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knowledge at Wharton would like to
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welcome mark Pauli who joins us today
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and mark is a Wharton professor of
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healthcare management
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and he's going to talk about a very a
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potentially very important aspect of
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Obamacare or the Affordable Care Act
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that it's kind of a sleeper issue that
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people haven't paid attention to
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but it's potentially really quite
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important and potentially quite
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expensive so I think the title of your
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new briefing paper on this topic puts it
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fairly succinctly you ask is there a
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future for employer-sponsored healthcare
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who knew that there might not be a
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future and I think it's a surprising
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question for a lot of folks and this has
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to do with the idea that there may be
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incentives to employers out there to
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give up some some health insurance plans
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because of the way that Obamacare
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affects at least some people and their
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companies or at least some companies of
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a certain size and generally smaller
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companies right let me leave it to you
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to spell this out so yeah so we've
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before the passage of the Affordable
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Care Act if you were not not a poor
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person eligible for Medicaid you
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basically could only get help from the
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government to get health insurance by
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getting insurance through your job and
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although you may not think of it this
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way that actually is potentially a way
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to provide substantial help because the
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fraction of your compensation that you
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would get as your employer's premium
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payment would not be subject to taxes
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then as most of us pay an explicit
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premium as well usually it's about a
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quarter of the total premium that's also
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excluded from taxation and if you have a
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creative enough employer that set up a
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flexible spending account you can
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exclude up to 2,500 dollars of spending
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not covered by insurance from taxation
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as well so before the ACA only people
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who got insurance through their job
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could get a help for the government from
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private insurance what the Affordable
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Care Act did was set up a system of
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subsidies related to income up to 400%
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of the poverty line income that a person
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could get if they got insurance
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through the exchanges that were set up
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by the by the law and the reaction to
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that in part was to say well this may be
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the end of the world as far as
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employment based insurance would go
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because especially if you are willing to
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believe despite so far I think evidence
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to the contrary that these exchanges
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will be terribly efficiently run and
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offer wonderful choices don't get me
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wrong there are some good exchanges but
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they're more the exception than the rule
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but if you thought they'd really be a
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wonderful thing maybe a lot of people
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would say gee I'd rather get my
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insurance through an exchange where
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perhaps I have more choice than I have
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in my job and then some employers said
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or even some consultants told them look
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you're now paying let's say an average
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of about $4,000 per worker for insurance
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there's a penalty if you're a large
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employer for not making that payment but
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the penalties only 2,000 2,000 being
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less than 4,000 why not drop insurance
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coverage and tell your employees to go
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to exchanges why is the penalty 2,000
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there's a there's an explicit penalty in
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the law for employers while it was it's
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called the employer mandate and the
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employer mandate says if you're an
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employer above a certain size you have
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to provide insurance to your workers and
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contribute a certain fraction of your
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premium of their premium but if it but
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if you didn't the it's complicated like
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everything in the law but roughly
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speaking you you would be subject to a
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penalty of $2,000 per worker but the
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calculation was well $2,000 is less than
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what I'm paying now wouldn't I come out
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ahead by dropping insurance coverage
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what the point that I make in this
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article is well it's not quite so easy
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so there are some employers and their
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workers who would come out ahead and I
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guess the key issue here really is not
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what's in the interest of the employer
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but what's in the interest of workers
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can workers on balance be better off by
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in effect taking the money that
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employers were spending on them for
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insurance and going to the exchanges and
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the answer would be if you were
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a worker and I'm especially a small firm
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with mostly low-wage workers there would
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be an advantage the advantage would be
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you aren't getting much of a tax break
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before because your taxable income is
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not that high
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but now with the same amount of money
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you could go to an exchange and say if
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your income was 200 percent of the
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poverty line which would be about thirty
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eight thousand dollars for a person you
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you could get a 50 percent subsidy so
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that's a much bigger break than you were
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getting before so the news is that there
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would be some workers and some firms
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where there would be an advantage and if
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this was a small firm under ultimately
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under 50 workers although it starts off
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with a threshold of a hundred workers
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there would be no penalty for the
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employer the only reason though why that
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doesn't necessarily signal a revolution
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is that the fraction of workers who work
