How Your Job is Affected by the Healthcare Bill

Suppose you work for a company with 50 people and everybody's salary is $60K annually. Your employer has a payroll of $3M. They currently provide everybody with a healthcare plan that costs them $600 per month, $7,200 per year per employee. You pay the remainder. The $7,200 per year times 50 employees amounts to $360K per year that they have to pay to compensate their employees for the healthcare benefit. In addition, it is very typical for the employee to kick in something, usually about 15% to 25%. Suppose, for the sake of this example, you kick in an extra $200 per month or $2,400 annually. This adds an extra 120K to the cost for all 50 employees.

The employer now has a "public option" to pay an 8% tax on his payroll of $3M. This would cost them a total of $240K. Compared with the $360K they were paying and the additional benefit of $120K that employees no longer have to pay this is a total benefit now of $240K (from $360K + $120K - $240K = $240K). This amounts to a $4,800 per employee. I am a little unclear on how the 2.5% income tax on individuals who don't have insurance works. But if it applies to the $60K earner it amounts to $1,500 per employee. This too is cheaper than the employee paying the extra $200 per month previously. If I understand it right, this tax would reduce the $120K of the employee share amount down. The 50 employees would pay $75K now instead of the $120K they currently have to pay. Still a compelling reason to "voluntarily choose" a "more competitive" public option because of the way the feds have priced this. This only compares the current out-of-pocket and not the future out-of-pocket costs more likely to be incurred if employees working for a private option company get insurance on their own.

The argument President Obama puts forth in support of this is that if you like your health insurance you can keep it. Maybe. Maybe not. If your employer decides to pay the tax you have to buy it yourself out of pocket. Buying a personal family plan can easily run between $500 to $1K per month. Compared with just paying $1,500 annually or $125 per month, you've got to really love your private health plan. Suppose the employer does decide to keep private insurance. If his competitors do not, they can cut costs and can sell what they're offering at less cost. There is also a proposal to add a tax to employers who keep private insurance though the rate is still TBD. This would make it even more expensive for an employer to maintain private insurance and the incentive to move to public would be greater still.

Ultimately, costs get passed on to consumers. This hurts the company who doesn't go for the public option. The employees will likely have to take a pay cut to compensate for the high benefit cost. The competitors with the public option company may increase salary because they get lower quality healthcare. Overall, workers who don't value health benefits will be likely to go to a job with a public option and vice versa.

Overall, there are serious ramifications to the health proposal that I don't think policymakers are seriously advertising. This bill is very likely over time to further complicate long term employment and is likely to usher in a higher "structural unemployment rate" as is the case in Europe where they routinely have 10% unemployment rates due to these types of policies. Maybe this is what America wants. Obama repeatedly and clearly said he was going to remake America. Is this what you had in mind?