New Health Care Regime May Penalize Low-Wage Workers

Published May 31, 2016

The requirements of President Obama’s new health care regime could penalize low-wage workers and cause a further slowdown of hiring for positions at chain restaurants and other small businesses.

White Castle, a national fast food chain, recently announced it would slow planned expansion in the United States and curtail hiring at its numerous restaurant outlets thanks to Obama’s law, which the chain says will cut its earnings in half.

According to a White Castle representative, the requirement that employers pay a $3,000 fine to the federal government for every employee whose out-of-pocket cost of health insurance exceeds 9.5 percent of their income will destroy their business model.

‘Completely Arbitrary’ Numbers
Joe Antos, a health care policy expert at the American Enterprise Institute in Washington, DC, says the $3,000 penalty and 9.5 percent figure were numbers “taken from thin air,” lacking any scientific basis.

“Those numbers are completely arbitrary. This 9.5 percent figure is some politician’s value judgment of what he or she thinks people ought to pay at the most out of their pockets for health care. It is a number without any understanding of wages, completely and utterly arbitrary, with no sound basis,” Antos said.

“Those numbers reflect politicians’ belief that as long as health insurance payments do not directly come out of the workers’ paycheck, then somehow the actual cost of health insurance will not be loaded onto the worker through stagnant wages, workers not getting hired in the first place, or even workers getting laid off,” he explained.

Antos believes Congress has only a limited understand of the wide effects of the new health care policy.

“Obamacare is so complicated and confusing that on Capitol Hill they have only a limited understanding of how it works. I would bet that most of the staffers involved in the creation of the 9.5 percent and $3,000 penalty provisions did not think how difficult it would be to figure out a family’s income,” Antos said.

‘Crazy and Unworkable’

Antos notes the requirements could actually hurt low-skilled workers who work two part-time jobs instead of one full-time job.

“For a lot of people who have more than one job or work two part-time jobs, they might fall under the 9.5 percent, so they do not get the support, while people with one job do,” Antos said. “We are talking about penalizing some of the hardest-working people in America.”

Diana Furchtgott-Roth, a health care analyst at the Hudson Institute in Washington, DC, says much of this process is out of the employer’s control.

“The limits are arbitrary, but it is even more arbitrary in that the employee’s family cost for health insurance can move around each year, with one year above 9.5 percent, the next below,” Furchtgott-Roth said. “This is something employers cannot predict and brace their balance sheets for—a part of this bill that is crazy and unworkable.”

Low-Wage Workers Bear Burden

Furchtgott-Roth says this aspect of Obamacare is part of a larger trend toward government pricing low-skilled workers out of the U.S. economy.

“The burden of all these Obamacare provisions is going to fall more on America’s low-skilled workers—the workers at White Castle, Burger King, and so on. Because their labor will become more expensive for companies to use, we’re going to see more mechanized solutions, a trend that is already happening in Europe,” Furchtgott-Roth said.

America’s current minimum wage is $7.25 per hour, but Furchtgott-Roth points out that when factoring in the costs of Social Security and worker’s compensation, workers only make sense for small businesses if their skills are worth more than $8.00 per hour.

“Obamacare raises the cost even more—close to $9.00 per hour. If your skills aren’t above that level, you will not be hired,” Furchtgott-Roth said.

“Basically, this means unskilled workers will not be hired,” she explained. “In Italy today, you’ll see pizza machines where you put money into the machine and it basically rolls the bread right in front of you, puts on the fresh ingredients right in front of you, all because it is cheaper to pay for that machine because of Italy’s regulations and taxes than to hire a worker to do it. That’s the future of America.”

Creates Incentives for Fraud

Antos says the 9.5 percent figure and attendant pressure on low-skilled workers will create incentives for massive fraud under the new regime.

“This all creates a circumstance where it makes sense for people not to file income tax forms for one of their jobs, so that their employer in the other job gets the $3,000 penalty to support their health insurance. Low-wage employers will figure this out—that really nobody can really be found out if they ‘game’ the system,” Antos said.

According to Antos, a smart employee will claim to have only one job so their employer won’t know they have another job or that their spouse has a job. Because the law places the responsibility on the employer to report on violations of the 9.5 percent barrier, the Internal Revenue Service could be faced with an impossible task in enforcing this limit.

“Frankly, it is really none of the employer’s business anyway what [an employee’s] total income amounts to, and if somebody lies, well, let’s just say this is one provision that is not going to work,” Antos said.

Thomas Cheplick ([email protected]) writes from Cambridge, Massachusetts.