Senate Majority Leader Harry Reid and his allies have addressed, at least in part, a major weakness of the Senate Finance bill: The role of employers.

To review, both the Senate HELP and House bills contained relatively traditional "employer mandates." Under their terms, firms with more than 50 employees would have to offer their employees insurance coverage or pay a modest fee.

The Senate Finance committee went with a different strategy. Its bill included what's known as a "free rider" provision. The government wouldn't require companies to cover their employees. But it would assess companies that didn't offer coverage, based on the number of employees that ended up qualifying for federal subsidies to buy insurance.

Some conservatives (Olympia Snowe among them) and business groups preferred this approach, because it seemed like a less onerous burden. But it introduced some perverse incentives, as Bob Greenstein and Judith Solomon from the Center on Budget and Policy Priorities have explained:

By imposing a tax on employers for hiring people from low- and moderate-income families who would qualify for subsidies in the new health insurance exchanges, it would discourage firms from hiring such individuals and would favor the hiring--for the same jobs--of people who don’t qualify for subsidies (primarily people from families at higher income levels).

In particular, it could make it more difficult for low-income parents with children to be hired. Whether an individual qualifies for a subsidy in the exchange depends on whether the income of the worker’s family falls below the income limit for a subsidy, and those income limits appropriately rise with family size. Hence, an individual with children--and especially a single parent (whose income is not supplemented by the wages of a second parent)--is much more likely to receive a subsidy than a single individual with the same income. Low-income single mothers trying to work rather than rely on welfare would be among those who could face greater barriers to employment. This problem will be still greater if employers are billed larger amounts for workers receiving subsidies for family health coverage than for workers receiving subsidies for individual coverage, an important detail that will not be clear until the bill’s legislative language is available.

The new Senate bill still has a free-rider provision, instead of a formal employer mandate. As a result, it still has some of the characteristic flaws.*

But the leadership made some important tweaks. Under the new scheme, the government would assess a penalty whenever (a) a company doesn't offer coverage and (b) even one worker qualifies for subsidies. The government would also (and this is important) base the penalty on the total number of workers in the firm, rather than the number who are getting federal assistance.

In a company of any reasonable size, at least somebody is bound to qualify for subsidies if the employer doesn't make coverage available. The effect, then, is similar to the effect a true employer mandate would have.

*Update: Some well-informed analysts have written me, suggesting I underplayed some of these flaws. I think they are right and will return, soon, to explain in more detail.