Adam B. Summers is Visiting Policy Analyst, Reason Foundation

Health Care Prop. Is Bad Medicine
Prop 72...
[Adam B. Summers] 11/2/04

Of the 16 statewide propositions on the California ballot this year, perhaps the most evil is Proposition 72, the health care coverage mandate.  This is not to detract from the numerous other odious measures, including the usual tax and bond measures that will take more of our hard-earned dollars and throw the state into further debt (Props. 61, 63, 67, and 71), the effort to essentially eliminate third-party candidates from ever again appearing on a general election ballot (Prop. 62), and the two proposals to decide who gets to share the spoils of the government-controlled oligopoly of the gambling industry and to what extent (Props. 68 and 70).

As distasteful as these proposals are, no other measure on the ballot would be as destructive to the state’s business climate, which already is among the worst in the nation.  In fact, a California Business Roundtable survey of California businesses conducted earlier this year concluded that California has the worst business climate of all 50 states.  The survey further revealed that 40% of those interviewed had plans to move jobs out of state, and that the cost of doing business attributable to regulation is 105 percent higher than in neighboring states.  Prop. 72 seeks to add massive mandates and costs to that burden.

Proposition 72, a referendum on a measure passed by the Legislature (Senate Bill 2), would require businesses with as few as 50 employees to cover at least 80 percent of the cost of employees’ health insurance premiums.  (Businesses with 200 or more employees would additionally be required to cover dependents.  In addition, businesses with as few as 20 employees would be required to offer this state-mandated health care coverage to their employees if state law is changed to provide a tax credit to partially offset the insurance fee.  Now why would this even be mentioned if plans were not already in the works to do just that?)  Businesses would be required to offer this coverage (or forfeit their fees to the state) even for part-time employees working as few as 100 hours per month!

It is easy to see that this will result in a massive increase in the state bureaucracy and massive costs to California businesses.  (We need only look at the workers’ compensation system to see how effective government mandates and bureaucracies are at providing services and controlling costs.)  The artificial demand created by the mandate will only increase health insurance costs even further.

According to a recent Sacramento Bee article, opponents of Prop. 72 peg the annual costs of the measure at $7 billion, while opponents estimate them at $1.3 billion (still a sizeable sum!).  A September 2004 Employment Policies Institute study, which claims to be “the only currently released report that accounts for all affected employee groups and not simply the cost resulting from the uninsured,” estimates that Prop. 72 will cost California employers between $12.4 billion and $12.9 billion a year and destroy between 67,000 and 150,000 jobs.

Proponents of the Prop. 72 display an astonishing ignorance of basic economics in their arguments in favor of the measure printed in the Voter Information Guide.  They imply that state mandates will actually reduce health care costs (at least for employees) and praise minimum wage laws for similarly establishing certain arbitrary minimum state standards.  The reference to minimum wage laws is especially fitting because Prop. 72 would have the same effects as a rise in the minimum wage.  Whenever the cost of business goes up—be it due to taxes, regulations, energy prices, or whatever—businesses must compensate by 1) passing along those costs to consumers in the form of higher prices, 2) reducing staff or wages/benefits, and/or 3) eliminating planned increases in staff or wages/benefits.  Thus, we can expect higher prices, higher unemployment, and stagnant or diminished wages and benefits for existing employees.  Note that because businesses are less profitable and are now prevented from hiring more personnel—or even forced to lay off some of their current staff—Prop. 72 will prevent some from even finding work, much less affording health care coverage.

Health insurance mandates are necessarily arbitrary.  Who is to say what must and must not be covered in the state-sanctioned insurance plans offered to employees?  Why, Sacramento bureaucrats, that’s who!  It is only a matter of time before coverage definitions are expanded and additional requirements are imposed, driving costs ever higher.  In addition, the minimum requirements do not allow the employee the freedom to choose a lesser degree of coverage (which might cost less than a 20 percent contribution to the plans sanctioned by the state) or rationally decide to forego coverage altogether.

This brings us to another point: despite all the practical reasons state health insurance mandates should be opposed, there is also a moral objection.  People—be they employers or (potential) employees—have the right to negotiate their own labor terms and contracts.  It is up to them to come to an understanding regarding salary, benefits, job duties, etc.  Both employer and employee are better off under this arrangement (as evidenced by their willingness to enter into an employment contract).  By mandating certain terms of business—whether wage rates or benefit levels—the state is essentially telling people that they are too stupid or otherwise incapable to make their own decisions regarding their working conditions, and that the state must thus make these decisions for them.  Not only does this violate an individual’s right to work on his own terms, it is downright condescending and should offend any self-respecting individual.

Prop. 72 is bad for business, bad for consumers, and even bad for the employees (and potential employees) it purports to protect.  It would establish a paternalistic bureaucracy that would only raise health insurance costs, waste taxpayer dollars, foster greater unemployment, and worsen an already unfriendly business climate in the state.  Individuals should have the freedom to make their own health insurance decisions, not politicians and Sacramento bureaucrats. CRO

Copyright 2004 Adam B. Summers

§