Mandated benefits, mandated misery - Massachusetts health insurance law - column

Nation's Business, Oct, 1988 by Warren Brookes

Mandated Benefits, Mandated Misery On April 21, Gov. Michael Dukakis spotlighted what liberals hope to make the political agenda for the nation over the next four years. He signed a bill that day mandating that all employers in Massachusetts provide health insurance for all their employees.

A measure to require that all companies in the country provide mandated health insurance is now in Congress under the sponsorship of Sen. Edward M. Kennedy (D-Mass.).

These actions by Kennedy and Dukakis are part of an ominous trend for business--the increasing attempt by politicians to force business to pay for a wide range of social programs designed to curry favor with constituents.

Dukakis' health-care bill offers a prime example of the darker side of this approach, however.

While the signing of that measure was a political triumph for the governor, it could prove a costly mistake, both for business in Massachusetts and the state's economy. And it provides a warning of what could happen if mandated health insurance were imposed nationally.

Massachusetts lost 18,000 manufacturing jobs in the 12 months in which the bill was being debated, while the nation gained 540,000. The job loss in Massachusetts reflected a continuation of a trend in which manufacturers, big and small, have been bailing out in large numbers--industrial jobs are down more than 90,000, which is 13 percent of all such jobs--since June, 1984. As a result, Massachusetts' manufacturing employment is at its lowest level since the recession of 1975.

One reason for the sharp decline has to be the uncertainty of future industrial costs in a state where mandated benefits--paid not by taxpayers but by employers--have become the accepted way to finance politically popular social-spending programs from plant-closing notification to parental leave to health care.

Estimates of the cost of mandated health insurance range from $600 million to as much as $1 billion a year in Massachusetts and up to $70 billion nationwide. But one thing is certain: Employers will carry the full burden.

Heavy pressure for nationally mandated health benefits comes from organized labor, which already enjoys medical and other benefits in its contracts with larger companies and wants to force similar costs on competitive smaller companies.

Another major reason for the mandated-benefits trend is the federal deficit. Politicians don't want to risk taxpayers' anger by launching new social spending that would drive the deficit higher. But they want to continue rewarding their constituencies with social programs, so they are trying to bury the cost of those program in the bottom lines of American businesses.

Business, in turn, will face the necessity in this very competitive world marketplace of taking defensive actions to cut costs in other ways--and that will mainly mean more automation and fewer jobs.

The irony is that the big losers in the mandated-benefits process will be the very workers for whom these benefits are being legislated, and the major beneficiaries will be the companies that make robots, automated production equipment, software and other products to enable employers to replace people with machines.

There is no better illustration of the politics of the mandated-benefits process than the new law requiring 60 days' notice of plant closings and lay-offs. Members of Congress and their labor-union allies who supported this measure were very careful to conceal from the American public what the actual costs of this seemingly benign and "fair-minded" bill would be.

Those costs could be staggering. The new law, which carries heavy penalty payments for noncompliance, affects 54 percent of all workers. The principal impact will be on the small medium-sized companies, few of which are in any position to know 60 days in advance of needed reductions in force.

Under a provision of the bill, companies hit with a sudden need to close a plant or lay off workers will be faced with two choices: Give the required notice and keep employees around in make-work situations for 60 days, or pay them two months' wages in advance.

At present, the average laid-off worker takes about 15 weeks of unemployment compensation, representing approximately half pay. The plant-closing benefit would be worth 8.6 weeks at full pay, or the equivalent of another 17.2 weeks of unemployment compensation. That would add an exposure of $11 billion, an increase of 115 percent, to unemployment of these workers.

Because employers cannot absorb such costs, look for three things to happen.

Employers with fewer than 100 workers, who are not covered by the law, will avoid adding workers who would bring their work forces within the scope of the requirement for notification on plant closings and layoffs. Second, employers covered by the requirement will automate more to reduce their severance exposure in the event of closings and layoffs. They would also deal with peak-load output by having current workers put in overtime, rather than by hiring new workers. Third, the exodus of jobs to foreign countries that do not impose such mandates on employers will accelerate.