Wednesday, July 10, 2013

What So Many Fail To See About the Employer Mandate

It comes at the expense of employees.  

Shortly after PPACA passed in 2010 I sat across from a client, the CEO of a 1,000-employee financial services firm, and within ten minutes of me explaining that Reform was going to force him to pay about $2,000 more per employee or pay penalties of $2,000 to $3,000 per employee, he solved the matter.  

Without missing a beat he explained that he would reduce as many workers to part time status as practical and reduce pay by the $2,000 across the board (by freezing and/or moderating pay increases over the next four years).  Problem solved.   Employees pay for employer mandates.  

This is from Casey Mulligan, PhD, writing for the New York Times: 

The Affordable Care Act’s employer mandate will eventually levy a penalty on large employers that do not offer affordable health insurance to their full-time employees. The penalty is based on the number of full-time employees and adds about $3,000 to the annual cost of employing each person.

Employers have been complaining about the penalty, saying it will reduce the number of people they hire and cause them to reduce employee hours. Even economists and commentators supporting the law acknowledge that per-employee penalties reduce hiring by raising the cost of employment.

Economists have traditionally recognized that it hardly matters whether a tax is levied on employers or on employees, especially in the long run. In the employee-tax case, the employee pays the tax directly. In the employer-tax case, the employee pays the tax indirectly through reduced pay, because employer penalties reduce the willingness of employers to compete for people (Jonathan Gruber of the Massachusetts Institute of Technology has provided some good evidence in support of this widely accepted economic proposition).