Last Wednesday, The Agenda took a closer look at the big job losses that did not result from San Francisco’s play-or-pay mandate. But there’s another fear that critics of a mandate sometimes voice: that many businesses will simply drop health insurance because it is cheaper to pay the tax.þþAfter all, the steepest of the proposed mandates, the one that’s under consideration in the House, would assess most firms a tax of just 8 percent of payroll. Meanwhile, the cost of health insurance is typically 12 percent of payroll, according to the Congressional Budget Office and could very well rise if the government mandates a richer benefit package than companies offer now. þþRecall that the economist studying the San Francisco example has yet to see evidence of companies canceling coverage, though the program is still young. And here again, if the C.B.O. and other economists are right, he won’t ever see such evidence. They say that a play-or-pay mandate is unlikely to leave many workers without the employer-sponsored insurance they currently have.þþþOnce more, the reason why has to do with the fundamental truth that in most cases it is employees who bear the cost of employer-sponsored insurance. Health insurance is a recruiting tool that companies use to compete for labor, offering it when “they believe their employees want such coverage enough, in effect, to trade cash wages for it,” the C.B.O. wrote in a December 2008 analysis. It’s not, then, simply a dollars-and-cents calculation. After all, employers “could drop insurance today and pay nothing,” points out Jonathan Gruber, a health economist at M.I.T. “If you’re willing to pay now when you could pay nothing, why wouldn’t you be willing to pay a little more [to meet new benefit requirements]? Why would you offer your employees nothing but still pay the 8 percent tax?”þþBesides, the disparity between the cost of coverage and the penalty wouldn’t actually be as great as it seems. “In general, firms that decided to stop sponsoring insurance coverage for their workers would not be able to reduce their operating costs because, in a competitive labor market, they would have to offer higher wages and other forms of compensation instead,” the C.B.O. told Rep. David Camp in a letter. (A company’s penalty payment would not go toward directly helping its employees pay for alternative coverage.) “Indeed, workers might be particularly motivated to demand such increases under the proposal because they would be required to obtain insurance. That added compensation would generally be taxable.”þþAnd that’s the rub. Premiums for health insurance obtained on the job are not counted as income subject to either income or payroll taxes. (The premiums paid by the company are excluded from the worker’s income altogether while the share paid by the employee is deducted from that income.) That’s a subsidy that the C.B.O. calculates is worth about 30 percent of the cost of insurance. “In most cases,” the C.B.O. concluded, “the combination of the subsidy from the current tax exclusion and the penalty for firms that did not offer qualified coverage would provide a strong financial inducement for employers to continue offering coverage to their workers.” That was probably not the answer Mr. Camp, the ranking Republican on the House Ways and Means Committee, was hoping to get when he asked the agency to elaborate on how the House reform bill would affect enrollment in private insurance.þþOf course, there will be exceptions, chiefly in labor markets that aren’t competitive — that is, in places where employees are poorly paid. And in general, small businesses tend to pay worse than larger companies. The House bill would give the smallest companies a tax credit to offset up to half their health insurance costs; that may mitigate some of the pressure to drop coverage and even encourage some firms to add it. In all, the C.B.O. calculates that in 2016, three million people “who would be covered by an employment-based plan under current law would not have an offer of coverage under the proposal.” Others would leave employer coverage because they’d find better deals elsewhere; in all, says the C.B.O., nine million — out of about 160 million — people would not have the employer-sponsored insurance they’d otherwise carry. (Even so, the total number of people with employer-sponsored insurance would actually grow, because still other people would get that coverage for the first time.)þþThere is, however, less consensus here than on the question of job losses — at least among the experts The Agenda consulted. For example, all of the reform plans currently discussed in Congress provide subsidies to poor people — in the House bill, the subsidies are available to families that earn four times the federal poverty level. “If you provide subsidies to people who don’t have employer-based coverage, it creates opportunities for employers to drop the plans,” says John Sheils, an analyst at the health-care consultancy The Lewin Group. (The Lewin Group is owned by a subsidiary of the insurer United Healthcare.) Adds the Heritage Foundation’s Bob Moffit, “if an employer has a health care benefits package that is 12 to 13 percent of payroll, and they can solve their problem by paying an eight percent payroll tax, I think they’re going to do it, and I think they’re going to do it significantly.”þþMr. Moffit also takes issue with what he calls the conservative (in the non-ideological sense) assumptions embedded in the C.B.O.’s number-crunching. He appears to have found an ally in Lewin, which has challenged some of the C.B.O.’s numbers with its own analyses of the various bills circulating on Capitol Hill (including a study (pdf) commissioned by Heritage). It has lately studied (pdf) the most recent version of the House bill, as modified by the Energy and Commerce Committee, for the deficit hawks at the Peter G. Peterson Foundation, finding that under this iteration, 14 million of the 154 million who would have employer coverage in 2011 under the current law would lose that insurance if this reform were fully in effect. But that number includes people who decline employer coverage for other reasons, and it is not that much higher than the nine-million estimate from the C.B.O.þ
Source: NY Times
