Health care for the newly unemployed

‘Free’ health care would come at the expense of your job

By Geoffrey Lawrence
  • Tuesday, July 28, 2009

"If you think health care is expensive now, wait until it's free," P.J. O'Rourke once quipped. He was right. A proposal for health care "reform" recently introduced on Capitol Hill would implement several changes to the nation's health care system that are intended to extend health insurance coverage to all Americans. 

The problem is, you may be forced to give up everything else in order to get the government's prescribed level of care.

One component of the proposed health care reform bill is a requirement that all employers provide a minimum amount of health insurance benefits to their employees. For small businesses especially, this mandate would mean a hike in labor costs that would likely force employers to lay off workers.

A recent econometric modeling analysis conducted for the National Federation of Independent Businesses showed that a national employer mandate for health coverage would lead to the destruction of 1.6 million jobs by 2013 and a reduction in GDP of $200 billion. Because most large businesses either already offer health coverage or can most easily afford to do so, these job losses would disproportionately hit small businesses, with 65.9 percent of the job destruction coming in firms with fewer than 500 employees, and 28.9 percent occurring in firms with 20 employees or fewer.

As of June 2009, workers in Nevada represented 0.9 percent of the total nonfarm U.S. workforce, according to the U.S. Department of Labor. Hence, if the impact of an employer mandate were distributed evenly across the states, these projections would mean the destruction of about 14,552 jobs in Nevada alone. Yet, even this estimate is likely too low because the NFIB analysis assumes that employers would only be required to cover 50 percent of the cost of employee health insurance, whereas the proposal on Capitol Hill would require them to cover as much as 72.5 percent of the cost.

So, who would be the ones to lose their jobs in the event of an employer mandate? Those who can least afford it.

In a classic example of a government policy penalizing those it supposedly is to benefit, an employer mandate would amount to a regressive tax on the lowest earners because it would price them out of the labor market. According to Cato Institute scholar Michael Tanner, "Roughly 43 percent of uninsured workers are working within three dollars of the minimum wage." This indicates that workers at the higher ends of the pay scale already have health benefits as a part of their compensation package. Hence, those who would be in the greatest danger of losing their job because of the extra labor costs imposed by an employer mandate would be those who are already earning the least.

Another component of the plan would involve the creation of a "public option" among health insurance providers that is likely to be subsidized heavily by taxpayers. The "public option" would compete on unfair terms with private health insurance providers — eventually forcing them out of the market. This would lead to fewer choices for consumers and would give government bureaucrats the final say over what types of care will be covered and who can receive them. When government officials have the authority to determine who lives and who dies, the door is opened to potential exploitation and abuse of power.

The Congressional Budget Office has estimated that a portion of the new costs included in the package of so-called reforms being considered in Washington would exceed $1 trillion over the next 10 years. Of course, simple laws of economics dictate that individuals will respond to any policy that significantly lowers the marginal cost of treatment with a dramatic increase in demand. Hence, any government plan to significantly reduce the marginal cost of treatment for a large section of the population will necessarily be financed by either monumental tax increases, government rationing of care or, likely, a combination of the two.

While there is clearly a need to reform the current, cartelized health insurance industry that previous government policies have produced, the "reform" packages being considered in Congress move in exactly the wrong direction. Our current, relative lack of consumer choice and competition would be replaced by a complete absence of choice and competition. 

True reform should make health insurance personal and portable. It should allow open competition for insurance providers across state lines to offer individuals access to coverage that meets specific individual needs at the lowest cost possible.

The current proposals will only cost jobs and money — while degrading the existing system into just another thoroughly abysmal government-run monopoly.

Geoffrey Lawrence is a fiscal policy analyst at the Nevada Policy Research Institute.

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