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in small homogeneous low-wage firms who
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currently get health insurance is
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actually quite tiny less than five
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percent of the overall workforce so
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although those people would gain a lot
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there are a lot of them and at the other
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extreme if you are working in a large
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firm and your upper middle income worker
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and most people in that firm are if that
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employer canceled in their insurance
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then you as workers could go to the
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exchange but you would have to pay the
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full premium without a subsidy and you
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wouldn't get the tax break anymore so
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you would actually plead with the boss
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boss please don't drop insurance
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coverage because we'd actually rather
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get our compensation the way we're
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currently getting it rather than the way
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we would have to deal with in exchange
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so from the employers point of view
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let's say I'm a large employer and I
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think you said the average premium is
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four thousand dollars yeah even for a
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large firm does that include is that
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like after the the tax breaks that I get
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now that's before that's before so it's
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actually not close to me four thousand
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it's costing me something less because
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wax advantages yeah so depends of course
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what's marginal
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bracket you're in but you know if if you
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were a 30 percent tax bracket it's
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costing you twelve hundred dollars less
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than four thousand right okay
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so then so the employee would not want
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their employer to do that because it
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would be almost like a pay cut wouldn't
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it would be like a pay cut just explain
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how it would be like a pay cut well
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effectively it is like a pay cut if if
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you even though it let's take the simple
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case where the employer drops insurance
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but gives you back the money the four
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thousand dollars they were spending well
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you're now going to have to pay twelve
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hundred dollars more in taxes because
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you have four thousand dollars more in
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taxable income you go to the exchange
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you say where's my subsidy they say
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sorry you learn too much to be eligible
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for a subsidy you get zero subsidy or
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you're out twelve thousand dollars and
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at least in my simple example there was
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no the employer was neutral because they
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just transferred the money from kit from
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paying for benefits to Kashkari I shall
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1200 or twelve twelve hundred dollars
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you're out twelve hundred dollars by
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losing the tax break so that's I guess
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that's a lose-lose proposition well it
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doesn't take into the take account of
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the idea that an employer not saying
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they would but in theory they could say
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I'm not providing insurance which would
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be like a pay cut oh and I'm not giving
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you the for that yeah well they could
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they could of course say I'm not giving
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you the money either but then you'd
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wonder that would be like a pay cut and
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you'd wonder you know you're kind of a
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sorry excuse for a capitalist because
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you must have been overpaying me in the
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first place if I will continue to work
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for you after this big pay cut because
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now you're less competitive you know we
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usually assume it's probably easier to
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assume in the current labor market than
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in the labor market had prevailed in
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2010 when the ACA was passed we usually
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assume labor markets are pretty
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competitive workers are not being
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overpaid but if their compensation takes
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a big hit the employer that does that is
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actually going to lose rather than win
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because the workers will know
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want to work there so whether your pay
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is cut or your healthcare benefits are
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cut it feels the same - it feels the
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same and really that's that's kind of
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the main economic message here that
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employers don't give you health
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insurance they just either pay you in
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the form of cash or in the form of
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benefits and one advantage as I started
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off by saying of getting my getting paid
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in the form of benefits is that that's
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something I get a tax break for whereas
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if I get paid in this cash I've paid tax
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on is does the employer for the Social
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Security part yeah so the big split here
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seems to be bigger companies and smaller
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companies and and I think you're saying
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that the percentage of smaller companies
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doesn't add up to a very big percentage
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yeah that's right or at least if you
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look at the fraction of people who are
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getting private health insurance through
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their job which was more than 90 percent
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of all people getting private health
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insurance the great bulk of those people
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are not working in small homogeneous
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low-wage firms they're working in large
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firms that either have high average
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wages which was the story I was telling
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a few minutes ago or even if hasn't many
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large firms there are some low-wage
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workers the great bulk of the workers
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are not low wage so if the firm cancels
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the whole deal it's going to do more
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harm to the larger number of high wage
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workers then it's going to benefit the
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small number of low-wage workers so and
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then if you add on top of that the fact
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that there's this $2,000 penalty it
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would seem like a money losing
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proposition all around for a large firm
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to contemplate dropping health benefits
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so there's another intriguing line in
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your in your brief which says that there
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could be some incentive for some large
