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
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
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.
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.