On August 28, Igor Volsky, a health care researcher and blogger
at the Center for American Progress, posted a story claiming The
Heritage Foundation released a biased report on the effects of the
employer play-or-pay mandates contained in the health care bills
currently working their way through Congress. Sadly, it is Volsky
who is misleading policymakers.
Myth: "The four health care bills
before Congress require large employers to either provide
coverage to their workers or pay a tax to finance the expansion of
health care coverage."
Fact: Many small businesses are large
enough to qualify under the bills.
- The Small Business Administration, Office of Advocacy, defines
a small business for research purposes as an independent business
having fewer than 500 employees.
- The Senate Health, Education, Labor, and Pensions Committee
health care reform bill, the Affordable Health Choices Act, covers
employers with 25 or more employees.
- All three versions of the House health care reform bill,
America's Affordable Health Choices Act of 2009 (H.R. 3200), cover
employers with more than $250,000 or $500,000 in annual payroll, and,
according to Census Bureau data, firms with annual payrolls of
$250,000 to $1.5 million have an average of 10-34
- Clearly, the House and Senate health care reform bills cover
many small businesses no matter how much Volsky tries to explain
away the facts.
Myth: "The Heritage analysis
erroneously assumes that higher costs to business inevitably
translate into job loss or lower take-home pay."
Fact: The Heritage Foundation report
makes no such assumption.
- The report relies on a substantial body of empirical economic
research that finds that the cost of health insurance mandates will
be shifted to employees, resulting in lower wages.
- The report also points out that the costs of the mandate can be
passed on to consumers in the form of higher prices, which
effectively reduces real wages of employees (who are, of course,
also consumers) and will have the greatest adverse impact on savers
and those on fixed incomes.
- The report also notes that some of the cost may be borne by
shareholders and business owners in the form of lower profits and
proprietor income and that firms may be able to offset the cost by
increasing productivity without reducing the hours of work.
Myth: "The Heritage analysis
disregards all of the expected job and productivity gains from an
Advocates of the bill expect additional jobs in the health care
sector, increased productivity and efficiency in the workforce, and
a lower rate of growth of health care costs.
Fact: In many cases, the costs would
outweigh the benefits.
- Although there may be some benefits from an employer mandate,
there will also be costs. Individual firms and specific industries
will be impacted differently by those costs and benefits.
- There is very little in the health care reform bills that would
significantly "lower the rate of growth of health care costs." On
the contrary, the coverage and benefit mandates and limits on cost
sharing that are in the bills will likely increase the rate of
growth of health care costs.
Myth: Economic research debunks
"The established economic literature surrounding employers'
response to increased costs and modest pay-or-play proposals
completely contradicts the Heritage conclusion. For instance,
virtually all economic research shows that minimum wage
increases--which are similar to the new modest pay or play
requirements--'have little or no impact on employment.'"
Fact: The established economic literature on mandated
employee benefits finds the cost of health insurance mandates is
shifted to employees.
- Moreover, the preponderance of empirical research on the
minimum wage supports the consensus view held prior to 1995 that
minimum wage increases have a negative employment effect on
teenagers and other low-skilled workers.
Myth: "The Heritage analysis also
relies on an outdated bill and disingenuously implies that the
overwhelming majority of American businesses would face higher
Fact: The bill cited in the Heritage
report is one of three competing versions of the bill in the
- The version of H.R. 3200 that passed the House Energy and
Commerce Committee does not automatically "outdate" the versions
passed by the Ways and Means Committee and the Education and Labor
Committee. Moreover, the chairmen of those committees would likely
take offense to Volsky's characterization of their bills as
- Table 1 of the Heritage report clearly shows that the number of
firms that will be covered by play-or-pay mandate runs from 509,000
to 1.4 million, depending on which version of mandate would be
enacted. The report never implies that the overwhelming majority of
American businesses would see higher costs.
Myth: The mandate is simply a
safeguard to prevent big businesses from dropping coverage.
As Pat Gorafalo alleges, "this is essentially a mandate on large
employers, to ensure that they can't simply drop their coverage"
and send their employees into the health insurance exchange or the
Fact: The bill actually makes it more
likely that businesses will drop coverage.
