In today’s POLITICO, Sen. Olympia Snowe (R-ME) explained that the group of six senators negotiating the Senate Finance Committee health care bill included a free-rider provision because they feared an employer-mandate could “create a perverse incentive where employers drop coverage”:

There is not a broad-based employer mandate. … There are approximately 170 million Americans that receive coverage through employers. That is a significant percentage of the population. We don’t want to undermine that or create a perverse incentive where employers drop the coverage because their employees could potentially get subsidies through the exchange.”

It’s unlikely that an employer mandate would lead employers to stop offering insurance. To the contrary, in the context of comprehensive reform, an employer mandate would preserve employer coverage and keep the employer contribution in the system. In fact, in response to Republican criticisms, the Congressional Budget Office said on Sunday that the House bill, which includes a strong employer mandate, would “drive 9 million people off of employer-provided insurance plans but that 12 million people who do not have such coverage now would get it — a net increase of 3 million people insured through their employers.”

The “perverse incentives” may be created through the free-rider approach. An earlier version of the Finance Committee’s bill required employers with workers receiving a subsidy in the Exchange or Medicaid coverage to pay 50% of the national average Medicaid costs on behalf of their Medicaid workers and/or 100% of the tax credit for workers in the Exchange.

But if employers are paying 50% of the national average Medicaid costs, then employers in low cost areas would be subsidizing workers in high cost areas, and vice versa. What’s more, since the free-rider mandate only requires employers to partly finance the coverage of lower income workers (workers who qualify for subsidies in the Exchange or Medicaid), it may discourage employers from bringing on new lower income hires. As the Center on Budget and Policy Priorities explains:

- It would make it considerably more expensive for employers who do not offer health insurance to hire workers from lower-income families.

- Employers would have strong incentives to tilt hiring toward people who have a spouse/parent with a good income. Poor parents with children in one-earner families would be particularly disadvantaged.

- Since minorities are more likely to have low family incomes than non-minorities, a larger share of prospective minority workers would likely be harmed.

- Employees (or prospective employees) might be discouraged from applying for Medicaid or subsidies because they know their employer would be charged and fear angering the employer, and might forgo needed health care as a consequence.

- The proposal also could discourage the hiring of low-income people with disabilities who have no choice but to enroll in Medicaid.

- Another concern is that this provision would be very complicated to administer. Employers would need to maintain ongoing data exchange with state Medicaid programs and state health insurance exchanges.

The Senate Finance Committee may be closer to a deal on health care reform legislation. According to the New York Times, three Democrats and three Republicans have crafted an agreement that replaces the employer mandate with a free rider provision, establishes a cooperative in place of the public option, and partly funds reform by taxing ‘Cadillac’ health care benefits.

While Senate officials are stressing that “no agreement has been reached on a bipartisan measure, and…there is no guarantee of one, with numerous key issues remaining to be settled,” Sen. Olympia Snowe (R-ME) who is part of the negotiations, confirmed that Senators are moving away from a “broad based mandate” and explained that “it is safe to say it [a non profit cooperative] is probably one that will remain in the final document.”

Last night, during an appearance on MSNBC’s The Rachel Maddow Show, former Gov. Howard Dean (D-VT) criticized the “so-called compromise” for not going far enough to reform the health care system:

You know, this is going to be a hell of an issue in 2010 cause honestly, what’s the point of having a 60 vote majority in the United States Senate, if you can’t produce…health care reform. You can get health insurance reform. This bill is going to cost us a lot of money and it isn’t going to do anything, if this so-called compromise is true. This compromise does nothing, except it will reform insurance. That’s a good thing to do, but they ought to strip the money out of it cause we reformed insurance like this in Vermont 15 years ago. It’s a fine thing to do, but it doesn’t insure more people

Watch it:

The compromise has changed little from June, when the Washington Posts’ Ezra Klein first leaked details of the emerging proposal. That draft replaced the public option with Conrad’s co-op compromise, offered subsidies to Americans making up to 300 percent of the Federal Poverty Line (FPL), expanded Medicaid to children and pregnant women up to 133% of FPL ($28,200 for a family of four) and parents and childless adults up to 100% of FPL ($10,800 per year), and also included the free-rider provision.

Unlike the employer-mandate, which requires all large employers to offer coverage or pay a fee, the free-rider provision only targets employers whose workforce is eligible for subsidized coverage in the Exchange or through Medicaid. Under the provision, employers who drop coverage for employees would “have to cover the cost of any government subsidy their employees would qualify for under reform.”

Most progressives will likely be disappointed, but as Jonathan Cohn points out, “I’m not sure it makes sense to kick and scream about all of this right now. Getting a bill out of Finance, any bill, will move things along. There’s always the Senate floor–where the Finance bill must be merged with the bill from Senate Health, Education, Labor, and Pensions Committee–and then conference committee.” In other words, this “deal” isn’t at all surprising, and it’s by no means the final word on health care reform.

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