Overview
Over 46 million Americans lacked health insurance in 2005. This problem has increasingly drawn the attention of policymakers at the local, state, and federal levels. Attempts to increase health coverage have generally focused on three main types of policy proposals: mandating employer-paid health insurance, providing tax credits for low-income individuals to buy insurance, and expanding Medicaid to cover more of the uninsured. While many studies have considered the impact of these policies on the number of uninsured and the cost to the federal government, the additional impacts on employer costs and the labor market have generally been ignored.
In this study, Ellen Meara, Meredith Rosenthal, and Anna Sinaiko of Harvard University use data from the March 2005 Annual Earnings Supplement and the February 2005 Contingent Worker Supplement of the Current Population Survey (CPS) to provide a comprehensive view of the pros and cons associated with each policy. Their analysis includes estimates of eligibility, the number of individuals predicted to take up a policy, the number of individuals switching from private coverage to a policy’s coverage, changes in spending on health insurance (both private and public), and changes in wages and employment levels.
In terms of labor market effects, employer mandates are by far the most costly. The authors find that although these mandates successfully increase the number of newly insured individuals, they do so at the cost of over 995,000 jobs. In addition, over 1.5 million employees would find themselves unwillingly shifted from full-time to part-time employment status. This would result in 1.2 million fewer hours worked per week and decrease aggregate annual wages by nearly $71 billion. Medicaid expansions, on the other hand, would actually be expected to have a positive employment impact, while still increasing the newly insured by nearly 5 million. A Medicaid expansion to 300 percent of the poverty line would increase employment by nearly 230,000 jobs. It would also shift over 57,000 employees from part-time to full-time work, increase weekly hours by nearly 280,000, and increase aggregate annual wages by almost $16.5 billion. While tax credits have negligible employment effects, the authors find they also have a much smaller impact on the uninsured.
Policy Alternatives
Employer mandates are the most popular proposal at the state level, although Hawaii is currently the only state with an active mandate in place. In the late 1980s, both Oregon and Massachusetts attempted to implement mandates, and a California mandate was narrowly defeated in 2004. In January 2006, Maryland passed a mandate that was later struck down by the courts on the grounds that it was preempted by the Employee Retirement Income Security Act (ERISA). These mandates are often constructed as “pay-or-play,” where employers have the option to either “pay” a fee to the state to provide insurance for their employees or “play” by providing coverage themselves. Legislation often exempts smaller firms (defined anywhere from 10 to 50 employees), and part-time employees (often defined as 20 hours per week). Coverage for dependents varies, but will clearly increase both the potential costs and benefits of a proposal. This study considers a mandate for full-time (35 or more hours per week) employees and their dependents at firms with more than 25 employees. In addition, the study simulates an employer mandate where employees are required to accept coverage (individual mandate) and one that does not.
Expanded access to Medicaid is another widely considered alternative to reduce the number of uninsured. Such an expansion would be authorized and funded (in part) at the federal level, with states allowed some flexibility in the actual design and implementation of the program. One recent example is the creation of the State Children’s Health Insurance Program (SCHIP) by Congress in 1997, which extended Medicaid to children in families that previously earned too much to qualify for public insurance. Studies suggest that this program was responsible for covering 4 million additional children by 2003. This study examines the effect of a Medicaid expansion up to 300 percent of the federal poverty line.
The final policy proposal considered in this study is a tax credit that would allow low-income individuals to claim a federal tax credit to offset some of the cost of private insurance. This is similar to the 2006 budget proposal by President Bush. The policy considered in this study would allot up to $1,000 per adult and $500 per child with a maximum of $3,000 per family. Single individuals earning up to $30,000 and families earning up to $60,000 could qualify
for this credit.
Results
The authors confirm that the uninsured are a more diverse group than is often portrayed. However, compared to individuals with insurance they are more likely to have low incomes and education levels and to be from a racial minority group. They are also more likely to be under the age of 35, unmarried, and single parents. Among adults, the uninsured are also somewhat more likely to be employed and working full-time than insured individuals.
An employer mandate for firms with at least 25 employees would affect 8.2 million workers who are currently uninsured, including about 2 million workers who currently refuse employer-sponsored coverage offered through the workplace. Assuming dependent coverage is included under the mandate, this translates into new coverage for 13 million people without an individual mandate and 22.8 million people with an individual mandate. Health costs for private employers would increase by 8.6% or 15.1% with an individual mandate. For workers earning well above the minimum wage, we would expect additional health care costs to be fully offset by lower wages, resulting in a 1.98% decrease in wages or 3.47% with an individual mandate. The added health care costs would lead to a 1.03% decrease in employment or 1.81% with an individual mandate, or the loss of nearly 1 million jobs (1.7 million with an individual mandate). These job reductions arise because wages cannot adjust downward for workers near the minimum wage. In addition, we would expect 1.6 million workers to shift from full-time to part-time work (2.8 million with an individual mandate), decreasing hours worked by 2.1% or 3.6% with an individual mandate. If part-time workers were also included in the mandate, these labor market effects would be even more pronounced.
The authors estimate that expanding Medicaid to cover all adults and children with a family income up to 300 percent of the poverty level would extend eligibility to over 59 million people. The authors estimate that 7 million adults and nearly 591,000 children would take up the benefit. Most of these would be adults because children living in low- and moderate-income families already qualify for State Children’s Health Insurance Programs. Because some of those individuals would be dropping private coverage, the policy would decrease the number of uninsured by 4,997,724. However, a Medicaid expansion is expected to add 230,000 new jobs, as employers take on low-wage workers with fewer concerns about the inability to adjust wages downward as health care costs increase, since many of these workers would take up Medicaid. Other labor market benefits include: reducing health costs for private employers by 2%; increasing wages among existing workers by 0.46%; shifting 57,000 workers from part-time to full-time employment; and increasing hours worked per week by 279,741. However, these benefits would require approximately $16.4 billion in new public funds, some of which are required to cover reduced private spending.
Finally, the authors find that the tax credit option would be available to over 54.5 million individuals, 41.3 million of whom are currently uninsured. Because take-up rates for the previously uninsured are relatively low, however, only about 1.6 million previously uninsured individuals (310,000 of whom are children) would receive coverage as a result of the credit, while 11.9 million previously insured individuals would take up the credit. Public expenditures would increase by $19.8 billion in the form of foregone federal income tax revenue and payouts for refundable credits. The public expenditures per newly insured individual would be quite high ($12,644), due to the fact that the credit would be disproportionately used by those with prior insurance coverage (a ratio of nearly 7:1).
Conclusion
The results of this paper suggest that while the employer mandate may provide the largest drop in the number of uninsured, it does so at the highest cost in terms of lost jobs, foregone wages, and increased employer spending. A Medicaid expansion, on the other hand, will actually increase employment at roughly the same cost per newly insured individual as the employer mandate. Tax credits represent the least effective way to expand health insurance coverage of the three alternatives. Although they are expected to have negligible labor market effects, their impact on newly insured individuals is lower than the other alternatives and comes at a higher public cost.
