By NextBestFitEmployer health taxes can lower wages at firms that never offered coverage
When employers pay a payroll tax instead of premiums, firms that used to offer coverage save money, but firms that didn't (often low-wage, small, or gig) face a new cost that tends to come out of wages over time.
Evidence
- Employer health costs are largely passed on to workers as lower wages.
Who's affected
Who is hurt
- Low- and middle-income households: New employer health taxes tend to reduce wages at firms that previously offered no coverage.
- Employers: Small businesses that offered no coverage face a new payroll cost.
Who gains while it lasts
- People with employer coverage: Savings at firms that offered expensive coverage can raise workers’ wages.
Under your mix of paths
Paths that create or worsen it
Paths that fix or soften it
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Root causes
- Uniform payroll tax replacing uneven premium spending
Open questions
- Should employers pay anything toward health care? If so, how should small and low-wage employers be treated?
Caused or worsened by these paths
This problem only matters if one of these paths is chosen.
Income-based premiums in a multi-payer systemPremiums are a large, flat, hidden tax on wagesRejected
Income-based premiums function as payroll contributions rather than a flat amount per worker.
Payroll tax (employer and employee)Replacing premiums with taxesRejected
A payroll tax imposes costs on low-wage firms and can hurt them.
Solution paths (2)
Open a path for what it fixes, what it creates or worsens, who gains and who loses, precedents, and how it connects to other paths. See all paths as a decision tree.
Lower rates for small firms and on the first part of wages.
- +Employer health taxes can lower wages at firms that never offered coverage
- −Leaves funding vulnerable or inflexible
- −Requires difficult enforcement
Employers pay nothing; they must pass former premium spending into wages.
- +Employer health taxes can lower wages at firms that never offered coverage
- −Requires difficult enforcement
- −Replacing premiums with taxes