"Play-or-Pay" Insurance Reforms for Employers

Confusion and Inequity

“Play-or-pay” rules in health reform legislation will create an unfair distribution of health insurance subsidies. Some low-wage workers could receive inadequate subsidies while high-wage workers might overpay for insurance policies.

“Play-or-pay” presents employers with a choice: purchase health insurance policies for workers or pay a penalty, in the form of a payroll tax. An employee in a company choosing to pay the penalty would have to purchase his or her policy through an insurance exchange. The government would use revenue from the tax to subsidize insurance policies bought in the exchange.

This perspective paper, from the New England Journal of Medicine, presents an analysis of “play-or-pay”. The authors draw up a hypothetical scenario involving one company that chooses to “play” (i.e. purchase insurance policies) and another business that “pays” the penalty tax. The authors consider the implications for both low- and high-wage employees, illustrating how a company’s decision affects the net subsidy given to workers at various income levels.

Key Findings:

  • Low-wage workers in a company that purchases health insurance would be worse off than low-wage workers in a company that chooses to pay the tax penalty.
  • High-wage earners at a company that chooses to pay the tax penalty could have to contribute as much as 20 percent of their income to their insurance policy.

The size of a company’s payroll will influence its decision to either “play” or “pay” under current health reform legislation. This perspective argues that “play-or-pay” will lead to inequities. The authors suggest eliminating the penalty for companies not offering health coverage.