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A Project of The Annenberg Public Policy Center

Health Care and the Economy

Experts say the House bill's employer mandate would have a small impact on jobs.


Would the House-passed health care bill make a tough economy worse and wipe out more jobs, as claimed in a TV ad from the U.S. Chamber of Commerce?

Or would it help small business and encourage economic growth, as claimed in an ad sponsored by a big labor union and other supporters of federal efforts to expand health insurance coverage?

Who’s right? Will jobs be lost as businesses are required to cover their employees? Or will the economy, and jobs picture, brighten as almost all Americans acquire health insurance?

The truth is the House legislation would likely have a "small" effect on jobs, according to the nonpartisan Congressional Budget Office. A RAND Corp. expert says the job loss would be "quite minimal." A third estimate puts the job loss at several hundred thousand low-wage jobs, or well under one-half of 1 percent of all jobs. Furthermore, the bill doesn’t kick in until the year 2013, and by then the economy is expected to be much improved, with unemployment down to 5.8 percent according to CBO’s projections.


The ad from the U.S. Chamber of Commerce, which aired in the days running up to the vote, said the bill "makes a tough economy worse," imposing "expensive new mandates on business that could wipe out even more jobs" and "[o]ver $500 billion in crushing tax increases."

[TET ]

U.S. Chamber of Commerce TV Ad

Narrator: Millions of lost jobs. (On screen: 7.2 million lost jobs.) The highest unemployment in 25 years. (On screen: 9.8% unemployment.) And Congress’ latest health care bill makes a tough economy worse. Over $500 billion in crushing tax increases, but nothing to control rising health care costs. (On screen: $572 billion tax increases.) Expensive new mandates on business that could wipe out even more jobs. Call Congress. Tell them the new health care bill is a bill America can’t afford to pay. (On screen: Vote no on H.R. 3962. Call Congress.)[/TET]

A sunnier view is presented in the ad sponsored by Health Care for America Now, along with the American Federation of State, County and Municipal Employees. That spot is running to thank 20 lawmakers around the country for their "yes" votes on the House bill: "Helping small businesses survive," says the narrator. "Growing the economy."

[TET ]

Health Care for America Now TV Ad

Narrator: For Congresswoman Mary Jo Kilroy, it’s about more than just health care.

It’s about helping small businesses survive and growing the economy. It’s about taking on the insurance companies. Making health care affordable for our families. No more denying coverage if you’re sick. And putting medical decisions back in the hands of you and your doctor. Thank Congresswoman Kilroy for standing up to the insurance companies and fighting for us.[/TET]

Business Burden, or Boon?

The House-passed health care bill certainly puts new requirements on businesses, as the Chamber’s ad says. The employer mandate, also known as the "pay-or-play" provision, would require employers to provide health insurance for their full-time and even their part-time workers, or pay a penalty amounting to 8 percent of payroll. That would increase costs for many businesses that don’t already cover their workers, or don’t cover all of them.

The mandate doesn’t apply to all businesses: Those with payrolls under $500,000 a year would be completely exempt and employers with payrolls between $500,000 and $750,000 would pay lower penalties than larger businesses. And small businesses would get other help, too. Small firms would be allowed to purchase coverage through a new insurance exchange, pooling risk as large firms can do now. The aim is to put their premium costs more in line with the cheaper prices that large employers pay. The legislation also includes tax credits for businesses with fewer than 25 employees and average wages under $40,000 to help them provide health coverage; the credits could amount to as much as 50 percent of premiums – though they would only be in effect for two years, and we can’t predict whether they would be renewed.

The upshot for employers overall? Some would pay more under the bill – those with payrolls over $500,000 who don’t now offer coverage to their employees being the most obvious example. And some would pay less – particularly small employers who currently provide coverage. They would get cheaper premiums through the exchange, health care experts believe, and some would qualify for a tax credit.

The Lewin Group estimated that the House bill would increase costs on average for businesses that already offer insurance coverage. Their costs would go up an average of $113 per worker for the year, but the effect would vary widely by size of employer. For firms with fewer than 10 workers, the cost per worker would actually drop by $829, for instance. The burden would be highest for firms with between 25 and 100 employees, who would see costs rise by an estimated $412 per worker for the year. Those employers tend to have part-time workers who don’t currently get health benefits that are offered to the firms’ full-time employees, John Sheils, senior vice president of the Lewin Group, told FactCheck.org.

Sheils presented these numbers in a talk to the National Association of State Medicaid Directors on Nov. 10 and provided them to us. Studies by Lewin, a subsidiary of UnitedHealth Group that conducts analyses of health care policy and operates independently of the insurance carrier, have been cited by both political parties. The estimated cost per worker would be much greater for firms that don’t currently offer coverage – an average of $800 per worker for the year. And the cost is highest for firms with 100 employees or more – an average of $1,182 per worker.

