Federal Study Concludes Health Insurance Reform Could Create Workforce Instability

Making health insurance less dependent on employment could induce workers to retire earlier or change jobs more often, says a new report analyzing the implications of various health care reforms.

In its 196-page study published this month, the Congressional Budget Office analyzed the possible effects that health policy proposals might have on the federal budget, the economy, spending on health care and the number of people with health insurance. The report also attempted to predict how employers might respond to certain changes in health care policy.

While the administration of President-elect Barack Obama has made health care reform a top policy priority for 2009, Obama made a campaign promise to leave intact the employer-based system, which provides health insurance for 160 million people—75 percent of whom are not considered elderly.

Despite the promises, proposals are being considered that could change the employer-based system. The congressional report estimates the impact of changes to the employer-based system, particularly laws requiring employers to provide coverage to employees.

Such a law, known as an employer mandate, could lead workers to retire early or change jobs. It could also lead firms to hire fewer low-wage workers, since their total compensation would be greater than their value to an employer, the report says.

The Congressional Budget Office said employer-based health insurance depresses wages, since the cost of providing health insurance ultimately leaves less money for wages. American companies that provide health insurance therefore are not at a competitive disadvantage against those that do not, since the company pays for health insurance by reducing wages.

Three approaches to expanding coverage include subsidizing health insurance premiums through tax breaks or spending programs; mandating coverage by requiring individuals to obtain insurance or employers to provide it; and automatically enrolling individuals in health plans, which would be harder to accomplish in a setting other than the workplace or a government-run program.

Any of the changes could increase costs for employers, which would pass that cost on to workers through lower wages. Lower wages would ultimately mean lower tax revenue for the federal government, the report says.

Currently, money spent by employers and employees on health insurance is not taxed.

The loss to federal coffers was estimated in 2007 to be $246 billion, more than the cost of Medicaid, which totaled $195 billion that year. But forcing employers to pay taxes on health care would not necessarily mean a windfall in taxes for the federal government, the report says, since people could itemize health insurance expenses on their tax forms.

The Congressional Budget Office concedes that one option, which wasn’t discussed in the report, for subsidizing the cost of health insurance without having to change the tax code or making it easier for people to receive government-sponsored health insurance would be a federal reinsurance program. Such a program would bring premiums down by subsidizing the cost of catastrophic illness to employers.

To read the entire report, go to http://www.cbo.gov/doc.cfm?index=9924.

—Jeremy Smerd

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