- According to the Bureau of Labor Statistics, health insurance
benefits currently cost employers 11.6 percent of wages and
salaries. Some employers will find it more
attractive to pay the 8 percent tax than to continue offering
benefits. Thus, the bill actually encourages some employers to drop
their coverage and send employees into the exchange.
- According to the Congressional Budget Office, under H.R. 3200,
9 million part-time, low-wage employees will lose their
employer-provided health insurance because some employers, both
large and small, will make the decision to pay instead of play and
drop their coverage.
- As noted above, all four health care reform bills will cover
some small businesses.
Myth: Mandates will help
"With increased access to care, all firms would benefit
from the reduction in unpaid medical bills incurred by the
uninsured and the savings due to a reduced rate of health care cost
growth and greater labor productivity."
Fact: This is wishful thinking.
- Employers who currently do not provide health insurance to
their employees will not benefit from the current bills. They will
have to pay up to an 8 percent payroll tax or pay for their share
of the cost of providing health insurance under the mandate.
- These costs will be passed on to employees.
Hurting Those Who Need Help
Volsky and the Center for American Progress may want
policymakers to focus on the benefits of an employer mandate, but
that does not mean there will not be costs and unintended
consequences associated with it.
Policymakers need to know that the costs and benefits of an
employer mandate will not be equally borne by firms and employees.
Some firms will see their health care costs decline, and some will
see their costs rise. For those whose costs rise, it will be the
low-wage, unskilled workers who will bear the brunt of the
D. Mark Wilson is a consultant for
The Heritage Foundation and Principal of Applied Economic
Igor Volsky, "Heritage To Release Biased Report On Effects Of
Employer Mandate," The Wonk Room, August 28, 2009, available at:
(September 2, 2009); and D. Mark Wilson, "Economics of Play-or-Pay
Mandates in Health Care Reform Bills," Heritage Foundation
Backgrounder No. 2312, August 28, 2009, at
prepared by the U.S. Census Bureau for Applied Economic Strategies,
Phillip Cryan, "Will a 'Play-or-Pay' Policy For
Health Care Cause Job Losses?," Institute for America's Future and
the Economic Policy Institute, June 2009; Katherine Baicker and
Helen Levy, "Employer Health Insurance Mandates and the Risk of
Unemployment," National Bureau of Economic Research, Working
Paper No. 13528, October 2007; Craig Olsen, "Do Workers Accept
Lower Wages in Exchange for Health Benefits?," Journal of Labor
Economics, Vol. 20, No. 2 (2002); Norman Thruston, "Labor
Market Effects of Hawaii's Mandatory Employer-Provided Insurance,"
Industrial and Labor Relations Review (October 1997); Price
Fishback and Shawn Kantor, "Did Workers Gain from the Passage of
Workers' Compensation Laws?," Quarterly Journal of Economics
(August 1995); Jonathan Gruber, "The Incidence of Mandated
Maternity Benefits," American Economic Review (June 1994);
Jonathan Gruber and Alan Kruger, "The Incidence of Mandated
Employer-Provided Insurance: Lessons from Workers' Compensation
Insurance," Tax Policy and the Economy, Vol. 5 (1991);
Lawrence H. Summers, "Some Simple Economics of Mandated Benefits,"
The American Economic Review, Vol. 79, No. 2 (May 1989).
is important to note, however, that increased productivity usually
comes at the cost of employees working fewer hours. For example,
the second quarter of 2009 saw the largest productivity increase
since the third quarter of 2003, largely because of a 7.6 percent
in hours worked. See Bureau of Labor Statistics, "Productivity and
Costs, Second Quarter 2009 Revised," September 2, 2009, at http://www.bls.gov/news.release/prod2.nr0.htm
(September 2, 2009).
Richard V. Burkhauser and Kosali I. Simon, "Who
Gets What from Employer Pay or Play Mandates?," National Bureau of
Economic Research, Working Paper No. 13578, November 2007,
papers/w13578 (September 2, 2009); David Neumark and
William Wascher, "Minimum Wages and Employment: A Review of
Evidence from the New Minimum Wage Research," National Bureau of
Economic Research, Working Paper No. 125663, November 2006,
(September 2, 2009).