The Cost of Washington’s Health Care Responsibility Act

Content

Executive Summary

The recently proposed Health Care Responsibility Act (HCRA) is a costly and inefficient attempt to address the problem of the uninsured in Washington. HCRA is a “pay or play” mandate on employers with more than 50 employees in the state. Under a pay or play system, employers have the option of “paying” a fee to the state to cover the cost of providing insurance to the working uninsured or “playing” by offering a satisfactory level of health coverage.

HCRA requires all employers with more than 50 employees to pay a fee to the state based on the number of hours worked by their employees. Employers can deduct any health-care expenditures from their mandated fee. All employees who work more than 86 hours a month for an employer paying the fee are eligible to enroll in Washington’s Basic Health Plan (BHP), 2 provided they pay their portion of the premium.

This analysis finds that Washington has over 850,000 uninsured residents. As a result of HCRA, only 18 percent of these individuals will have access to new health insurance coverage. Even worse, despite an exceptionally high cost, HCRA fails to provide insurance to
even the majority of working uninsured residents in the state.

Estimated Cost of HCRA

As Lawrence Summers, the former treasury secretary and current president of Harvard, stated, “There is no sense in which benefits become ‘free’ just because the government mandates that employers offer them to workfirst year. The majority of the fees collected under this program will be paid on behalf of employees who already have health insurance coverage. More than $340 million in fees will be paid by employers already providing health coverage but failing to pay the minimum fee required under HCRA. Nearly 254,000 employees will have fees paid on their behalf but will be ineligible for coverage under HCRA because they do not work 86 hours per month. This amounts to more than $285 million in fees for employees who are ineligible for coverage. Overall, this group is younger, less likely to be married, more likely to be female, more likely to be a minority, less educated, and poorer than those eligible for BHP coverage. For example, those ineligible for BHP but still paying a fee are more than twice as likely to be a high school dropout and they are 20 percent more likely to be non-white. These facts are important because they demonstrate that employees belonging to traditionally vulnerable populations will be subsidizing health insurance for a group that is—on average—richer, more educated, and more likely to be white.

Employment Losses Under HCRA

Even though employers are nominally required to pay the fee under HCRA, economic research has shown that (where possible) employers will shift the cost of HCRA onto employees in the form of lower wages or reduced benefits in other areas. In those cases where employers are unable to shift the cost of HCRA onto their employees, significant employment loss is expected to occur. Depending on the level of wage shifting, this analysis finds that HCRA is expected to destroy up to 25,500 jobs. Ironically, more than 3,300 of those who will lose their jobs are employees who had employer-provided insurance before HCRA and will now be left with neither a job nor insurance.

Those who lose their jobs as a result of HCRA are less likely to be married and more likely to be female, poorer, less educated and from a minority group. Specifically, job losers are nearly 50 percent more likely to be a high school dropout and 33 percent more likely to be non-white. The unintended consequence of HCRA will be to make life even more difficult for the least skilled employees in the economy. Low-wage and low-income families will suffer disproportionately more job loss, and their lower education levels will make it much more difficult for them to secure a job in the new high-labor-cost environment.

Conclusion

Despite a $1.6 billion price tag, HCRA will do little to address the problem of the uninsured. The vast majority of the uninsured will remain without access to any coverage under this legislation. The extremely low number of individuals receiving insurance creates an effective cost per newly insured individual of more than $10,200. This inefficient program will destroy up to 25,500 jobs without adequately addressing the problem of the working uninsured—let alone the broader problem of the uninsured. The majority of fees will be paid on behalf of employees that already have coverage and the vast majority of the uninsured will remain without coverage.