Health care reform: a blow to jobs and wages?

Business & Health, July, 1993 by Steven Findlay

Experts disagree on how much pressre an employer mandate would put on companies to lay off workers or skimp on wage hikes.

No matter what shape it ultimately takes, reform of the health care system will have a major impact on the U.S. economy and employers' calculations of worker compensation. In two words: Jobs and wages. Where will the losses and gains occur in both? That question has received renewed attention recently as the health reform debate deepens and as the broad effects of altering one seventh of the U.S. economy begin to sink in.

Exactly what economic effects health reform will have awaits the details of President Clinton's proposal and its overhaul by Congress over the next year. But many health care groups have begun to speculate over what might happen if, say, employers are required to provide health insurance and pay 50% to 80% of the tab for it, possibly by means of a fixed payroll-based premium.

Small business groups have complained the loudest. The National Federation of Independent 600,000 small business owners and workers, has lobbied against an employer mandate for months, claiming that it will put millions of jobs in jeopardy as companies struggle with--and small businesses potentially buckle under--the burden of paying for health care. The group has noted often in congressional and public briefings that 75% of job growth in the last 15 years has come from companies with fewer than 100 workers.

Study supports projections

A study commissioned by NFIB and released this spring appears to support NFIB's grim projections--but others find the study less than convincing. Conducted by the CONSAD Research Corp., a Pittsburgh research firm specializing in employment forecasting, the study estimates that between 6.6 million and 16.5 million jobs in companies with fewer than 500 workers would be put "at risk" by an employer mandate. That's out of a pool of 68.7 million jobs nation-wide in firms that size. (The figure excludes farm workers.)

Such an impact would, of course, be devastating to the economy. But CONSAD estimates a more moderate "actual" loss of jobs within one to two years--390,000 to 1.5 million depending on what reform plan finally passes. The "jobs at risk" calculation is meant to underscore the uncertainty and employment instability health reform could generate, says Wilbur Steger, the research firm's president and a co-author of the study. "You don't have to lose a job right away to feel the effects," he says. Employers worried about the future because of additional health expenses may freeze wages, reduce other benefits, shift costs to workers, or target some jobs for elimination by attrition instead of layoffs. They may also shift labor to part-time or contract work, hire temporary workers, encourage more overtime, or stop hiring.

Steger says the pain won't be distributed equally. Service and construction industries with a high proportion of minimum- and low-wage workers will likely be hit the hardest because they will be unable to shift the costs of insurance onto those workers in the form of lower wages. "In the long run, these companies can improve productivity and find other ways to absorb the costs, but in the short run they may have no other recourse but to let workers go," predicts Carlos Bonilla, an economist at the Employment Policies Institute (EPI) in Washington, a research group supported by a number of large hospitality companies.

An EPI study predicts that "at least" 1 million of the nation's 15.4 million low-wage (under $5.50 an hour, or $11,440 a year) workers could be laid off with an employer mandate. The EPI's estimate is on a par with those made last year by the House Joint Economic Committee, which estimated that some 700,000 mostly low-wage workers would lose their jobs in the first year after implementation of an employer mandate.

Large employers affected

While small business will bear the brunt of health care reform, big companies will not escape the effects of reform, Bonilla says. "Any large hotel chain employs thousands of low-wage and part-time workers," says Bonilla. "What are they going to do if they suddenly have to pay an additional $500 or $1,000 in health care charges for each of those workers? They can either raise the price of hotel rooms and meals or let some employees go." The Marriott Corp., Bethesda, Md., for example, has estimated that a mandate could cost as much as $160 million, mostly in added costs for health benefits for part-time workers. "There are too many unknowns now to predict how the company might absorb that," says Brian Marcotte, manager of health plan contracts for the company.

Companies usually don't like to shift costs to consumers. In fact, a central tenet of the belief that health reform will cost jobs is that companies have been historically reluctant to raise prices to cover rising health costs. The costs instead have been passed "backward" on to workers. The crisis today, analysts say, is that health care costs have been increasing so fast in recent years that shifting further costs to workers is becoming untenable. Moreover, the middle class is rebelling against the slow rise in real wages and may have reached a saturation point in absorbing a larger share of health care expenses. "Consumers value their health benefits, but there is a limit to how much they will sacrifice in wages for them," says Bonilla.