Senate Majority Leader Harry Reid is expected to emerge early this week with a composite version of a health care bill that increases penalties on employers and includes a government plan, the Wall Street Journal reports.
Unlike the other Democratic bills, the Senate Finance Committee bill did not include a strict mandate requiring that all employers provide health insurance, but it did include a provision that would fine employers who did not offer insurance to workers who ended up purchasing insurance using a government subsidy. This is sometimes referred to as the “free rider” provision. The Finance Committee bill devised a complicated mechanism in which businesses with more than 50 employees have a choice to pay the lesser of the following: the cost of any subsidies paid by the government to any employees, as determined each year by the Secretary of Health and Human Services, or a dollar fine on every employee at the firm, regardless of how many of those employees qualify for subsidies.
If you’re confused, the draft of the bill described it pretty clearly. While the basic structure would remain inact in the new negotiated version if reports are correct, the fine per employee would rise to $750 from $400:
“For example, Employer A, who does not offer health coverage, has 100 employees, 30 of whom receive a tax credit for enrolling in a state exchange offered plan. If the flat dollar amount set by the Secretary of HHS for that year is $3,000, Employer A should owe $90,000. Since the maximum amount an employer must pay per year is limited to $400 multiplied by the total number of employees (for Employer A, 100), however, Employer A must pay only $40,000 (the lesser of the $40,000 maximum and the $90,000 calculated fee).”
The fines would in effect represent a substantial increase in the payroll tax, the magnitude of which would be determined by the mix of low-income workers at a given business. But let’s just use an example of a worker earning between 150% and 200% of the federal poverty level, or an income of about $20,600. That person could qualify for government subsidies of up to $4,400, according to analysis by the Congressional Budget Office. If the employer were forced to reimburse the government for those costs, it would raise the price tag of employing that worker by 21 percent. Given that businesses currently pay a 6.2 percent payroll tax on every worker, the new fines could bring the effective employer share of the payroll tax to about 27 percent for low-income workers, or more than quadruple what it is today.
The major problem wiith this disastrous proposal should be obvious to anybody with an inkling of understanding of economics. If you make it more costly for businesses to higher lower-income workers, they won’t hire as many. Simply put, if the federal government set out to create a program designed to increase the unemployment rate among the working poor, it would be hard to come up with anything better than this.