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Who Will Pay For Health Care Reform?

Posted By James Sherk On July 14, 2009 @ 6:27 pm In Obamacare | Comments Disabled

As Congress debates health care reform and how to pay for it, the Congressional Budget Office reported [1] today on something that economists have long known: ordinary workers – not their employers – will be paying for it. How can that be, when employers pay the lion’s share of health insurance premiums? Although workers do not physically write a check for the full cost of their health benefits, their employers write a smaller check to them every pay period. Workers pay for health benefits through lower wages. As the CBO explains:

Although employers directly pay most of the costs of their workers’ health insurance, the available evidence indicates that active workers—as a group—ultimately bear those costs. Employers’ payments for health insurance are one form of compensation, along with wages, pension contributions, and other benefits. Firms decide how much labor to employ on the basis of the total cost of compensation and choose the composition of that compensation on the basis of what their workers generally prefer. Employers who offer to pay for health insurance thus pay less in wages and other forms of compensation than they otherwise would, keeping total compensation about the same.

So if Congress makes health coverage more expensive for employers, they will simply cut their workers’ wages to make up the difference. Every policy Congress adopts that makes health coverage more expensive for employers will be paid by employees.

For example, virtually every healthcare reform proposal includes an “employer mandate” that requires employers that do not provide health coverage to pay higher taxes. The current Senate draft requires employers to pay $750 for each employee without health benefits. This is billed as a tax on employers, but as the CBO points out:

[I]f employers who did not offer insurance were required to pay a fee, employees’ wages and other forms of compensation would generally decline by the amount of that fee from what they would otherwise have been.

The government will collect the taxes from employers – and those businesses will then lower wages by $750 a year. Fortunately, these wage offsets mean an employer mandate does not make hiring workers more expensive, so employers have no incentive to cut jobs. It’s not exactly a great deal for workers, who will now earn less while still having no healthcare, but at least they will not be unemployed.

After July 24th, however, the minimum wage will rise to $7.25 an hour. Employers will not be able to take the full cost of the health tax out of the paychecks of anyone earning close to this minimum. That does not make healthcare reform a good deal for these workers, though. Paying $7.25 an hour plus the healthcare tax will make unskilled workers even more expensive to hire. So, as the CBO points out, their employers will respond by hiring even fewer of them. Healthcare reform is supposed to help vulnerable workers, not to cost them their jobs:

[A] play-or-pay provision would reduce the hiring of low-wage workers, whose wages could not fall by the full cost of health insurance or a substantial play-or-pay fee if they were close to the minimum wage.

No matter how Congress writes the healthcare legislation, remember one thing – through lower wages or fewer job opportunities, you are the one footing the bill.


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URL to article: http://blog.heritage.org/2009/07/14/who-will-pay-for-health-care-reform/

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[1] the Congressional Budget Office reported: http://cbo.gov/doc.cfm?index=10435

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