The “Fair Share for Health Care Act” and New York’s Labor Market

Content

New York’s so-called “Fair Share for Health Care Act” imposes a pay-or-play health insurance mandate on firms with 100 or more employees. These firms employ more than 70 percent of New York’s workforce, and would be subject to a tax as high as $3 per hour for covered workers. As a consequence, a firm employing
a full-time, full-year worker could be subject to an additional annual labor cost of as much as $6,000.

This study has four goals. First, I describe the major legislative provisions of the health insurance mandate, along with the likely economic impact. A firm could react to the mandate by adjusting hiring practices, relocating out of New York, raising output prices, reducing the quality of their product, accepting lower profitability, or going out of business. Previous economic work suggests wage shifting is a likely response. When such an offset is not possible (due to New York’s minimum wage of $6.75 per hour), the mandate is likely to destroy jobs. Layered on top of the textbook “supply-and-demand” analysis, New York’s law creates a “hiring notch.” For many firms, labor costs go up dramatically from hiring the 100th employee, which creates a strong incentive for firms to fire workers, consolidate part-time jobs into full-time jobs, or stunt growth in order to stay below the 100-employee threshold.

Next, I document current health insurance arrangements in New York. After documenting these trends, I model the provisions of the health-insurance mandate and estimate the coverage and cost impact. Although advocates state that 450,000 workers in New York would be affected by the legislation, this estimate counts only uninsured workers. The law also impacts nearly 3 million insured workers. These workers can be insured through their own employer, a spouse’s plan, directly purchased insurance, Medicaid, Medicare, or Champus/Tricare. For all of them—especially those in the latter five groups—the employer costs from the mandate are substantial, yet there is minimal impact on the uninsured. Even for workers covered by their own firm, the employer costs would still go up since many employers currently contribute less than $3 per hour for health coverage.

Consistent with the claims of the advocates, I find New York’s mandate covers 466,000 uninsured workers, yet this coverage is less than one-third of the all uninsured workers. At the same time, the cost to employers from the mandate is at least $5.7 billion, and could be as high as $9.2 billion, translating into a cost of at least $12,000 per newly-insured worker. The reason why this cost is so high is that the majority of the expense falls onto workers that already have private insurance coverage.

Lastly, I assess the possible labor market adjustments. Credible economic studies suggest that much of the employer cost will be shifted to workers in the form of lower wages. For those close to the minimum wage, wage shifting is not possible and employment losses ensue. The estimates suggest that between 37,000 and 65,000 low-wage workers will lose their jobs. I also examine the impact of the hiring notch. For firms with 75 and 125 employees—representing just one percent of all establishments in New York—I find that another 32,000 workers will lose their jobs in the first year of implementation. In total, employment losses in excess of 69,000 jobs are likely from New York’s employer mandate.