Employer Mandate a Recipe for Unemployment
By Sally C. Pipes
Walmart recently announced that it will not offer health insurance to new employees who work less than 30 hours a week. It’s reserved the right to do the same for existing workers. For these new policies, Walmart’s employees can thank ObamaCare.
The federal health reform law’s “employer mandate” requires companies with over 50 employees to provide insurance for anyone working 30 or more hours a week or face fines. That creates a strong incentive for companies to push their workers into a workweek fewer than 30 hours—and thereby avoid the additional costs ObamaCare intends to saddle them with.
Walmart isn’t alone. The employer mandate will make it harder for many businesses to operate efficiently, to hire new employees—or to ensure that existing employees can stay on full time.
Papa John’s CEO John Schnatter recently came under fire for stating that the employer mandate will take a bite out of his company’s pie. He said that his pizza chain’s franchisees would likely cut back employee hours—and that ObamaCare would add up to 14 cents to the cost of each pizza.
The owner of several Denny’s franchises in Florida has contemplated slapping a 5-percent ObamaCare surcharge on every meal, and a New York Applebee’s franchisee has said he may stop hiring because of the additional costs borne by the law.
ObamaCare’s defenders suggest that these businessmen are just greedy. But it’s been widely known that the employer mandate would deliver a hefty blow to businesses since President Obama’s health care reform law was merely a bill.
In early 2010, the Congressional Budget Office (CBO) estimated that the employer mandate would force businesses to pay $52 billion in tax penalties from 2014 to 2019. That money will have to come from somewhere—whether higher prices for consumers or reduced wages for workers.
Further, the CBO recently cautioned that the employer mandate would cause a 0.5-percent reduction of the American labor force. That may not sound like much—but it’s equivalent to eliminating about 700,000 American jobs.
These job cuts will hurt the working poor most. According to a paper by Harvard economist Katherine Baicker and University of Michigan economist Helen Levy, those who earn within three dollars of the minimum wage are at the greatest risk of losing their jobs thanks to an employer mandate. Baicker and Levy concluded that “1.4 percent of uninsured full-time workers would lose their jobs” under the mandate.
In some cases, the employer mandate may backfire—and actually encourage businesses not to provide health insurance.
Businesses that do not furnish coverage must pay $2,000 per employee, excepting the first 30, if at least one of their workers receives subsidized coverage through the new insurance exchanges. Folks with incomes of up to four times the poverty level, or nearly $90,000, could qualify for subsidies. So a firm with 50 employees could be looking at a fine of $40,000.
But health insurance is expensive—far costlier than the fine. Average premiums for single coverage were north of $5,600 in 2012 and above $15,700 for family policies, according to the Kaiser Family Foundation. Many employers may find it more economical to pay the fine and turn their workers loose in the exchanges.
Indeed, former CBO Director Douglas Holtz-Eakin estimates that as many as 35 million Americans out of about 160 million could lose their existing employer-provided insurance thanks to—ironically enough—the employer mandate.
Taxpayers will pay the price. Richard Burkhauser and Sean Lyons of Cornell and Kosali Simon of Indiana University estimate that the feds could have to spend an additional $48 billion a year if employers dump their workers into the exchanges.
For now, though, the employer mandate’s impact will largely be felt in the business community, at firms as big as Walmart and as small as the local diner. “I don’t know what secret [the politicians] know, where they just assume we can write them a check,” Sam Facchini, owner of Metro Pizza in Las Vegas, recently told a Nevada newspaper. “We can’t pay for this. Most of us operate on a thin margin and trying to stay in compliance [with the law] will make things much tighter.”
Sally C. Pipes is President, CEO, and Taube Fellow in Health Care Studies at the Pacific Research Institute in San Francisco. She is a guest contributor for Cascade Policy Institute. Her latest book is The Pipes Plan: The Top Ten Ways to Dismantle and Replace ObamaCare.