Congressional negotiators hammering out a deal to slash tens of billions of dollars in federal spending have agreed to strip a provision in the Affordable Care Act requiring employers to give low-paid employees company-paid vouchers to purchase coverage in state health insurance exchanges.

The health care reform voucher provision was originally inserted in the health care reform measure by Sen. Ron Wyden, D-Ore., as the legislation was working its way through Congress.e learned that budget negotiators agreed to repeal the voucher provision.

How Vouchers Would Have Worked

Under the Free Choice Voucher provision, employees would have to meet two conditions to be entitled to the employer-funded vouchers: their family income could not exceed 400% of the federal poverty level, and the premium contributions their employers require them to make must be between 8% and 9.8% of their income.

If those conditions are met, those employees would be entitled to receive a voucher from their employers, and the value of the voucher would not be tied to the plan in which the employee was actually enrolled. Instead, the voucher's value would be equal to what the employer would pay if the employee were enrolled in whichever of its plans offered the "largest" premium contribution by the employer. Then, the employee could use the voucher to purchase health insurance coverage from a state health insurance exchange. The exchanges are authorized under the reform law and are supposed to be set up by 2014.

If the cost of a policy purchased by an employee through the exchange is less than the value of the voucher, the employee could pocket the difference in cash, which would be considered income and taxed.

Costly for Some Employers

The provision, to go into effect in 2014, would have a huge and costly impact on employers with large numbers of low-paid workers--such as retailers--who are required to pay a high percentage of the premium. And, depending on how the legislative language is interpreted in subsequent regulations, it also could prove costly to employers that offer employees a choice of health care plans ranging from relatively low-cost to very expensive plans.

Experts say the provision is almost certain to result in adverse selection, inflating employer costs. For example, a young, low-paid employee working for a company with a high concentration of older, less healthy and expensive-to-insure employees likely would receive a voucher whose value would be much higher than the cost of buying coverage in an exchange, especially if the employee purchased a lower-cost high-deductible plan. Under the reform law, exchanges can base premiums on the age of policyholders. As a result, employees remaining in the employer's plan would be the most costly to insure, pushing up employers' health insurance premium costs.