Opinion Column

Baucus Plan Is Harmful To Low-Income Workers

Democratic Senator Max Baucus wanted to achieve bipartisan consensus — and he succeeded. When the Senate Finance Committee chairman released his health care plan, policy analysts on the left and right agreed that his plan would harm low- and middle-income workers.

The Baucus plan imposes new rules on employers who don’t provide insurance to their employees. Individuals are also obligated to purchase insurance, with caps on their out-of-pocket payments based on their income.

Under the sliding scale of the Baucus plan, families would pay from two percent to eight percent of their income on premiums. Individuals in businesses with more than 50 employees could purchase subsidized health insurance on an exchange, with the IRS billing their employer for their subsidized insurance. Individual workers would receive a subsidy based on individual coverage, while a worker with a family would receive a subsidized group plan.

As the liberal Center for Budget and Policy Priorities points out, the Baucus proposal would make it more expensive to hire workers with dependents and family income less than four times the poverty level (roughly $88,000 for a family of four), but who were not eligible for Medicaid. The less income a worker has, the more expensive the penalty an employer faces if there is no insurance. Thus it becomes cheaper for employers to hire single workers, workers in wealthier families, or those already covered by someone else’s insurance. And businesses would be discouraged from hiring single mothers, who qualify for group plans.

Our research at The Heritage Foundation shows that the Baucus proposal would limit job opportunities, especially for low-income workers. Companies pass on higher costs either to customers in higher prices, investors through reduced returns or employees through lower wages and compensation, or a combination of the two.

This is not just academic theory. A recent survey of human resource executives found that 86 percent of companies will pass on higher employee costs associated with health care legislation by lowering employee compensation.

The Congressional Budget Office has warned that low-wage workers are particularly vulnerable because companies can’t pass on higher employment costs to these workers due to minimum wage laws. CBO warns that companies are more likely to reduce their hours or lay off workers to make up for the higher labor costs. Minimum-wage workers who keep their jobs could pay one-fifth of their income in the form of payroll taxes and health insurance premiums. For example, someone who earns $15,080 per year before taxes by working full time at a minimum-wage job could be required to pay $1,960 for a generous individual health plan or even more for a family plan.

Workers also would face higher premiums if they work more. For example, family at twice the federal poverty level would be required to pay 7 percent of their income — which, in 2013, would be more than $3,000 — to purchase an “acceptable” insurance plan. The premium would almost double to 12 percent of income for a family making three times the FPL. This escalating cost makes work more expensive as families advance up the income curve. Indeed, it could discourage them from working more.

The employer penalty aspect of Baucus’ plan is unusual. Each employer’s tax would be the national average cost of subsidies times the number of workers from low-income and moderate-income families, or $400 for each full-time employee — whichever is less. For an employer with mostly low-income employees, hiring another would increase taxes by only $400. However, an employer with mostly high-income employees would pay a tax equal to the average subsidy in the exchange to hire a low-income employee. Thus companies that employ mostly high-skilled workers would have a large disincentive to hire lower-skilled support staff.

The impact of the Baucus proposal will be to lower the cash compensation of many workers by forcing employers to offer them health insurance. Other workers will see their work hours reduced or even face job losses as companies lay off workers from low-income families.

Under the Baucus plan, workers from low-income families become more expensive to hire than those with higher–income family members. Single workers with children become much more expensive than workers with no dependents. While broadening health coverage is a worthy goal, this proposal comes at a high price – taking income and jobs away from those who can least afford the loss.





Rea Hederman is a Senior Policy Analyst and Assistant Director of the Center for Data Analysis at The Heritage Foundation.