E C O N O M I C A N D B U D G E T I S S U E B R I E F EFFECTS OF CHANGES TO THE HEALTH INSURANCE SYSTEM ON LABOR MARKETS 3 can also cause people to decide to work (or stay) at firms for employers’ contributions toward those plans.9 That that offer health insurance rather than take a job that bet- fee could be a fixed dollar amount paid for each worker ter matches their skills and interests but does not offer who was not offered health insurance; alternatively, it health insurance. In addition, those who have medical could be set at a percentage of earnings, so that the pay- problems (or have family members with medical prob- ment per worker would rise as his or her earnings lems) have an incentive to stay in a job that provides increased—up to, perhaps, some threshold amount.10 health insurance in order to cover those preexisting condi- tions, even if more productive opportunities exist else- Supporters of such play-or-pay requirements generally where—a phenomenon known as “job lock.” (Those justify those provisions as a way to ensure that employers opportunities could include working for a different pay a portion of their employees’ health care costs, refer- employer or becoming an entrepreneur.) At the same ring to those requirements in some cases as “employer time, people for whom health benefits have little value— responsibility payments.” However, if employers who did such as those who receive insurance coverage through a not offer insurance were required to pay a fee, employees’ spouse’s employer—are more likely to take jobs that do wages and other forms of compensation would generally not offer health insurance but that instead pay higher cash decline by the amount of that fee from what they would wages and salaries or provide other desired fringe benefits. otherwise have been—just as wages are generally lower (all else being equal) to offset employers’ contributions toward The evidence is mixed regarding the effects of health insurance.11 employment-based health insurance on job turnover. Although some empirical studies conclude that workers Play-or-pay requirements may have another rationale. are less likely to change jobs when faced with the potential They may encourage firms that currently offer health loss of health insurance, others report little or no effect.8 insurance plans to retain those plans in the future, despite Much of that evidence is difficult to interpret, however, the incentives created by other aspects of legislative pro- because jobs that provide health insurance generally have posals to drop such coverage; as a result, such provisions other attributes that discourage turnover. could reduce the budgetary costs of new subsidy pro- grams. In June 2009, the Congressional Budget Office (CBO) analyzed title 1 of a draft of the Affordable Health Effects of Changes in the Health Choices Act. That proposal contained generous subsidies Insurance System on Labor Markets for health insurance for families with income up to Proposals to change the health insurance system may include many provisions that could affect outcomes in the 9. In Massachusetts, for example, employers with more than 10 full- labor market. Those provisions could impose new require- time employees must make a “fair and reasonable” contribution to a qualifying health plan or pay an annual fee of up to $295 per ments on businesses, provide subsidies for individuals or full-time worker (roughly 15 cents an hour). The Senate Commit- small businesses, or affect the availability and cost of tee on Health, Education, Labor, and Pensions is considering health insurance obtained through the individual market legislation (the Affordable Health Choices Act) that would require or through new purchasing pools (sometimes called firms to contribute at least 60 percent of the premiums for a qual- exchanges, gateways, or connectors). ifying plan or to pay $750 a year (or about 38 cents an hour) for each full-time worker. Different requirements would apply to Imposing a Play-or-Pay Requirement on Employers part-time workers. Some proposals would require employers to either play— 10. The House Tri-Committee Health Reform Discussion Draft that is, contribute toward their workers’ cost of health includes a play-or-pay requirement for firms to contribute at least 72.5 percent toward a worker’s premium (65 percent for family insurance—or pay a fee to the government. Those pro- coverage) or pay a fee amounting to 8 percent of wages for each posals usually require employers to offer plans that meet worker. For minimum-wage workers, that payroll tax would be certain standards; they also specify a minimum amount roughly equal to 58 cents an hour. The requirements would be prorated for part-time workers. 8. For a discussion of those studies, see Brigitte C. Madrian, 11. The impact of the fee would be similar to that of employers’ The U.S. Health Care System and Labor Markets, Working Paper contributions for payroll taxes. Most analysts agree that No. 11980 (Cambridge, Mass.: National Bureau of Economic wages and benefits would fall by the amount of an increase in Research, January 2006), p. 19. those contributions.
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