About the Author

James C. Capretta

James C. Capretta

New Atlantis Contributing Editor James C. Capretta is an expert on health care and entitlement policy, with years of experience in both the executive and legislative branches of government. E-mail: jcapretta@aei.org.


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James C. Capretta’s Latest New Atlantis Articles

 Health Care with a Conscience” (Fall 2008) 

 Health Care 2008: A Political Primer” (Spring 2008) 

 The Clipboard of the Future” (Winter 2008)

 

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Text Patterns - by Alan JacobsFuturisms - Critiquing the project to reengineer humanity

Friday, June 6, 2008

Obama’s Tax on Work 

The centerpiece of Senator Barack Obama’s health care plan is a so-called “play or pay” mandate on American employers. This idea has been a staple of Democratic health care reform plans for a quarter century -- going back to Michael Dukakis and Senator Ted Kennedy in the 1980s -- and it’s one of the main reasons these plans never pass.

The basic idea is to give employers a choice. They can either “play” (that is, offer coverage to their workers and pay a portion of the premium) or “pay” (that is, pay a tax to help offset the cost of subsidizing the premiums for coverage offered to their workers by the government). Proponents of play or pay often argue that the current system, which lets some employers provide no health benefits while employers do, is unfair.

Senator Obama does not specify the rate of tax employers would have to pay if they did not offer coverage, but a similarly constructed plan offered by health policy researchers at the Commonwealth Fund proposed a 7 percent payroll tax.

The problem with this idea is that it would hurt the very workers it is supposed to be helping because it ignores fundamental economic reality.

Workers, not employers, pay for health insurance premiums. If the government imposes a health insurance mandate on businesses, the additional cost will be absorbed by workers in the form of lower cash wages.

But for workers near the minimum wage, employers can’t pass on the costs of health insurance because the law won’t permit cash wages to fall below the minimum wage line. Thus, in these instances, many employers will choose to cut back on employment rather than pay more for labor than they think it is worth to their firm.

Katherine Baicker of Harvard and Helen Levy of the University of Michigan estimate that about 224,000 Americans would lose their jobs under one formulation of an employer health insurance mandate. Those job losses would be disproportionately concentrated among non-whites, high school dropouts, and women.

In another new study, Richard V, Burkhauser and Kosali I. Simon of Cornell University show “play or pay” to be poorly targeted. They estimate that there would be 11 jobs lost among the working poor for every 100 newly insured. Moreover, because most pay or play proposals exempt the smallest businesses, some 1.2 million low wage workers would still not have health coverage through the workplace, necessitating some other governmental policy to provide them with insurance options.

For now, some voters find Senator Obama appealing because he is a fresh new face on the national scene. But many of his ideas are just recycled versions of proposals that were rejected -- for good reason -- in the past. Play or pay is certainly one of them.

posted by James C. Capretta | 3:19 pm
File As: Health Care