Keep Your Eye on the Small

But it’s worth noting that the vast majority of big firms won’t be affected. According to the Kaiser Family Foundation, 98 percent of employers with 200 or more workers already provide health insurance, for example (though some may have to extend those policies to part-time workers).


Experts agree that many small businesses would bear a relatively small burden because of the various forms of assistance the bill provides – particularly the exemption for those with payrolls of $500,000 or less. Small employers that already offer coverage would actually benefit, in Lewin’s estimate: Their costs would decrease by an average of $362 per employee for businesses with 10 to 24 employees and $829 per employee for businesses with fewer than 10 workers.

Other experts offer similar opinions. M.I.T economist Jonathan Gruber conducted an analysis last summer for a group called the Small Business Majority that looked at three overhaul scenarios (not the House bill specifically) and their effects on businesses with 100 or fewer employees. He concluded that these small businesses would spend less money on health care and give up fewer jobs under any of the hypothetical proposals than they would under current law.

However, the recently passed House bill contains less generous tax credits and tougher penalties for employers who don’t provide coverage than any of the options Gruber analyzed. Still, he told us, "I don’t think it would change the direction of the conclusions." It would "still come out as a win for small businesses. … The magnitude of the win would be smaller." Gruber’s analysis also didn’t consider a scenario in which the tax credit is only available for two years, as it is in the House bill. He says that limitation “is an issue” and “ideally it would be extended.” (SBM is a group with Democratic leanings. However, nonpartisan organizations such as the Congressional Budget Office often have cited Gruber’s work.)

Linda Blumberg, a senior fellow at the liberal Urban Institute, told FactCheck.org that the legislation can help small businesses that want to provide coverage but don’t because of the cost. The insurance exchange, open to businesses with fewer than 100 employees within three years of enactment, would give small businesses an opportunity to buy policies with pricetags similar to what large businesses are getting. With fewer employees, those businesses aren’t currently able to pool risk with healthy and not-so-healthy employees the way large firms can. "When competing for labor," Blumberg says, "they’re at a real disadvantage."

The National Federation of Independent Business, however, whose members are business owners with mostly fewer than 100 workers, doesn’t believe the House health care bill is helpful. On the contrary, the group, which cosponsored the Chamber of Commerce ad criticizing the bill, argues that the payroll tax ignores whether a business is profitable, that its exemption limits don’t increase with inflation, and that the two-year tax credit has “limited value.” Polling done in late 2008 and early 2009 for NFIB showed that about 80 percent of business owners with 250 employees or fewer disagreed with the idea that employers should be required to offer health coverage to their full-time employees.

Translation: Jobs?

In the end, the nonpartisan experts we talked to don’t believe the employer mandate is going to trigger the evaporation of many jobs as a percentage of total employment. "Most large businesses already offer health insurance," said Elizabeth McGlynn, associate director of the health unit at RAND Corp. "And most small businesses are excluded from the mandate. So it’s relatively few firms that will be affected."

Employers that are affected may be more likely to pass any increased costs along to workers in the form of lower wages than they are to shed jobs. The Lewin Group estimated that this pass-along effect could cost families an average of $180 in after-tax wages for the year. (That estimate was calculated from an earlier, but similar, version of the House bill that passed Nov. 7, and it assumes the exchange would be open to all firms, which remains a possibility in the future.)

"When you have a mandate on employers," Sheils, of the Lewin Group, told us, "you’re really requiring the worker to take a greater portion of compensation in health benefits and less of it in wages. That’s just the simple truth of it." The paychecks of some low-wage workers, of course, can only be reduced so much. "A lot of your low-wage workers are going to be in firms that aren’t offering insurance. … You can’t reduce wages below the minimum wage level, so something’s got to give. … A small portion of them are going to lose their jobs" – among those who work at firms that aren’t exempt from the mandate, that is.

Sheils’ estimate for the original House bill is that 260,000 to 600,000 low-wage workers will lose their jobs because of the health care bill. He points out that the job-loss number is small – the higher figure amounts to 0.4 percent of all workers. The estimate would increase a bit under the House bill as passed, because employer costs are a little higher.

Rand’s McGlynn agreed: "I think the effect [on jobs] is likely to be quite minimal," she said of the House bill.

Jobs lost from the Senate Finance Committee’s bill, incidentally, would be far fewer, according to Sheils, because the penalty for not providing coverage is so much smaller that it’s "a lot less expensive than paying the insurance." There is no employer mandate in the Senate bill, but there are penalties for firms whose employees have to buy their own insurance with federal subsidies.

The Congressional Budget Office, in an analysis released in July, said that "[r]equiring employers to offer health insurance – or pay a fee if they do not – is likely to reduce employment, although the effect would probably be small." The report compared the mandate to a hike in the minimum wage:

CBO: The impact of play-or-pay requirements on the employment of low-wage workers would be similar to the effects of raising the minimum wage – and the latter has been studied extensively. Although findings from these studies vary greatly, the weight of the evidence suggests that raising the minimum wage has a negative but small effect on the employment of low-wage workers.

