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Trashed Job Market Follows Obama’s Health Plan

This Op Ed was published by Blooberg and can be viewed online here.

We need to get more Americans covered with health insurance. But any proposed “solution” to the problem of the uninsured that has the effect of getting people laid off from their jobs is not the way to do it.

As unemployment reaches a 26-year high and our economy continues to shed 500,000 jobs a month, it would not seem to be the best time to enact new mandates on business likely to accelerate the rate of job loss.

This is precisely what President Barack Obama and congressional Democrats are proposing with the “pay or play” mandates in health-care legislation making its way through Congress.

Just five months ago, the American people were told that it was urgent for Congress to spend an unprecedented $787 billion to keep the economy afloat and prevent the unemployment rate from going above 8 percent. With the rate now at 9.5 percent and rising, we should act with great caution in imposing new employer mandates that could force them to cut more jobs.

According to the Republican staff of Congress’s Joint Economic Committee, the new employer health-insurance mandates in the leading House bill would, in effect, impose an 8 percent wage tax on businesses that don’t offer insurance (the play in “pay or play”) or pay for enough of their employees’ coverage. That 8 percent is roughly the share of total compensation that businesses typically pay for employee health-care coverage.

The Congressional Budget Office acknowledged last week that the costs of a “pay or play” mandate would likely be passed on to workers, in the form of either wage reductions or job elimination.

Taken From Wages

Testifying at a Senate hearing, CBO Director Douglas Elmendorf said, “we at CBO and almost all economists believe that, over time, that sort of burden that employers face for individual employees gets passed into their, or taken out of their, wages.”

“There’s a certain amount of compensation, and the more that goes to health insurance, whether by voluntary choice of employees or by government mandate, the less there is in cash wages,” he said. For lower-wage workers, he said, such a mandate “is effectively an increase in the minimum wage, and that can cause job losses.”

This puts a lot of people at risk for losing their jobs. According to a 2007 paper by Katherine Baicker and Helen Levy for the National Bureau of Economic Research, 33 percent of uninsured workers earn within $3 of the minimum wage. The researchers estimated that a new employer health-insurance mandate such as “pay or play” would result in 224,000 workers losing their jobs, with a staggering 60 percent or more of those at risk being racial and ethnic minorities. Women would also be disproportionately hurt.

Only Worse

Because this estimate was made before the financial and economic meltdown and the subsequent dramatic worsening of the employment picture, the actual job losses would likely be considerably higher.

An even more troubling conclusion of the same study is that uninsured workers would be seven times more likely to lose their jobs than those with insurance. In other words, a costly mandate on businesses designed to reduce the number of American workers without health insurance would likely swell the ranks of those who are simultaneously uninsured and unemployed -- aggravating the very crisis it is ostensibly designed to address.

Putting the most vulnerable American workers at risk of unemployment in the middle of a recession is, quite clearly, the wrong direction to go. Happily, there’s a better way.

Level Playing Field

Instead of imposing a job-killing wage tax on businesses, we should make it easier for all workers to access the existing, generous federal subsidies for health-care coverage. That would mean leveling the playing field between workers who receive health coverage through their job and those people, whether employed or not, who lack access to workplace coverage.

We can accomplish this by offering Americans who purchase health insurance outside of their place of work the same benefit given to employees who have work-related health coverage: the ability to use pretax dollars. Households would be empowered to purchase affordable health insurance that they could keep regardless of their employment status.

This approach would have the added bonus of enlarging the marketplace for individuals and families who choose to purchase insurance outside the workplace. This would spread the insurance risk among the healthy and sick, which would mean lower premiums for everyone in that market.

When it comes to health reform, the best prescription is a level playing field that gives workers more control of their own health-care dollars, rather than a “pay or play” mandate that potentially puts their jobs at risk.

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