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“Free-Rider” Penalty For Employers Draws Ire From Advocates, Yawns From Business

A “free-rider” penalty being considered by members of the Senate Finance Committee isn’t getting a free ride from advocates for low-wage workers and labor unions.

The penalty would be an alternative to an employer mandate, which is strongly opposed by much of the business community. As envisioned by the committee members, it would require companies that don’t provide insurance to pick up part of the cost of any subsidies workers would be entitled to when buying insurance on proposed health exchanges. The government would pay for the rest of the subsidies.

But low-income advocates and unions say the Finance Committee proposal could prompt employers to steer clear of hiring low-income workers who might qualify for a subsidy. Or, they say, companies might be more inclined to hire workers who have coverage through a family member, and thus don’t need to get subsidized coverage.

Judith Solomon, a senior fellow with the Center on Budget and Policy Priorities, a liberal-leaning think tank, said the provision “distorts hiring decisions and has a very negative impact on low-income people getting hired.”

Labor unions also expressed concern. “We are very wary of it,” said Gerald Shea, assistant to the president of the AFL-CIO.

The House bill would require companies to provide coverage for workers or pay a payroll tax of as much as 8 percent. The Senate Health, Education, Labor and Pensions Committee bill would require businesses to pony up $750 a year per uninsured employee.

“It’s never easy to swallow a mandate and we never willingly swallow one, but of all the mandates on the table, this is the least onerous,” said Neil Trautwein, vice president of the National Retail Federation.

James Gelfand, senior manager of health policy at the U.S. Chamber of Commerce, said the Finance idea is better than the “pay-or-play” provisions in the other two bills because it would limit the number of employers who might face a tax. In addition, he said, it would give employers flexibility in the type of plan they offer.

“This is not our favorite provision in the bill,” Gelfand said. “But we appreciate the Senate Finance Committee working with us, unlike the House and the (Senate health) committees working against us.”

It’s not clear how much the proposed “free-rider” tax could be, but some lobbyists said that it could amount to $1,000 to $2,000 per employee. It’s designed more to prod employers to maintain coverage than to raise a lot of revenue, according to those familiar with the committee members’ thinking.

Employers could avoid the tax by offering a variety of health coverage, including high deductible plans, according to people who have been monitoring the Finance discussions. The penalty would not apply to companies with fewer than 50 employees or part-time workers, they said.

In addition, according to several people familiar with the provision, it wouldn’t apply to employees who are on Medicaid, the state-federal health insurance program for the poor. That’s an effort to ensure that employers don’t avoid hiring people who are eligible for Medicaid, according to some low-income advocates.

Labor unions for years have heavily criticized giant companies such as Wal-Mart Stores Inc. for failing to provide affordable insurance coverage for their workers, many of whom then end up getting coverage under Medicaid.

Wal-Mart earlier this month said it would support an employer insurance mandate, but would oppose efforts to tax businesses whose low-income workers enroll in Medicaid or other subsidized coverage programs.

“We are for an employer mandate which is fair and broad in its coverage, but any alternative to an employer mandate should not create barriers to hiring entry level employees,” Wal-Mart wrote in a letter to President Barack Obama. Wal-Mart officials did not respond to a call for a comment on the latest tax proposal coming from Senate Finance Committee.

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