The Urban Institute’s Blumberg believes that whatever jobs would be lost would likely be offset by a corresponding increase in jobs in the health care sector. With more people insured, the demand for medical care will go up and employment in health care would rise to meet that demand. "You have some change in the sectors of employment, but you don’t have a big net change in overall employment," Blumberg said. She told us the Urban Institute hasn’t estimated the effects of the House bill, but it has conducted many similar analyses in the past. "It’s always essentially the same answer," she said. Employers who don’t offer coverage pay more, and "you can see some job loss" on low-wage workers. At the same time, "you’re creating jobs in the health sector." A study commissioned for the liberal Economic Policy Institute and the Institute for America’s Future agreed with her analysis, and predicted job gains.

The Chamber of Commerce pointed us to a study by the conservative Heritage Foundation that shows a more severe effect on jobs than the ones we’ve cited above. According to Heritage, which opposes the House bill, "up to 382,000 low-wage, unskilled workers are likely to lose their jobs" if it becomes law. (Although in another section of the report, "are likely to" is replaced with "could.") That tracks with the Lewin Group’s estimate, but Heritage goes on to say that the bill puts "5.2 million workers at risk of unem­ployment, working fewer hours, and providing fewer job opportunities."

Interestingly, the Chamber is now looking for an economist who will back up the claim it makes in its TV ad. In an e-mail obtained by the Washington Post, a senior Chamber official proposed spending $50,000 to hire a "respected economist" to study the impact of health care legislation on jobs and the economy. Said the message:

Chamber of Commerce e-mail: The economist will then circulate a sign-on letter to hundreds of other economists saying that the bill will kill jobs and hurt the economy. We will then be able to use this open letter to produce advertisements, and as a powerful lobbying and grass-roots document.

Back to Those Ads…

The Chamber’s ad claims the health care bill "makes a tough economy even worse," but the fact is that it wouldn’t take effect for several years. "We have to remember that none of this happens until 2013," said McGlynn. "Presumably, the economy will be in somewhat better shape by then." What about those "crushing tax increases" the Chamber ad complains about? It’s correct that the health bill would raise taxes by hundreds of billions of dollars over 10 years. The vast majority of the revenue would come from a surtax of 5.4 percent on adjusted gross income over $1 million (for couples) or $500,000 (for single people). Are those new taxes "crushing"? That’s a subjective judgment, but it’s worth noting that most people won’t have to pay the tax, and, as we explain elsewhere in this piece, some small employers will see a tax credit, at least temporarily.

As for the claim in the HCAN/AFSCME ad that the bill would be "helping small businesses survive" – the bill certainly helps some small businesses, as Gruber’s and Sheils’ analyses show, but as a general proposition, the ad’s statement is a stretch. Businesses that don’t provide health insurance now and would be exempt under the legislation come out pretty much the same, for instance.

And "growing the economy"? HCAN had scant support for that claim. The group referred us to a CNN Money article that says: “The more we spend on health, the less we’ll have to spend on other things. That can hamper economic growth and means there will be less and less money available to support education, defense and other priorities.”

– by Viveca Novak and Lori Robertson


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Cryan, Phillip. “Will a “Play-or-Pay” Policy for Health Care Cause Job Losses?” Report for the Institute for America’s Future and the Economic Policy Institute. June 2009.

D. Mark Wilson. “Economics of Play-or-Pay Mandates in Health Care Reform Bills.” The Heritage Foundation. 28 Aug 2009.

Shear, Michael. “Health bill foes solicit funds for economic study.” Washington Post. 15 Nov 2009.

McGlynn, Elizabeth. Interview with FactCheck.org. 12 Nov. 2009.

Sheils, John. Interview with FactCheck.org. 11 Nov 2009.

Gruber, Jonathan. Interview with FactCheck.org. 11 Nov. 2009.

Blumberg, Linda. Interview with FactCheck.org. 12 Nov 2009.

Sheils, John and Randy Haught. “Long-Term Cost of the American Affordable Health Choices Act of 2009; As Amended by the Energy and Commerce Committee In August 2009.” The Lewin Group. 9 Sep 2009.

Kaiser Family Foundation. Employer Health Benefits. 2009 Summary of Findings.

Kaiser Family Foundation. Affordable Health Care for America Act, H.R. 3962. Bill summary, accessed 16 Nov 2009.

Small Business Majority. “The Economic Impact of Healthcare Reform on Small Business.” 11 Jun 2009.

NFIB. “Top 15 Reasons We Oppose H.R. 3962.” Accessed 13 Nov 2009.

Sheils, John and Randy Haught. “Cost and Coverage Impacts of the American Affordable Health Choices Act of 2009: The July 15th draft.” 27 Jul 2009.

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