A soon-to-be-released report from the Heritage Foundation finds that the play-or-pay employer mandates that Congress is currently debating (which would require employers who don’t provide comprehensive health insurance to pay a new payroll tax to help fund health care for their workers) “will cost businesses at least $49.4 billion to $52.7 billion per year” and put 5.2 million “low-wage employees at risk of unemployment”:
All told, 5.2 million low-wage employees will be at risk of losing their jobs or having their hours of work reduced, and they will likely have fewer job opportunities in the future. Another 10.2 million employees are at risk of slower wage growth and cuts in other benefits, and some of the cost of any play-or-pay mandate will be passed onto Americans in the form of higher prices for the goods and services they buy — an indirect tax on savers and those on fixed incomes.
The four health care bills before Congress require large employers to either provide coverage to their workers or pay a tax to finance the expansion of health care coverage. But the Heritage analysis erroneously assumes that higher costs to business inevitably translate into job loss or lower take-home pay. It disregards all of the expected job and productivity gains from health care reform — the additional jobs in the health care sector, increased productivity and efficiency in the work force, and the lower rate of growth of health care costs — and simply subtracts the costs of complying with the new pay-or-play requirements from wages. The established economic literature surrounding employers’ response to increase costs and modest pay-or-play proposals completely contradicts the Heritage conclusion.
For instance, virtually all economic research shows that minimum wage increases — which are similar to the new modest pay or play requirements — “have little or no impact on employment.” In fact, even the most pessimistic pay-or-play studies have concluded that the mandate would have a very modest impact on unemployment — only abut 166,000 jobs would be lost, according to one study, far less than the Heritage estimate and even lower than the estimated 500,000 new jobs that could be created as a result of reform. A study of the impact of the Hawaii health care mandate, moreover, “found no evidence of reduced employment.” In Massachusetts, where employers with more than 10 employees are required to provide coverage or pay a fine, “few firms reported making changes as a result of health reform.”
The Heritage analysis also relies on an outdated bill and disingenuously implies that the overwhelming majority of American businesses would face higher costs. In reality, the new bill passed by the House Energy and Commerce Committee exempts 87 percent of all American businesses from any pay or play requirements (by increasing the small business exemption for payroll from $250,000 to $500,000); the older House version that Heritage analyzes would have exempt 77 percent of businesses.
The overwhelming majority of Americans work for very large businesses. In fact, 13% of firms have a payroll larger than $500,000 and employ 81 percent of the country’s workers. Thus, as Pat Gorafalo explains, “this is essentially a mandate on large employers, to ensure that they can’t simply drop their coverage” and send their employees into the health insurance Exchange or the non-group market.
In a ‘pay-or-play context,’ large employers would have to pay more under reform, but they would also see concrete savings. With increased access to care, all firms would benefit from the reduction in unpaid medical bills incurred by the uninsured and the savings due to a reduced rate of health-care cost growth and greater labor productivity. On the whole, the consequences of failing to reform health care reform far outweigh even the Foundation’s inflated concerns about costs to businesses and low income workers. In fact failing to act would hurt the very same businesses and low income individuals that Heritage is supposedly so concerned about.