09/10/2009 05:12 am ET | Updated May 25, 2011

Emerging Senate Health Bill Could Cause Job Discrimination Against Low-Income and Minority Workers

While the Senate Finance Committee's effort to craft a bipartisan health reform bill has gotten considerable media attention, a troublesome piece of the bill that the Finance Committee's bipartisan negotiators are developing has gone almost unnoticed. The provision -- the so-called "free-rider" requirement -- would effectively discourage employers from hiring low-income and minority workers, women, and workers with disabilities.

To be sure, this isn't purposeful; it isn't what the Finance Committee negotiators intend. Nevertheless, it's a major problem that Congress must fix before enacting a final health reform bill.

The provision in question tries to address one of the biggest challenges in health reform: how to expand coverage to the uninsured without jeopardizing coverage for those who already have it. If the government provides low- and moderate-income people with subsidies to help them buy health insurance (as it would under all of the major proposals before Congress), employers might stop offering coverage to their workers on the theory that workers could buy it on their own.

That would drive up the cost of health care reform further, since many of the people who'd lose employer-sponsored coverage would need government subsidies to afford coverage on their own.

To avoid these problems, the health reform bill that three House Committees have approved -- as well as the bill that the Senate Health, Education, Labor, and Pensions (HELP) Committee recently passed -- would require employers that don't offer health coverage to pay a fee based on the total number of workers they have or the size of their total payroll. That would give employers an incentive to continue offering coverage. (Smaller employers would be exempt.)

The Senate Finance Committee negotiators have adopted an employer requirement as well, but theirs is radically different: employers that don't offer coverage would have to pay the average subsidy cost per person for all of their workers who use subsidies to buy coverage. People would qualify for subsidies if their family income is less than three times the poverty line, or roughly $55,000 for a family of three.

Basically, instead of paying a modest fee per worker based on the size of their full workforce (as under the House and Senate HELP proposals), employers that don't offer coverage would pay much larger amounts per worker but for only part of their workforce. This would effectively divide workers into two classes -- those who qualify for federal subsidies and those who don't -- and give employers a powerful incentive not to hire workers in the first group.

To see why, imagine that an employer that doesn't offer health coverage has two applicants for the same job; one is a single mother, while the other has a spouse with a good income. The single mother, with little family income other than her earnings, qualifies for federal health subsidies, while the married worker doesn't need subsidies because she has coverage through her spouse (and wouldn't qualify for subsidies anyway because her or her spouse's combined wages put them at a considerably higher income level). Under the "free-rider" provision, the employer would have to pay up to several thousand dollars each year to cover the single mother's subsidies, but wouldn't have to pay a penny toward the married worker's health costs.

In other words, it would cost the employer several thousand dollars more to hire a low-income individual than to have someone from a more economically secure family to do the same job.

It wouldn't be difficult for employers to determine which applicants likely are in low-income families. Employers often know who is a single parent and who is married, for example, and a single parent applying for a job that pays a modest wage would likely qualify for a subsidy -- and hence cost the employer more. Employers also know an applicant's race and what part of town the applicant lives in, which together can provide important clues to whether the applicant's family is likely to be low-income.

When it comes to current employees, of course, employers would know exactly which ones they'd have to pay extra for, because the employer would be billed for them every month or quarter. That would create an incentive for employers to lay these workers off first if layoffs became necessary due to a recession or for other reasons.

Minority workers would be at special risk, since they are much more likely than whites to have low family incomes. (Well over half of all African American and Hispanic working-age adults are in families whose incomes fall below three times the poverty line.) Women -- especially single mothers -- would also be affected disproportionately. Low-income people with disabilities would be at special risk as well; they'd need subsidies if they couldn't get coverage through their employer, and they wouldn't have the option of forgoing coverage given their health conditions. The Leadership Conference on Civil Rights, an alliance of the nation's major civil rights organizations, has come out strongly against this provision, stating "we strongly believe that this provision would unintentionally lead to substantial employment discrimination."

A further problem with this provision is that it would be "horrendously complex" to administer, according to Robert Reischauer, the highly respected former director of the Congressional Budget Office who now heads the Urban Institute. The government would need to determine how many employees in each firm qualified for and received subsidies each month and bill employers accordingly, and disputes would inevitably arise over how much employers owed for a particular month or quarter.

So why have the Finance Committee negotiators endorsed this proposal? Republican negotiators, while agreeing with their Democratic colleagues on the need for some provision to protect employer-sponsored coverage, rejected the approach used in the House and Senate HELP proposals. The negotiators then settled on the free-rider provision instead.

The Committee's search for a bipartisan compromise health reform package is laudable. But this particular compromise, which would have employers that don't offer insurance pay several thousand dollars more to hire a person from a lower-income family than someone from a middle- or upper-income family to do the same job, is a serious mistake. It would take federal policy where it has never gone before -- to tilting hiring and firing decisions against people simply because their families have low incomes. That would violate the basic American principle of equal opportunity.

-- Robert Greenstein, Executive Director, Center on Budget and Policy Priorities

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