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companies to think about creating a
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separate company for lower wage workers
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in order to eliminate some health care
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insurance so yeah so my position on this
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my econometrics professor told me when
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you forecast the future never attach a
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date if you present a number but I'll
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put a date here so my my view is that in
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the short run let's say over the next
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five years I don't see a massive
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reduction and the provision of health
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insurance by employers just for the
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reason
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I mentioned that the great bulk of
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workers now getting health insurance
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through their jobs are in these large
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heterogeneous firms that there isn't
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going to be a net gain from dropping
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coverage a lot heterogeneous meaning
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meaning there are some low-wage workers
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but a lot of high wage orders but with
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enough time and with enough ingenuity on
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the part of Americans which we
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definitely have an adequate amount of
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it's a a large firm could see although
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it might not be politically correct how
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to make it possible for their low-wage
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workers to get this juicy tax subsidy
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that they could get in exchange what
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they would have to do at least the most
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straightforward way would be to
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reconfigure the way the firm is
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organized kind of spin off the tasks
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that are performed by low-wage workers
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into a firm hiring only low-wage people
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and preferably even still a small firm
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and then there wouldn't be a penalty and
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those workers could potentially claim a
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fairly hefty tax break my assumption is
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that would take a while for that change
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to happen but I guess it could
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eventually happen because in some ways
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saying well if you're a low-wage worker
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who worked for a small firm or if you
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were a self-employed low-wage person
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right now you're eligible for this quite
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generous subsidy but if you're the
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janitor and Microsoft you're not
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eligible for this subsidy that's sort of
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intrinsically unstable in addition to
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being unfair
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are there any industries where that
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might where the cleavage between the two
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groups might be more natural and well
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that's a good question I guess I don't
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know I think the answer I mean the
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answer is if if it's possible to
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separate out the low wage workers into a
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separate entity with separate management
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and still have production take place
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efficiently that would be an industry
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where that would happen now thinking of
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the industry I work in which is the
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higher education industry we have low
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wage workers here administrative staff
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and so forth and there are notice
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they're literally our partners it would
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be hard for me to think of handing over
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my
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my calendar planning or preparation of
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materials for my classes to somebody who
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works for a separate company other than
00:13:22
the errors do Pennsylvania so I don't
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see Penn actually engaging in the
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spinning off low-wage workers for for
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the bulk of what people do here I mean
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we actually have already of course spun
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off things like campus security and some
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of the food services to other firms so
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that would be possible what about
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something like a mass manufacturing firm
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an assembly-line operation right where
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you've got thousands of workers doing
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that and then you know a smaller
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management yeah well again I think it
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comes back to can you separately carve
00:13:54
out the tasks in a manufacturing firm a
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lot of the low-wage workers are just
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because their seniority they're just
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workers who haven't been there as long
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and it would be kind of hard to say
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we'll have a separate firm for the
00:14:07
starting workers and then for the
00:14:11
permanent workers although you know here
00:14:14
at the University we do have adjuncts
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and you could imagine spinning them off
00:14:18
into a separate firm but but it doesn't
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seem as I as I think about the question
00:14:25
in general I think there's a reason why
00:14:28
firms are heterogeneous why they employ
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high wage and low wage workers because
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it's more efficient to manage them
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collectively rather than managing them
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separately but if there's enough of a
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carrot dangled in front of people to
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switch the method of organization well
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somebody's always on the margin somebody
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might do it but I guess I'm programmed
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to say but that doesn't sound like a
00:14:54
good idea for society because you are in
00:14:57
effect subsidizing an inefficient way of
00:15:00
organizing production if it really was
00:15:02
more efficient to have have workers high
00:15:06
and low wage as part of the same firm
00:15:09
what haven't we covered on this that
00:15:11
would be important for viewers to know
00:15:13
about well there is a kind of current
00:15:15
way to
00:15:17
make event ages for low-wage workers to
00:15:24
be spun out or to be separated and that
00:15:29
is there's a considerable debate about
00:15:32
this the law opinion Eliza's firms when
00:15:35
they don't provide health insurance to
00:15:37
full-time workers but not when they
00:15:39
don't provide health insurance to
00:15:40
part-time workers so this has been a big
00:15:43
debate and one of the I believe adverse
00:15:47
incentives present in the law is to say
00:15:50
to an employer look if you can split
00:15:54
your work into twice as many part-time
00:15:58
workers instead of full-time workers and
00:16:00
if they are also low-wage that's
00:16:02
important if they're low-wage anyway but
00:16:05
you can split them into part-time
00:16:06
workers then those part-time workers
00:16:08
there's an there's no penalty for
00:16:10
sending them off to the exchange now I'm
00:16:12
back again on my sermonette about how
00:16:15
that doesn't sound like a good way to
00:16:16
organize production because usually it
00:16:19
doesn't make as much sense to have part
00:16:21
a lot of part-time workers as some is a
00:16:23
smaller number of full-time workers if
00:16:25
you're producing things in ordinary kind
00:16:29
of production setting although of course
00:16:30
we know for some things like fast food
00:16:34
and things like that it may not Matt may
00:16:36
not be so inefficient when some
00:16:38
companies are already doing that we're
00:16:40
already limiting hours yeah but the and
00:16:43
some companies are saying and they're
00:16:45
probably right that this incentive will
00:16:49
cause us to emphasize part-time work
00:16:51
more than full-time work minoo intrinsic
00:16:57
merit to full-time or part-time work but
00:17:00
having the reason why you choose to
00:17:02
employ people as part-timers is because
00:17:05
of this subsidy is not a good reason
00:17:07
from a point of view overall efficiency
00:17:10
well thank you for coming in ok sure all
00:17:13
right
00:17:31
you
