Perhaps the most consequential decision in the health care negotiations between the House and Senate may have been made yesterday without much fanfare. The decision was to drop the House’s employer mandate and go with the Senate’s much weaker “free rider” provision. This decision will result in 5 million fewer uninsured individuals gaining coverage because of reform, will likely dramatically reduce the quality of the insurance coverage for another 10 million Americans, and reduce government revenue by over $100 billion.

5 Million More Without Coverage

The Senate bill only expands coverage to 31 million people who would otherwise be projected to not have insurance in 2019. The House bill is projected to expand coverage to 36 million. The primary reasons the House bill covers 5 million more people is due to the employer mandate, a provision now rumored to have been dropped.

Over A $100 Billion In Less Revenue

The employer mandate in the House bill collects $135 billion in fines from employers who do not provide coverage. The Senate bill’s free rider provision will only collect $28 billion. In addition to collecting $107 billion less, the Senate’s weak free rider provision will encourage employers to drop coverage and have their employee get tax credits on the new exchange. This, in turn, will drive up the cost of reform even further.

9-10 Million With Worse Coverage

The Senate bill’s weak penalty on employers combined with tax credits for individuals without employer-provided coverage, will result in employers dropping coverage for roughly 9-10 million people, according to the CBO. 9-10 million individuals who would otherwise have received coverage from their employer will not as a result of the Senate bill. On the other hand, the House’s employer mandate would result in a 6-7 million net increase in individuals with employer-provided coverage.

The 9-10 million people who will be dropped from their employer provided coverage as a result of the Senate plan will likely get insurance on the new exchanges instead. It will primarily be small businesses and companies that employ many low-income workers that drop coverage. The quality of insurance on the new exchange is of a much lower quality than typical employer-provided coverage from small businesses. This means millions of the people will likely end up with worse coverage.

Long Term

I think the CBO is dramatically underestimating the effect of the Senate’s free rider provision. Providing an individual with coverage costs several thousand dollars, while not providing coverage only results in a $750-per-employee fine. With employers knowing their employees will still be able to get health insurance, even get extra government money to buy insurance, it will make strong financial sense to stop providing coverage. This will result in millions shifting from employer-provided coverage into the exchange, where the minimum standards and quality of insurance is just very bad.

The employer mandate in the House bill was one of the most important funding and coverage expansion mechanisms in the reform proposal. Dropping it will result in a major loss of revenue that could have been used to increase affordability tax credits on the exchange, a serious decrease in the number of individuals who will gain coverage, and millions getting lower quality health insurance. While the employer mandate has not gotten much media attention, dropping it in favor of the free rider provision will make reform substantially less progressive. It could also imperil the long term success of reform.