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The Coming ObamaCare Layoffs By: Tait Trussell
FrontPageMagazine.com | Wednesday, July 01, 2009

What good does it do to force businesses to provide the best health care to its employees if fewer Americans have a job? If the national health care bill currently pending before Congress becomes law, more than a million Americans may soon learn.

Perversely, President Obama’s top priority of providing government-run health care for all could cause another chief national concern—unemployment—to surge. One key provision alone could cause as many as 1.6 million Americans to lose their jobs during the first five years of such a new national health care mandate. The fact that a major element of universal health care would lead to fewer jobs is little recognized and never mentioned by the eager backers of what could transform America’s prized health system into socialized medicine.

As ObamaCare legislation wrestles its way through the Congress, some key elements are taking shape. A government-administered program similar to Medicare, available for all to choose as an alternative to private insurance is probable. Another likely component will force all Americans, or businesses, to purchase an insurance policy that fits a government-dictated format...or pay a penalty to the government. And the nation’s employers would have to furnish (in Obama’s words) “meaningful coverage” to their employees. Some 70 percent of Americans younger than age 65 currently are provided some form of health insurance through their employers, according to the Census Bureau. But employees now typically pay some of the cost. Only one-third of small businesses fail to offer any form of health insurance, but if politicians compel employers to give all employees top quality health insurance, employer costs will certainly shoot up. Basic economics, history, and recent experience all show as costs rise, employment sinks.        

Much has been made of other components of the plan. The cost to taxpayers of universal health care in particularly, after the nonpartisan Congressional Budget Office (CBO) shocked members of Congress and the public with its estimates of as much as $1.6 trillion over the next decade.

Senator Ted Kennedy, chairman of the Health, Education, Labor, and Pensions Committee, has been a strong backer of employer mandates.

Joblessness already hit 9.4 percent in May, raising the total unemployed to 14.5 million, far beyond the Obama administration projections. In fact, the president promised if his stimulus bill were passed, the nation would never see nine percent unemployment. Forcing an increase in the cost of employees by adding this new payroll levy would naturally lead employers to look for ways to offset the cost by laying off current employees, cutting back on new hires, or outsourcing—all meaning fewer new jobs. Many economists believe that most of the actions to offset costs would come in the form of letting people go, according to Michael Tanner, a senior fellow at the Cato Institute in Washington. He wrote:

They argue that workers are likely to resist current wage reductions, particularly if they value wage compensation over health insurance, which seems likely for many of the currently uninsured. In addition, minimum wage laws provide a floor for how far employers could reduce wages.

Larry Summers, who now is head of the President’s National Economic Council, once wrote (in the American Economic Review of May 1989) that “wages cannot fall to offset employers’ cost of providing a mandated benefit, so it is likely to create unemployment.” Mark V. Pauly, Professor of Health Care Policy at the Wharton School of the University of Pennsylvania, has written that the burden of paying premiums would probably rise over time because the cost of benefits to employers would probably rise as employees grow older and their families have higher health care expenses. Thus, the increase in unemployment would probably be higher with respect to mandated health insurance than with some other mandated benefits, such an increase in the minimum wage. Besides the direct costs of insurance that would be placed on employers, they would bear administrative costs, as the National Federation of Independent Business has pointed out.

Employers’ insurance companies would have to accept all applicants regardless of their health. Insurers couldn’t turn down any applicant for pre-existing risks, even for smoking, alcohol, or drug abuse. This inevitably would drive up the costs and risk profitability for all health insurance companies—leading to an increase in the number of Americans covered by the government-run plan, higher taxes, and a more negative business environment.

Low-skilled and low-wage employees especially would be at risk. More than 40 percent of uninsured workers are working within three dollars of minimum wage, Cato’s Michael Tanner points out. Any mandated insurance costs would be a significant cost in the expense of employing those workers. A national health mandate for employers would mean a loss of about 315,000 low-skill jobs, according to an estimate by Katherine Baicker, professor of Health Economics at Harvard School of Public Health and Helen Levy, research scientist at the University of Michigan School of Public Health.

In a study for the National Federation of Independent Business, “Small Business Effects of a National Employer Healthcare Mandate,” it was estimated that as many as 1.6 million jobs could be lost in the first five years after imposition of an employer mandate. A study of the employer mandate for California businesses, according to “Pay-or-Play Health Insurance Mandates: Lessons from California,” Public Policy Institute of California, by Aaron Yelowitz, placed the potential job losses, in that state alone, at 70,000.

President Obama promised in early June that his $878 billion stimulus package would yield 600,000 more jobs this summer because he and Joe Biden, who was charged with stimulus responsibility, would be financing massive public works projects and summer youth programs. “Obama is ramping up his stimulus program this week even as his advisers are ramping down expectations about when the spending plan will effect a continuing rise in the nation’s unemployment,” according to an Associated Press story. “Many of the stimulus plans that Obama announced Monday (June 8) already were in the works, including hundreds of maintenance projects at military bases, about 1,600 state road and airport improvements, and federal money states budgeted for 135,000 teachers, principals and school support staff.” The Obama administration has seen this summer as the best time for stimulus spending, because the weather enables public works to “go forward,” a favorite phrase of the administration. As Obama declared in a written statement for his public announcement of the added summer stimulus busywork, “We’re going to keep moving forward.”    Low unemployment rates have been a hallmark of the United States economy, as compared with other countries. “From the early 1990s through the peak of the last business cycle unemployment rates seemed to make the United States a model for the rest of the world’s economies.” John Schmitt, a senior economist at the Center for Economic and Policy Research, wrote in May. But the U. S. is now tied for the fourth highest unemployment rate among the major Organization for Economic Cooperation and Development (OECD) countries.

If the ObamaCare plan with its employer mandates becomes the law of the land, we are likely to “keep moving forward.”

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