Why Government-mandated health insurance doesn’t help
Imagine you are an employer. You certainly aren’t going to pay an employee more than his value to the organization and competition from other employers will tend to prevent you from paying less. What matters here will be the total cost of employment, not the individual components. If your employees would rather have more in health insurance and less in wages, you will likely comply. If the government forces you to spend more on health insurance, you will spend less in wages in order to pay for the mandated benefits.
For above-average-wage employees, this is all straightforward. Expect wage stagnation for the next four years, as employers use potential wage increases to pay for expanded health benefits instead.
At the low end of the wage scale, however, the effects of this new law are going to be devastating. Low-wage workers at Walmart and such fast food chains as McDonald’s either have no insurance or they are enrolled in “mini-med” plans with limited benefits.
The easiest answer isn’t always the best. The “easy answer” to our health insurance issue is to have the government come out and mandate companies provide it for everyone. They’ve already done this, it will come into existence soon.
Unfortunately, there’s a huge Economic problem behind all this: the total cost of labor for a company is going up. As a general rule of thumb, employee compensation tends to equal the value of what workers produce. Think about it, if the labor costs more than what they are selling, you are priced out of the market.
For all the well-compensated people (that probably already have low cost health insurance), there are few problems, but the issue comes with low wage employees. Companies will have two options: reduce labor cost through having less employees or increase prices for everyone. Neither one helps the problem.
End-consumers will already have less disposable income because of the increased taxes. It’ll hurt worse if prices increase.
This article also only takes into account workers that can’t be offshored. Someone in India can’t work as a Walmart greeter. What happens to all those low-wage jobs that were in the US, but now are much cheaper to ship off to another country?
The incentives the government is providing for companies is to raise prices, reduce workforce even further, and offshore jobs whenever possible.
That’s not a recipe to fix an economy.
