some kinds of low wage workers are, the incentives are actually much bigger to hire very low wage workers–but to ensure they remain poor.  And both are recipes for disaster for American workers. 

19 replies
  1. MadDog says:

    Totally OT – News related to an earlier EW post of “David Kris: Our Only Military Commission Convictions May Be Illegal” – From the Miami Herald:

    While defending war court, White House seeks delay

    The Obama administration Wednesday broadly defended as constitutional its predecessor’s format for military commissions at Guantánamo but said it would seek to delay next week’s sanity hearings in a Sept. 11 case while it revamps its war on terror prosecution strategy.

    Assistant Attorney General David Kris wrote in the 30-page filing at the U.S. Appeals Court for the District of Columbia that a claim by military lawyers for accused 9/11 plotter Ramzi bin al Shibh of “constitutional defects in the Military Commissions Act are without merit…”

    …It fell to Kris, at the Justice Department, to defend the war court for the Obama administration even as he has advocated some key legislative changes to the military commissions format. For example, he wants Congress to eliminate a popular category of crime used by the Pentagon prosecutor — providing material support for terror — because, he told a congressional committee this summer, there is a “significant risk” that category of crime could not be considered a war crime on appeal.

    In his filing Wednesday, he contended that the defense lawyers’ arguments for a freeze were not valid. He also told a three-judge panel of the appeals court that, under the current war court rules set up by Congress in 2006, the civilian court had no authority to intrude.

    Still, he said, the Obama administration was preparing to seek a 60-day delay from the 9/11 judge, Army Col. Stephen Henley, because “a decision might be made to prosecute [bin al Shibh] in federal court.” If Henley agrees, that would mark the third delay in the death penalty trial since Barack Obama took office and pledged to empty the prison camps at Guantánamo, which today has some 245 detainees…

    Shorter David Kris: “Rock, meet hard place.”

  2. klynn says:

    So my getting mad over the crap “new” math education programs which make children reliant on calculators (dumbing down the math) and it’s direct relationship to a report done near the beginning of the Bush Adm stating that the service sector would be the largest employment sector by 2012 was spot on. It was all about raising up a generation of worker bees, or rather indentured servants for Walmart.

    Nice, cashing in on the babyboomers, their parents and their kids.

    OMG. Baucus used the words common sense bill and common ground bill?

  3. fatster says:

    O/T Mixed news from the occupation of Iraq.

    US military closes largest detention camp in Iraq
    US military closes Camp Bucca detention center, once its largest prison in Iraq
AP News
    Sep 16, 2009 16:53 EST

    “The U.S. military on Wednesday closed Camp Bucca, an isolated desert prison that was once its largest lockup in Iraq, as it moves to release thousands of detainees or transfer them to Iraqi custody before the end of the year.”



    US troops kill Fallujah ’shoe-thrower’

Published: September 16, 2009 
Updated 6 hours ago

    FALLUJAH, Iraq — “An Iraqi man who witnesses said shouted abuse before throwing a shoe at a US army vehicle was shot dead on Wednesday in what the American military said was a suspected grenade attack.”


    • Hmmm says:

      FALLUJAH, Iraq — An Iraqi man who witnesses said shouted abuse before throwing a shoe at a US army vehicle was shot dead on Wednesday in what the American military said was a suspected grenade attack.

      Residents told an AFP reporter in Fallujah that Ahmed Latif, 32, whom they said was mentally disturbed, insulted the soldiers as they patrolled in the centre of the city, and then hurled a shoe at them.

      The US military told AFP that a convoy in Fallujah had been attacked with a suspected grenade.

      “Positive identification of the attacker was made, and US forces fired in self-defence wounding the attacker,” the army said in a statement.

      “Local Iraqi police secured the scene and transported the wounded attacker to a local hospital for medical care,” it added.

      Dr Ali Hatam of Fallujah hospital confirmed that Latif died of gunshot wounds.

      The incident came a day after Iraqi journalist Muntazer al-Zaidi was freed after spending nine months in jail for throwing his shoes at former US president George W. Bush during a visit to Baghdad.

      Zaidi, whose action was in protest at the bloodshed and suffering in Iraq caused by the 2003 invasion ordered by Bush, went into hiding fearing for his life before flying out of the country.

      Fuck. Hopeless.

      • fatster says:

        Note that his shouting is described as “abuse”. Isn’t that the same word they use instead of the t-o-r-t-u-r-e word?

        You are so right; this is absolutely wretched. And hopeless.

        • Hmmm says:

          Truly a “Resistance is futile!” moment. One wonders whether this is targeted retribution for the original insult to W.

  4. cregan says:

    IN a certain way, this complaint on the Max Tax is similar to problems with how the public option is set up.

    As I understand it, employers with certain payrolls can drop employee coverage if they pay an 8% fine. I think for most, they are already paying more than 8% of the salary for coverage. So, not only might it encourage them to hire people who already have coverage, but also to just pay the 8% fine and drop coverage.

    Again, to me, this is why a lot more time needs to be spent on the logistics and mechanisms of this bill. It is complicated and similar to an ecosystem–as you change one part you can negatively influence another part without knowing it or anticipating it.

    • cinnamonape says:

      Or they could use a “template” that works well already. But then they’d have to use a model from one of the other Western Industrialized Democracies…in which the programs do work “like an ecosystem” and have been doing so for decades. But the Republicans and Blue Dogs would scream bloody hell at that. We’re ‘Merkins, after all…no one else has ideas that we need to borrow or look at!

      • cregan says:

        Yes, but even there you would have large logistical and detail problems in any conversion process.

        And, that isn’t going to happen anyway, so it is like saying, “wouldn’t it be wonderful if everyone just loved their brother and quit fighting?” Yes, it would, but it isn’t going to happen in THIS insane world.

        • cinnamonape says:

          And, that isn’t going to happen anyway, so it is like saying, “wouldn’t it be wonderful if everyone just loved their brother and quit fighting?” Yes, it would, but it isn’t going to happen in THIS insane world.

          Like I said “But the Republicans and Blue Dogs would scream bloody hell at that. We’re ‘Merkins, after all…no one else has ideas that we need to borrow or look at!”

  5. cinnamonape says:

    There’s one class of low income workers the Baucus Bill would seem to encourage employers to hire…undocumented workers. These are specifically EXCLUDED from having the opportunity to purchase insurance through the exchanges. They are “ciphers” who would neither receive subsidies, nor be recorded in the “employee pool” by their SSI’s or otherwise. An employer wants to keep the fines down…it behooves him to pay employees under the table: “independent contractors” responsible, supposedly, for their own healthcare coverage…and checking their own tax and legality status.

  6. PJEvans says:

    In 2004, I worked for a subchapter-S corp where at least some of the employees were paid nominally-living-wages but still needed aid for their families’ medical care. (If you think $11/hour is a living wage in Southern California, I can get you a nice deal on a used bridge.)

  7. ezdidit says:

    Baucus plan is now widely reported to be bullshit reform. So we’re starting over, (and sending that dickhead Baucus to rehab.)

  8. ezdidit says:

    This Baucus bill is juxtaposed starkly against the backdrop of Joe Wilson’s errant stupidity (and the House’s ineffectual consequence) and insulting the President and his address to children.

    I think we can blame it all on Republicans eventually, but I’m not holding my breath. Democrats haven’t even begun to stretch & flex.

    • fatster says:

      No, they haven’t, most of them. They’re just laying there, yawning and scratching with the alarm turned off.

Comments are closed.