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Home Publications Blogs Beat the Press The Employer Mandate and Incentives to Cheat

The Employer Mandate and Incentives to Cheat

Friday, 02 August 2013 04:56

Many political figures opposed to the ACA have made a big point of complaining that the delay of employer sanctions and the lack of enforcement mechanisms will make it easy for individuals to cheat the system and take advantage of the subsidies in the health care exchanges. This was a big complaint previously made by speaker Boehner and repeated today by Michael Gerson. It's worth noting what this cheating would mean and the incentives provided to workers.

The deal is supposed to be that workers are eligible to join the exchanges and get income based subsidies, if their employer does not offer them an affordable (based on their income) insurance policy at work. Because the government is not prepared to enforce the employer sanctions for not insuring workers and does not have data on the nature of the insurance offered to workers entering the exchanges, there could be some workers who enter the exchanges and get subsidies who actually are offered affordable insurance from their employer.

The issue here is how many people do we think will fall into this boat. To take an extreme example, suppose a worker has an employer that pays the full premium for their insurance. What incentive would this worker have to lie their way into the exchange so that they could get a plan that is subsidized by the government?

If the worker is in a low-income household then the subsidy could be close to 100 percent. In this case, if the insurance offered through the exchange is better than what the employer offers (do opponents of the ACA think this will often be true?) then the worker would have an incentive to lie their way into the exchange, but otherwise they would be better off taking the deal from their employer.

Of course most employers do not pay 100 percent of the premium, but the cases where workers are likely to get a better deal through the exchanges than what they would get from an employer who offers a plan that fits the ACA definition of affordable are likely to be relatively limited. Therefore the idea that there will be massive cheating by this measure seems unlikely.

By contrast, if ACA opponents are actually worried about the government being ripped off, there are many small business owners who list personal expenses, such as a car purchased primarily for personal use, as business expenses. They list these items as business expenses, thereby having taxpayers pick up the tab.

The money lost to the government through this tax dodge is almost certainly at least an order of magnitude greater than the money that could potentially be lost through improper subsidies. (For the math here, if a business owner is in the 39.6 percent tax bracket and buys a $30,000 car, this will cost taxpayers almost $12,000.) Anyhow, if opponents of the ACA are generally concerned about the government being ripped off, they might focus their attention on improper reporting by small business owners. There is a lot more money here than in improper ACA subsidies.

Comments (5)Add Comment
Did Mr Who's Your Nanny Get the Memo? There's No Good Guys or Bad Guys, Only Opportunistic Thieves
written by Last Mover, August 02, 2013 8:15

Why exactly does Dean Baker think they would be worried about the government getting ripped off?

Because they themselves do it on a regular basis, that's why.

Think of it in a moral context. When righteous conservatives strut about protecting property rights from theft by socialists, it's because given a chance they would steal it themselves, even from each other.

Anyone who buys the good guy-bad guy argument is naive. At their core they are social darwinists like all human animals, surviving on whatever they can take from true makers.

The solution is simple. Provide "papers please" armed guards at the exchanges to out the cheaters so the bad guys with guns can't win.
Again, it's only small amounts that are being stolen, Low-rated comment [Show]
But we should be worried about lower-middle-income people ripped off by ACA
written by Rachel, August 02, 2013 9:09

Too much of the funding of the ACA comes from imposing excess insurance on the less well-off. The short-order cook might have used the extra money to buy a better coat, to save for a car, to help pay off a loan. Tough. Said cook is obliged to help pay for some home-owner's colonoscopies. So that aspect is, to put it mildly, inefficient. For that matter, a less-well-off person may be dying of a disease that does not interest this person's doctors. The dying person may prefer to save the money, to die in peace near a beach in Baja. That is also not an option. Said dying person of limited means is obliged to subisize a law student's birth control pills. Also inefficient.

Nobody's cheating here, but it isn't right.
@Bill H
written by Bummer, August 02, 2013 9:43
If you stop grinding your axe for a moment, Bill, you'll note that Dean is not, in fact, hand waving away tax fraud just because "it does not affect [his] formulas much".

On the contrary, he takes no stance at all, really, on how fraud should be pursued and stopped. His main point is that self-serving hucksters are drumming up pretextual challenges to the ACA, not because they care SO MUCH about fraud and waste, but because they hate the entire concept of the mandate, full stop. If these detractors cared SO MUCH about fraud and waste, Dean's arguing, they'd be gunning for the big(ger) bucks (business expense fraud) rather than counting hypothetical pennies.

Also, you're not gonna make many friends at Beat the Press by underlining "my money". It's just that sorta crowd.
health care cost transparency....
written by pete, August 03, 2013 9:59
The big issue is lack of transparency. Nowadays I get an annual statement from my employer stating how much money it costs them to have me as an employee, which is WAY DIFFERENT of course than my salary. If all of this was more transparent, then we could negotiate. For example, I know in Oregon at one school (probably all) where if you decline the health insurance (because you are covered by a spouse, ete.) you get an increase in pay. So it can be done. More transparency would probably help, but the real problem is the difference in taxing personal purchases of health care vs. tax deducted employer provision. If this were changed then things would likely equilibrate a lot faster.
Meantime, the transition will likely be extremely rocky, since there are so many moving parts, of which apparently the democrats were unaware when they passed this behemoth.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.