Some lawmakers in Washington have decided that the latest problem to be cured is health insurance, or rather, the lack of it. But their proposed cure may be worse than the disease.
As many as 35 million Americans have no health insurance. The uninsured run up about $4 billion annually in unpaid hospital bills. Now, Sen. Edward Kennedy (D–Mass.) is sponsoring legislation based on Massachusetts's mandatory program (see "Medical Mystery Tour," Aug./Sept.). But new studies indicate that mandated health insurance may do more harm than good.
Federal law prohibits states from requiring specific insurance plans. Massachusetts gets around this rule by making employers pay a state tax equal to 12 percent of salary up to $14,000 for each employee. From this tax, employers can deduct whatever they spend on the employee's health insurance.
Critics contend that the Massachusetts law will increase unemployment. Economists Attiat Ott and Wayne Gray of the Boston-based Pioneer Institute estimate that the plan will force Massachusetts businesses to increase spending on employee health insurance by at least 32 percent, an additional cost of $642 million or more in the first year. That higher labor cost, Ott and Gray further estimate, will wipe out at least 9,000 jobs. If the Massachusetts plan were adopted nationally, they conclude, it would cost business $23 billion annually. As many as 358,000 jobs would be lost nationwide.
Kennedy's bill differs slightly from the Massachusetts plan, since the federal government, unlike state governments, can require specific insurance coverage. The bill requires most employers (those subject to the federal minimum-wage law) to provide health insurance covering all hospital and physician care, as well as prenatal and well-baby care, for the family of any employee who works more than 17.5 hours a week.
The Congressional Budget Office estimates that the bill would require employers to spend $27.1 billion more each year on employee health insurance. But that estimate is low, contends a study by the Institute for Research on the Economics of Taxation.
According to IRET, the CBO's estimate of average annual premiums of $780 for single coverage and $1,798 for families falls short because it relies on a 1977 survey. Basing its figures on a 1985 study of what businesses actually spent on health insurance, IRET concludes that the actual costs of premiums would be $1,200 for singles and $2,892 for families. The total cost to business: $100.2 billion a year.
Both sides agree that higher costs will lead to greater unemployment but squabble over how many jobs would be lost. Critics charge 1 million, while supporters of the Kennedy bill hold that "only" 100,000 people would be left jobless.
This article originally appeared in print under the headline "Bad Medicine".