Strike Two: ObamaCare creates strong incentives for employers — even while holding workers financially harmless — to drop employer-sponsored health insurance for as many as 35 million Americans. This is sure to lead to widespread turmoil in labor compensation, employee insurance coverage and labor relations.
Health insurance is generally only one piece of an overall compensation package that employees receive as a result of competitive pressures. Evidence suggests that if the health insurance portion of that package is reduced or eliminated, the wage aspect will ultimately be increased as a competitive necessity to retain and attract valuable labor.
So the key question is whether the employer can keep the employee “happy” — appropriately compensated and insured — and save money.
The answer is frequently “yes” — thanks to the generosity of federal subsidies. In a study available at the American Action Forum website, we find that for a worker with an income of $59,250 — 250 percent of the federal poverty level — the employer could drop $12,000 in insurance, pay the $2,000 penalty ObamaCare imposes on doing so, give the worker a raise of $8,391 and pocket a tidy $1,550.
More important, the worker could use her raise and the $7,530 subsidy to purchase insurance as good as what she gave up.
What’s not to like — as long as the other 138 million taxpayers are financing the deal?
The potential affect is large. There are now 123 million Americans at or below this income cutoff. Roughly 60 percent of Americans work; about 60 percent of those receive employer-sponsored insurance. This suggests that there are about 43 million workers for whom it may make financial sense to drop insurance.
In the interest of being conservative, let’s say it is 35-40 million.
CBO estimated that only 19 million would receive subsidies, at a cost of about $450 billion over the first 10 years. This analysis suggests that the number could easily be triple that — or 19 million plus an additional 38 million in 2014. Meaning the price tag would be $1.4 trillion.
On top of that, there would be a disruptive and vast reworking of compensation packages, insurance coverage and labor market relations.