The Baucus Bill: The Worst Policy in the Bill, and Possibly in the World

Baucus's bill retains the noxious "free rider" provision on employers. Rather than a simple employer mandate that forces every employer over a certain size to provide health-care insurance or pay a small fee, the free rider approach penalizes employers for hiring low-income workers who are eligible for subsidies. That will create an incentive to do one of two things: Don't hire low-income workers (hire a teenager looking for a job rather than a single mother, or hire a housewife looking for a second job rather than an unemployed breadwinner), or hire illegal immigrants.

And it actually gets worse. The employer pays more if the low-income worker needs subsidies for his family as opposed to just himself. So it not only discriminates against low-income workers, but it particularly discriminates against low-income parents. Single mothers will get the worst deal, as they have lower incomes, and as you might expect, children who need health care.

The penalty itself is a bit confusing, and if anything, even worse than one might imagine: The employer will pay the lesser of A) the average subsidy in the exchange times the number of subsidized workers or B) $400 times the total number of workers. Two examples should clarify this:

Baucus Corp has 100 employees and does not offer health-care coverage. Thirty of the employees receive subsidies on the exchange. The average subsidy that year is $5,000. Baucus Corp woulds pay $400 times 100 employees, as $40,000 is less than $150,000 ($5,000 times 30 employees). Each of those low-income employees is costing Baucus Corp $1,333 more than an employee who didn't need subsidies.

Now imagine that Baucus Corp. only has five employees who need subsidies, and the average subsidy that year is $5,000. In that scenario, Baucus Corp would pay $25,000 rather than $40,000, because $25,000 is less than $40,000. Each low-income worker now costs Baucus Corp. $5,000 more than a worker who doesn't need subsidies.

So in the scenario where Baucus Corp. has a lot of low-income workers, they cost a huge amount overall because they're multiplied against the total number of workers. In the scenario where Baucus Corp. has a few low-income workers, they cost a huge amount individually because they're multiplied against the average subsidy cost. No matter how you look at it, the policy makes it profitable for employers to discriminate against hiring low-income workers. It is not only the worst policy idea in the bill, but one of the worst policy ideas I've ever seen.

Update: Originally, this post didn't include one of the penalty options, as I was basically confused on how it worked and thought it would apply too rarely to be worth mentioning. I reread the section, though, and corrected the post to offer a fuller picture of this no good, very bad, horrible policy.

Photo credit: AP Photo/Harry Hamburg.