At the heart of the bill that presently has gone the farthest through Congress is an employer mandate that forces all but the tiniest businesses to provide workers with a government-approved insurance plan. If they fail to meet this mandate, they are hit with a new tax ranging from 2 percent to 8 percent of the company’s payroll.
As a result, millions of workers will either lose their employer-provided health insurance or lose their jobs altogether. For many large businesses, the new tax will be preferable to the $12,000 average they now pay for employee insurance, pushing millions of people out of their current coverage and into the clutches of the government’s new health care bureaucracy. For many small businesses, the mandate and accompanying tax impose a burden they simply can’t afford. They will be forced to lay off workers, adding further to our current jobs crisis.
To illustrate why this argument doesn't really hold water, let's zoom in on the average employee of Stanek Enterprises. He's making $50,000 a year in salary and gets a health benefits package equal to $15,000. So he's effectively being compensated $65,000 per year (notice that health care is 23% of the total compensation package). Suddenly H.R. 3200, with its employer mandate and competitive Health Insurance Exchange (including a robust public option), passes. ToomeyLogic suggests that since I can now skate by paying 8% of my employee's wages in fines to the government, I'll somehow be saving if I drop health coverage for my employee--after all, health care makes up 23% of my employee's compensation package. Thus the incentive is for me to drop coverage for my employee.
This logic is silly from top to bottom. First of all, Stanek Enterprises doesn't offer health care now (pre-H.R. 3200) because someone's forcing us to. We're doing it to stay competitive and attract the best employees we can. Let's suppose for a second that after H.R. 3200 passes I do decide to drop coverage for my employee. Before he was effectively making $65,000 (adding up his salary and health benefits). I can't continue to pay him $50,000 with no health benefits or I'm essentially giving him a $15,000 pay cut--a good incentive for him to move on to greener pastures (perhaps to our arch rival, Todd Industries). So I have to keep my employee's total compensation package pretty much the same if I want to stay competitive. This means I have to bump up the employee's salary to around $65,000. Of course, since I'm not offering him health care I also have to pay a fine equal to 8 percent of his wages--about $5,000.
So my cost-cutting effort is now costing me $70,000 per employee instead of the $65,000 I was paying. The only way to get around this is just to cut the total compensation package my employees are receiving, which doesn't make any sense if I want to stay competitive. So why didn't I just continue offering my employees health care in the first place?
If we drill even deeper into this idea, we'll see that even if for some reason I decide to replace health care benefits with additional wages (and take the hit by paying the mandate fee), my employees are still effectively making less. The reason is that health benefits aren't taxed like income.
Let's walk through this visually. Our average Stanek Enterprises employee is being paid $50,000 in wages/salary (the dark blue part of his income) and he's getting $15,000 worth of compensation in the form of health care (the dark red part of his income). Taxes (the turquoise bit) are taken only out of his salary:
So the total amount the employee is getting is the sum of the dark blue and dark red areas.
Now suppose I eliminate health care coverage but, in the interest of staying competitive and retaining my valued employees, I replace it with additional wages. These wages are now subject to the income tax and you can see that the box that used to be dark red (i.e. health benefits) is now dark blue (wages) but now it's missing a chunk--the taxes my employee is now paying on his additional wages:
But this leads to a problem. In the first scenario, the total compensation my employee was receiving (dark blue + red) is greater than what he's receiving under the second scenario (the sum of the dark blue areas). So even if I'm offering a compensation package equal to $65,000 in both instances, in the scenario where I drop health care benefits my employee is actually receiving a smaller portion of that $65,000. This tax benefit of getting health care from your employer (instead of buying it yourself) is exactly why most people get health care through their employer in the first place. As someone who's not fond of this system explains:
The policy mistake that produced this illogical mess took place during World War II, when the government imposed wage controls. Unable to compete for workers by paying them more, employers began providing medical care, and the new benefit spread rapidly.
When the Internal Revenue Service caught on, requiring employers to include the value of medical benefits as part of the wages they reported, workers, who had grown accustomed to the benefits, protested. Congress responded with legislation that made employer-provided medical benefits tax-exempt.
Regardless of whether we like the employer-based system (and there are good reasons not to), the argument that H.R. 3200 will destroy it is flawed. The House bill actually reinforces the employer-based system (the Congressional Budget Office estimates that an extra few million people who wouldn't have employer-based coverage under the current system would have it if H.R. 3200 passes).
No comments:
Post a Comment