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Side Effects: Obamacare Hurts Low-Income Workers

Posted By Kathryn Nix On October 21, 2010 @ 1:00 pm In Obamacare | Comments Disabled

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With a struggling economy and stagnant unemployment rate, the last thing the United States needs is any public policy that will hurt job growth. Unfortunately, Obamacare’s new federally mandated, essential benefits package will diminish new job opportunities, especially for low-income workers.

This is expected to occur because the new law requires employers to offer health care coverage or pay a penalty. And they can’t offer basic health plans. Instead, all job-based health plans must include what the government determines to be “essential benefits.” Since benefits that employers provide to their work force mark a dollar-for-dollar reduction in cash wages, more benefits in these government-mandated plans will mean less available income for salaries or new jobs. Inevitably, this provision will further drive up the health care costs for businesses, forcing them to hold back on new hiring and investments.

The effect is particularly harmful for low-income workers. In an analysis of the Obamacare provision, John Goodman [2], President of the National Center for Policy Anlaysis, writes that, “In four years’ time, the minimum cost of labor will be a $7.25 cash minimum wage and a $5.89 health minimum wage (family), for a total of $13.14 an hour or about $27,331 a year. (I think you can see already that no one is going to want to hire low-wage workers with families.)”

Typically, private sector employers pay their work force based on the value of their labor. Forcing businesses to pay more for labor than its actual worth will likely squeeze many more jobs out of the market.

Even worse, employers who provide low-income jobs may consider another option: Dropping health coverage altogether and paying the penalty. Businesses with more than 50 employees will face a $2,000 penalty per employee for failing to comply with the government-mandated coverage. This amounts to about $1 an hour [2] for a full-time worker.

Businesses could drop coverage for low-income workers—who will likely qualify for Medicaid or subsidies in the new federal health insurance exchanges—pay the penalty, and still come out ahead.

The cost burden of this decision will fall on the American taxpayer, which Goodman warns would ramp up pressure to increase the fine [2], which would further depress businesses’ income. Companies already are saying the new rule is making them rethink growth [3] in lower income areas. “It’s pretty dire,” Jamie Richardson, spokesman for White Castle, told NPR [4]. The fast-food chain reported in May that the Obamacare provision would require the company to pay $3,000 in penalties per employee (whose share of health care premiums exceeds 9.5 percent in income).

Heritage analyst Robert Book [5] writes that Obamacare “discourages companies from hiring those who need jobs the most.” This vicious cycle not only hurts businesses and workers, but also the economy at large.

This post was co-authored by Derek Pyburn.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2010/10/21/side-effects-obamacare-hurts-low-income-workers/

URLs in this post:

[1] Image: http://www.foundry.org/wp-content/uploads/SideEffectsLogo4.jpg

[2] Goodman: http://healthblog.ncpa.org/the-6-an-hour-min-wage/?utm_source=newsletter&utm_medium=email&utm_campaign=HA#more-13959

[3] making them rethink growth: http://www.foundry.org/2010/05/17/side-effects-fewer-flippin-hamburgers-at-white-castle/

[4] told NPR: http://www.npr.org/blogs/health/2010/05/19/126971796/white-castle-calls-health-law-a-budget-bomber

[5] analyst Robert Book: http://www.heritage.org/Research/Reports/2009/12/How-the-Senate-Health-Bill-Punishes-Businesses-That-Hire-Low-Income-Workers

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