Sacramento Bee columnist Dan Weintraub today asserts that health care reform — specifically AB8’s demand for a 7.5 percent employer contribution — will take a higher toll on workers because their employers will forgo giving them higher wages/raises because they’ll want to make up the money they have to pay in higher health care somehow.
The implication is that 7.5 percent is too high, and the Governor’s proposal of 4 percent (or lower for smaller businesses) is more manageable.
A couple of counterpoints:
1) Businesses already pay more than 7.5 percent: California businesses across the board on average, spend 8 percent of payroll already on health coverage according to this study by the UC Berkeley Labor Center. The universe of businesses that actually provide coverage actually spend closer to 11 percent of payroll. For businesses, then, to be required to spend 7.5 percent on health care is not a stretch. In fact, anything lower (such as the governor’s 4 percent proposal) would cause employers — weighing their costs — to drop coverage for low-wage workers. This is otherwise known as “crowd-out.”
2) Higher costs are offset by other benefits: The argument that higher health care costs would force employers to stop hiring new low-wage workers — or laying them off — “because the minimum legal compensation ….is higher than the value of the an extra worker’s labor” is a familiar one echoed during battles to increase the minimum wage. According to this study by the Economic Policy Institute, even though each workers’ compensation is higher, the increased costs are offset by other “benefits” such as lower turnover, lower recruiting and training, higher employer productivity, decreased absenteeism and higher morale. Additionally, the study points out — “employers pay their workers less than the actual value of their work.” According to a 2004 study, corporate profits increased by 57.5 percent, while private wage and salary income has actually decreased by 1.7 percent over the same period.
3) Providing low-wage workers with coverage would actually help the economy. A low-wage worker who does not have health coverage would have to dig deeper into their pockets to pay the full amount of the premium (in the unlikely case they decide they can “afford” coverage on the individual market). A low-wage worker who receives benefits from their employer would actually spend that money, helping to boost the economy. Unlike higher wage workers, who generally receive coverage and are paid higher than the minimum wage, a low wage workers’ pay gets spent on basic necessities. To the extent that having coverage frees up money, that worker would spend it. Higher wage workers tend to save their money because their wages and benefits are enough to cover what they need.