Beware Easy Healthcare Fixes

It is generally accepted that we have a problem with healthcare in this country, but we had better make sure we fully understand the nature of that problem before we start enacting solutions that may exacerbate it. Otherwise we could find ourselves with a patchwork of well-meaning but ill-conceived legislation similar to the so-called Walmart healthcare bill enacted in Maryland last week. For those unfamiliar with the new law, Maryland now requires any employer with more than 10,000 employees within the state to contribute at least eight percent of its payroll cost to health benefits. If they do not, the difference between what they pay and the eight percent cutoff must be paid into a state fund. Not coincidentally, Walmart is the only company affected by this legislation. This legislation is dangerous on several levels. For one, though only Walmart is currently affected, it opens the door for expansion of the concept to include smaller employers and encourages similar measures in other states. While that may sound good to some, we must keep in mind that this unfunded mandate is essentially a tax on payroll. And one thing we know to be true is that we get less of what we tax. Thus, we’ll get less payroll – either through lower wages or fewer jobs. (If you disagree, consider that the arguments for higher cigarette or gasoline taxes include discouraging their consumption). The irony is that we could actually end up with more unemployed people who have no insurance and wind up on state Medicaid rolls – precisely the opposite of what the legislation is designed to do. But another flaw in the legislation is that it treats all large employers as identical. But that is not true. For example, Walmart and Microsoft are both big companies. But whereas Microsoft earns a profit of approximately $210,000 per employee, Walmart earns only $8,300. Even fellow discount retailer Costco earns more than twice as much per employee as Walmart. Why does this matter? Because it means that not all employers are equally capable of paying for increased benefits. We look at Walmart’s size and assume it has bottomless pockets, but their profit per employee leaves relatively little margin for additional expenses per employee. Legislation like that passed by Maryland further reduces that margin, making Walmart less competitive in the marketplace vis-a-vis competitors with greater margins. But Walmart is not the only company with thin profits per employee. It is also true of far smaller companies, which brings us back to the concern that this may be just the opening salvo in the attempt to get employers to shoulder more of the healthcare burden. This legislation passed largely because only one employer was affected. That limited the lobbying effort against it. Next time, the state can go for a lower employee threshold without worrying that Walmart will oppose it since they would now benefit from having their competitors face the same requirements. It’s a divide-and-conquer approach that could be devastating for businesses on less sound financial footings. Ironically, it could be the Walmarts of the world who end up the real winners, as small businesses struggle under the burden of increased state spending mandates. Healthcare is among the greatest challenges we face in the years ahead, but that challenge is not faced solely by the uninsured among us. Our employers also face a crisis in paying for the insurance they already provide. Legislating coverage is not a solution, but a mere band-aid that could do more harm than good. We need a serious discussion about costs, technology, insurance and expectations if we hope to avoid a real crisis. It’s a discussion I plan to pursue in the weeks ahead, but I fear there are no easy answers. Legislation like that passed in Maryland mistakenly leads us to believe there are.