Paper Suggests Health Care Mandates Create Unemployment Risk

October 24, 2007 (PLANSPONSOR.com) - A working paper issued from the National Bureau of Economic Research (NBER) suggests low-wage workers face the risk of unemployment if mandates are passed requiring employers to provide health insurance for employees or pay a subsidy.

In the paper, researchers Katherine Baicker and Helen Levy said workers with wages close to the minimum wage may be most likely to be hurt at their job since it is these workers whose wages have the least flexibility to be lowered in response to mandates that make employing them more costly. They found that 33% of uninsured workers earn within $3 of the minimum wage and would face the greatest risk of being fired in the face of such mandates.

Therefore, a potentially very large fraction of the group supposedly targeted for help by employer mandates might in fact be hurt, although the overall fraction of private sector workers who are “at risk” is moderate, since only 5% of all workers are uninsured workers earning within $3 of the minimum wage, the paper said. The research indicated workers who would lose their jobs are disproportionately likely to be high school dropouts, minority, and female.

The likelihood of uninsured workers to face unemployment depends on whether the hourly cost per worker of newly mandated health insurance is greater than the gap between the worker’s wage and the minimum wage.

For the research, Baicker and Levy used an average annual premium for employer-sponsored health insurance in their data of approximately $9,046 for family coverage and $3,429 for single coverage (for the period 2000-2006, expressed in 2006 dollars), for an average hourly premium of $3.66 for a full-time worker.

If employers were required to pay 80% of premiums, the average hourly wage for the study group of workers would have to decrease by about $3 to absorb fully the cost of providing the average health insurance package.

The researchers noted that the costs would be different if the mandated insurance coverage were more or less generous than the typical plan already provided to most workers or if workers were required to pay more of the premium directly.

In conclusion, the paper suggests this risk of unemployment should be a crucial component in the evaluation of both the effectiveness and distributional implications of policies mandating health care coverage relative to alternatives such as tax credits, Medicaid expansions, and individual mandates, and their broader effects on the well being of low wage workers.

The working paper, Employer Health Insurance Mandates and the Risk of Unemployment, can be ordered from http://www.nber.org/papers/w13528

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