Could the Employer Mandate lead to reduced coverage?

When it comes to employee benefits, employers need to be generous either to attract and retain talent or because it is “the right thing to do”. The recession and jobless recovery has unquestionably reduced the first imperative and it appears now that the employer mandate penalty may perversely be gutting the second.

Why? A classic paper in the Journal of Legal Studies (Gneezy, Rustichini 2005) looked at the impact of introducing fines for parents who were late to pick up their kids at daycare centers. Lateness INCREASED. Subsequently when the fines were removed, the increase in lateness persisted. The authors show that this unexpected impact was because the moral cost of arriving late was a greater deterrent than the fine. Instituting the fine reduced the moral penalty to the level of the fine.

Analogously, the financial penalty of the mandate is what is enabling employers to overcome the moral inertia that was preventing them from opting out of the health benefits business. It’s made the decision to drop coverage entirely or to move to defined contribution purely a business decision – one that ironically is easy for even their disenfranchised employees and retirees to understand. Worst hit will be retirees because employers don’t even have to factor in a financial penalty.

One more to add to your list of unintended consequences!