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Home Publications Blogs Beat the Press Robert Samuelson and the Affordable Care Act: Almost Half Right

Robert Samuelson and the Affordable Care Act: Almost Half Right

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Monday, 22 October 2012 04:42

Robert Samuelson goes after the Affordable Care Act (ACA) in his column today. Remarkably, he is almost half right. His target is the provision that larger employers must provide insurance for full-time employees, which he says could amount to $5,000 a year. He tells readers that this provision will both lead to less hiring and also encourage employers to keep workers' hours below the 30 hour cutoff, both of which would be undesirable outcomes.

This is partly right, but only partly. The ACA does not actually require larger employers to buy insurance policies for their workers. It gives them the option of paying a penalty of $2000 per worker, with the first 30 workers being exempt. This means that an employer of 60 workers who did not want to offer insurance would face a penalty of $60,000 or $1,000 per worker. (One thousand dollars is only one-fifth of Samuelson's $5,000 number, but if we give him the marginal cost of hiring another worker we get to 40 percent, which is almost half.)  

For a full-time worker this $1,000 penalty would come to 50 cents an hour. That is much smaller than recent increases in the minimum wage which have not been associated with any job loss according to a number of academic studies. Therefore, we might conclude that Samuelson's concerns about the ACA causing job loss have little foundation outside of Washington Postland.

However there is still the issue of gaming the system. Some employers will undoubtedly be happy to save themselves $2,000 by reducing their workers' hours from just over 30 per week to just under 30 per week. This would be bad news for workers at low-paying jobs who likely need these hours. 

While Samuelson wants to throw up his hands and say we therefore should get rid of Obamacare, more serious people would say that we could look to amend the bill to have the penalties based on hours worked rather than the number of full-time workers. This provision on full-time workers was put in place by an amendment to the Senate bill. The original House bill had a more reasonable provision and it would not be difficult to design an amendment that did not base penalties on the number of full-time workers, but rather total hours worked. For those familiar with arithmetic, such calculations are not difficult.

There is another important point on this topic that Samuelson apparently missed. Historically insurance was provided as a per worker benefit, making it a fixed overhead cost. (It is increasingly common for employers to pro-rate its payment for insurance based on hours worked, but this practice is still the exception.) This meant that employers would rather have workers put in longer workweeks, possibly even paying an overtime premium, rather than hiring additional workers and paying for health insurance.

This is a major distortion of the labor market from the current system. It is undoubtedly one reason that full-time workers in the United States put in 20 percent more hours a year on average than do workers in western Europe. The notion that we somehow have a perfect labor market now, into which the ACA will introduce distortions, is absurd on its face.

Comments (6)Add Comment
Truly bizarre reasoning from Samuelson
written by Matt, October 22, 2012 9:11
Truly bizarre reasoning, that - "we shouldn't pass policies that attempt to help workers, because certain employers are dicks".

For bonus points, compare and contrast the supposed flexibility of workers in two favorite glibertarian scenarios: as a preemption to antidiscrimination law, workers can apparently leave their jobs without difficulty if they are mistreated - but apparently (simultaneously) have to just stand and take it when their benefits and hours are reduced as in this case.

See also similar conservative conceits: "those people" are lazy, but they're constantly committing crimes / taking our jobs, etc.
Arithmetic
written by EMichael, October 22, 2012 9:24
You gotta love Samuelson picking the Darden Restaurant group to make his point.

"It will cost Darden $5 Million a year" to have food service employees have health insurance. Personally, I sort of like the idea of going to a restaurant where a sick employee can receive healthcare when they get sick.

With sales of over $7 Billion a year, Darden can have healthier employees and pay for it by raising their prices 1/10 of one per cent.

My question is why they wouldn't do that even without the ACA.
carve outs for friends of obama..
written by pete, October 22, 2012 1:45
You are not bringing up the carve outs like the SEIU got. I wonder if Whole Foods will get a carve out for their very popular choice model of health insurance, including very efficient high deductible plans. The insanity of health insurance is that we pay a 20% premium for things that should not be "insured", like annual physicals. We don't collect on our auto insurance when we change the oil. These things, like contraceptives and other regularly used drugs, should not be funneled through an insurance program. Just icing for the insurance companies, a free 20% markup.
If ACA is important enough
written by Floccina, October 22, 2012 3:16
If ACA is important enough to be force in some then it should be structured so that it treats all employees the same. All should be treated that same part time or full time, those who work for companies with fewer than 30 employees and those with more than 30 employees.
But then, of course...
written by Aaron, October 22, 2012 5:34
Just as if Samuelson were truly concerned about trying to replace our current system with one that was more affordable, one that would make a serious contribution to putting the budget into balance, he would favor a health insurance system modeled after the national plans of other western democracies, if he were truly worried about smaller businesses he would favor a tax-based system of funding a more universal system of health insurance.

Contrary to pete's suggestion, there is nothing inherently offensive or wrong in having a health insurance policy cover not only unexpected care, but what amounts to a package of pre-paid services, and having insurance cover routine preventive care can help avoid larger long-term healthcare costs. There are a number of car manufacturers and dealers who cover certain routine maintenance expenses during the warranty period.
wise public policy
written by frankenduf, October 23, 2012 9:06
good call Aaron- incentivizing preventative care is not only rational, but actually decreases the burden of chronic disease and cost to our citizens- the so-called business approach doesn't get that, falling into the stereotype that business is corrupted by short term profit vs. long term social benefits

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Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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