Though hailed as a victory by labor organizations in Maryland, last year’s override of a gubernatorial veto of the Fair Share Health Care Act could set a precedent that portends significant adverse economic consequences. In fact, at least 29 other states are considering similar legislation. In Michigan, Senate Bill 734 was introduced last fall and is pending before the Senate Committee on Commerce and Labor.

The Maryland Fair Share legislation requires that employers with more than 10,000 workers pay at least 8 percent of payroll toward employee health insurance benefits, or pay any difference into the state Medicaid fund. That means that if an employer with over 10,000 workers is spending 5 percent of payroll on employee health insurance benefits, they must increase that figure to 8 percent or pay another 3 percent into the state Medicaid fund.

The Michigan proposal is similar to Maryland’s. The worker threshold is 10,000. For-profit organizations would pay 8 percent of payroll and non-profits would pay 6 percent, or, again, pay the difference to the state Medicaid fund. Payments to the Medicaid fund would be reduced by the amount spent on employee health insurance. Not surprisingly, all governmental units and agencies would be exempt from these provisions.

While there are only four employers in Maryland with more than 10,000 workers, Wal-Mart is the only one not meeting the 8 percent threshold. The other three employers in this category are Johns Hopkins University, Giant Food and Northrop Grumman.

The Fair Share legislation marks a paradigm shift in the way in which employee benefits have been historically viewed. Rather than being a fringe benefit of employment provided at the employer’s discretion, health insurance has been transformed to a benefit mandated by law. This mandate has potentially significant adverse economic consequences, including a high probability that it will backfire on the state.

For starters, as the cost of health care continues to rise, state legislatures will be pressured to increase the percentage of payroll that employers must pay into their state Medicaid funds. In addition, it is likely that the threshold number of workers will be reduced below 10,000 to increase the revenue stream to support the Medicaid fund.

Employers may then make the economic decision that it will be cheaper for them to stop offering health insurance benefits. In most instances, doing so would mean the business either shuts its doors or moves to another state.

Or, health insurance premiums could increase to the point where they exceed 8 percent of payroll. In this case, the employer could stop offering health insurance altogether and net a savings after paying into the Medicaid fund.

In either scenario, the result will be more uninsured individuals and families who will look to the state to help them pay their health care costs.

If the 29 states currently contemplating Fair Share legislation enact this concept, few domestic locations will remain for those employers to consider. A dire situation will become far worse as a result. The state will need additional revenue, but will no longer have an adequate or sustainable economic base from which to extract it.

Rather than venturing out on this precipitous slippery slope, state legislatures should recognize that there are only two reasons employers offer health insurance benefits to their employees. One is to attract and retain labor in a competitive marketplace. The second is the tax-favored status employers enjoy by providing this benefit. If these reasons did not exist, it is a fairly safe assumption that very few, if any, employers would offer health insurance benefits.

Mandating employers to pay a specified percentage of payroll for health insurance and/or pay the difference to the state Medicaid fund is counterproductive. State legislatures should be about the business of creating environments within which businesses can thrive. Until this happens, it is likely all approaches to resolving state Medicaid funding problems will fail.

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David S. Cluley is a Senior Account Executive for HealthPlus in Flint, Mich., and a member of the National Legislative Council of the National Association of Health Underwriters. Permission to reprint in whole or in part is hereby granted, provided that the author and the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich., are properly cited.