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Obamacare and the Employer Mandate: Cutting Jobs and Wages

abundanceofcaution:

Brian Blase has his eye on the PPACA (Health Care Reform, also known by some as “Obamacare”).

Brian is a former policy analyst in Health Studies at The Heritage Foundation in Washington, D.C. Blase is an expert in health economics, with a particular focus on Medicaid. He is currently a doctoral candidate in economics at George Mason University, and he teaches a course in Economics and Public Policy at Georgetown University.

(George Mason faculty have twice won the Nobel Prize in Economics.)

This article does a good, high-level job of outlining some reasons why you are seeing news about the impact of Health Care Reform (“Obamacare”) on the economy and impact to employment.

I know many believe layoffs and hiring freezes, etc. are motivated by corporate greed. From where I sit (and where I have been seated), across the markets and on average, I have to disagree.

This is not a post about the merits of the law or the benefits of the law. This is a post about the impact of the law. It was not a surprise. It was the known price tag on this policy.

I can respect the hypothesis that PPACA may actually be bad for employers, but there are a number of key factors that are left out of this study (or at least the summary results), as well as some false suppositions, that don’t bolster its case.

  1. Penalties - The summary outlines the possible employer penalties well. It does not, however, outline the factors that may have an impact on an employer’s decision to not offer coverage. First, the penalty of $3,000 for an employee receiving a subsidy may seem like a lot, but with average cost of coverage for a family of four running $11,000-$15,000 per year in premiums alone, Many companies may actually save money by not offering “basic” (60% or more) coverage for these employees. If an employer simply opts out, the penalty is $2,000, excluding to first 30 employees. Translated, if your company has 75 employees and you choose not to offer coverage, your employees will cost you $90,000, or $1,200 per employee. Again, you may not be paying zero dollars for not covering your employees, but you’re still saving a substantial amount based on what you would pay to cover them. Add to that consideration that, if you’re a company that would consider dropping coverage because of its impact on your low-income workforce, most of those employees would qualify for coverage subsidies, if not outright free coverage (the controversial “Medicaid mandate”) under PPACA. Therefore, you may be able to save money while your employees get coverage cheaper than they would before, and you’re still helping to subsidize it through the penalties. (I’ve yet to hear of a company over 500 that’s not politically motivated like Papa John’s that has seriously considered not offering benefits because of PPACA. On the contrary, several polls by private companies indicate that large companies think that offering good benefits packages are even more important than before PPACA because of the competitive advantage a robust benefits package may give them.) In fairness, there is a grey area in there for employers between 51-499 where it may actually be a burden on their budgets to offer insurance and a competitive disadvantage not to offer it. That is probably the primary area for the “one-half of one percent” impact on unemployment that may occur because of PPACA (although the footnote leads to a document that doesn’t seem to exist, so I’m not sure). Which leads to…
  2. PPACA was driven by market factors, not ideology. It’s all fine and good to say that PPACA will burden companies to the point that wages will stagnate… except that wages have been stagnant for nearly three decades already — roughly the same amount of time that health costs, and health insurance premiums in particular, have increased, on average, at double the rate of inflation. PPACA, while not perfect by a longshot, became an issue because healthcare has become a drag on the economy, not because some people wanted to advance a socialist agenda (this is where that pesky fact that the individual mandate was originally a Republican idea comes into play). It may actually increase costs in the short run, but the ultimate goal is to curb cost increases, not necessarily to reverse them.
  3. While “defined contribution” has emerged as an alternative to public exchanges, the characterization that “defined contribution” is portable (i.e. my employer gives me money to pay for benefits, I use it for that purpose, and then I can take my benefits with me to another job) is not one that I’ve heard being mentioned with any health insurance carrier or company, and I would think that this kind of portability would be fought by any company. Why would I give my employer $5,000 to spend on benefits if I knew they could just quit and take that money with them to another job?

PPACA is far from perfect and it’s really tough to tell what will happen. I don’t envy anyone on either side trying to predict the outcome. But let’s at least try to predict without preconceptions in either direction, whether you feel that health coverage is an inalienable right or that the true inalienable right to is be able to run your business without government interference.