Published in the New York Daily News, September 3, 2009
The fight over the "public option" has obscured debate on an element of congressional health reform plans that would be equally consequential and equally threatening to many Americans: the "pay-or-play" mandate.
Rather than changing one of the worst features of American health care – the fact that insurance is almost always tied to employment – it would carve that fact in stone. If that weren't bad enough, it would threaten to drag down wages and kill jobs in the process by driving up costs for employers. We're already witnessing this in Massachusetts, where a similar mandate was passed in 2006. Employers there calculate the reform measures have cost them around $500 million, and the tab is growing.
The federal mandate, included in the bills approved by four key congressional committees, would work in pretty simple fashion. Employers would have to provide a generous health insurance policy or pay a tax of up to 8% of payroll expenditures.
At first blush, it may sound sensible to require employers to provide insurance as a way of expanding coverage. But the employer-driven health insurance system is at the root of so much of what workers hate about the current system. It's the reason that so many people lose their health insurance when they lose or change jobs. Since the current recession began, more than 5 million people have lost their jobs – and it's estimated that as many as 2.4 million have lost health coverage.
Then there's the damage done to the broader economy. The tax code already makes it economically advantageous for companies to offer health benefits to their workers, and economically disadvantageous for people to purchase insurance on their own. This fact has led, over the years, to a situation in which around 60% of people under age 65 get their insurance at work.
That produces something called "job lock." The risk of losing health insurance keeps people from leaving jobs in which they're dissatisfied. Research shows this affects between 25% to 50% of the workforce.
That stifles new business creation. As MIT economist Jonathan Gruber puts it: "Some of tomorrow's potential entrepreneurs are today's employees at firms that provide health insurance. They may have powerful new ideas that will build the firms of tomorrow. But if they leave their current job to work on those ideas, they may find themselves without access to reliable health insurance."
In New Jersey, a 1993 law making it easier for the self-employed to get health insurance increased entrepreneurial activity by as much as 20% – even though New Jersey has one of the most expensive markets for health insurance in the country.
The employer-based insurance system discriminates against small businesses. Because bigger firms have more purchasing clout, they can buy coverage for about 18% less than their smaller competitors.
The new bills pay lip service to this fact, but they do nothing to fundamentally change it. Under one version of the House bill, for instance, only firms with annual payrolls of less than $500,000 would be exempt from the mandate. To put this in perspective, an eight-person firm with each employee earning $62,500 would be considered a big business.
Already, many small businesses can't afford insurance. According to the Kaiser Family Foundation, fewer than half of businesses with three to nine workers provide coverage, versus 99% of those with 200 or more.
Linking insurance to employment has also suppressed wages. Managers pass on increased health care costs directly to employees in the form of smaller paychecks. And higher health costs make it less likely that employers will hire new workers. Researchers at the Rand Corp. found that in 40 key industries, a 10% jump in health costs would translate into the loss of more than 120,000 jobs.
Instead of doubling down on the historical accident of employer-provided health insurance, lawmakers should work to make coverage more personal and portable – empowering people to purchase policies that they could own and move from job to job.
Turner is president of the Galen Institute, a nonprofit research organization.