Politics & Policy

Pols Play, You Pay

Reducing health-care costs begins with reducing mandates.

Governor Arnold Schwarzenegger and the California state legislature’s Democratic leadership are knee-deep in their “special session” on health-care reform. If the rhetoric coming from Sacramento’s bigwigs is any indication, they aren’t just scrambling to rearrange the deck chairs on the Titanic — they’re blowing holes in the ship’s hull in the absurd hope of getting the water to leak out faster.

#ad#Both Schwarzenegger and the Democrats support a requirement that employers spend a fixed percentage of their payroll on health benefits for employees, or pay additional taxes as punishment. Commonly called a “pay or play” law, this requirement has become an increasingly popular “solution” to the nation’s health care woes, playing a prominent part in the reform platforms of all three frontrunners in the Democratic presidential race.

“Pay or play” is a totally misguided way to go about reforming health care. It will wreak havoc on California’s job market without solving the problem of the uninsured.

This lunch isn’t free — it’s going to cost somebody. And guess who that will be: In large part, it’s not businesses themselves, or government bureaucrats. It’s the worker — the little guy whom “pay or play” laws are supposed to help.

Why’s that? Because employers have to pass insurance costs onto employees in order to stay afloat. Harvard economists Katherine Baicker and Amitabh Chandra recently estimated that for every 10-percent increase in insurance premiums, the average wages of employees who receive coverage through their employer drops by more than 3-percent.

And even if employees have access to insurance through their employers, it’s of no use unless they can afford to cover their part of the premium, co-pays, and deductible. But an increasingly large share of Californians — and Americans, in general — can’t do that. Insurance has simply become too expensive.

According to the Kaiser Family Foundation, the cost of employer-sponsored health insurance has increased 78-percent since 2001, vastly outpacing inflation and wage growth.

So, if lawmakers are serious about reforming health care, they need to address the ever-increasing cost of health insurance. But a “pay or play” law doesn’t do that. In fact, it may actually have the counterproductive effect of increasing the number of uninsured by increasing the number of unemployed. Some employers won’t be able to offset all of the new costs by decreasing wages. They’ll have to take more “extreme” measures — handing out pink slips or closing up shop entirely.

Economic data attest to this: Additional research from Baicker and Chandra shows that a 20-percent increase in insurance premiums reduces the probability of the average person being employed by 3 percentage points.

And so does on-the-ground testimony from Californian employers. As bookstore owner Alzada Knickerbocker told Sacramento’s ABC7 news during the initial stages of Schwarzenegger’s health care crusade, “we’re already in basically a break-even situation. So you can’t simply add burdens to small business and expect that they can absorb them.”

What’s a real way to cut health insurance costs and not just pass them around? Reduce the number of insurance mandates.

Currently, any insurance plan sold in California has to cover (among other things) in-vitro fertilization, breast reconstruction, chiropractor visits, and treatment for alcoholism. This “sweetening” of insurance packages makes them more expensive, as insurers raise prices to recoup the costs of each additional mandated service.

The Council for Affordable Health Insurance estimates that California’s insurance mandates inflate the cost of a basic health care plan by as much as 50-percent. That means millions of Californians are getting priced out of the insurance market because the bells and whistles of a “standard” plan make it too expensive.

And is it fair to, say, force a man to get coverage for breast reconstruction? (Someone needs to remind Schwarzenegger that his movie, Junior, wasn’t a documentary).

Even the public knows a bad deal when they see one. Given the opportunity to reject a version of “pay or play” in 2004 Californians voted “NO” on Proposition 72. Whether they’re in California or the White House, if lawmakers really want to do some good, they’ll have to look elsewhere.

Jill Jenkins is chief economist at the Employment Policies Institute, a nonprofit research organization dedicated to studying public policy issues surrounding entry-level employment.

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