VI.Employer Health Spending
Private employers would be one of the primary sources of financing under a single-payer plan through payroll
tax payments. Current employer health benefits obligations would be replaced with a tax computed as a
percentage of employee payroll. The net impact of this shift to a payroll tax for individual employers would vary
depending upon the degree to which individual employers currently offer insurance, employee wage levels and
whether they provide coverage for retirees. The impact of the single-payer program on employer health
spending is discussed in the following sections:
Impact on Employer Spending by Size of Firm and Industry;
Distributional Impacts on Employers; and
Wage Effects.
A.Impact on Total Private Employer Spending
The impact of the single-payer plan on employer health spending will differ for workers and retirees. Private
employers will spend about $4.2 billion on coverage for workers and dependents under current trends in 2001
(Table 6). Under a single-payer plan employers no longer pay this cost, but instead pay a tax equal to 6.3
percent of payroll, which would be equal to about $4.4 billion in 1998. Of this $4.4 billion in tax payments,
about $457 million would be paid by firms that currently do not provide coverage.
Table 6
The Impact of the Single Payer Proposal on Private Employer Health Spending for
workers in Maryland in 2001: Before Wage Effects
(in millions)

a/    Employers in Maryland will no longer provide primary coverage for workers, dependents, and retirees, workers
       receiving their coverage from out-of-state employers are exempt from the single payer plan.
b/   Employers are required to pay a payroll tax to fund the single payer program.
Source: Lewin Group estimates using the Maryland version of the Health Benefits Simulation Model (HBSM).
Our analysis indicates that employer costs associated with retirees would decline substantially under the
program. This is because many of the services covered by these plans for retirees would become covered
under the single-payer program. Overall, employers would save about $392.5 million on retiree benefits under
the program.

The impact of a single-payer plan will differ for firms that now offer insurance and those that do not insure.
Overall, firms that currently offer insurance actually would see a decline in health care spending of about $50
million in 2001, primarily due to savings in retiree benefit payments. Firms not now insuring would pay $457.0
million in payroll taxes under the program.
B. Impact on Employer Health Spending by Size of Firm and Industry
Overall, health spending for private employers would increase by 8.8 percent under the single-payer model.
We estimate that employer health spending for the smallest firms (those with less than 10 employees) would
increase by 50.8 percent under the single-payer program (Table 7). By comparison, firms with 5,000 or more
workers would actually see a decline in health spending of 18.9 percent. This reflects the fact that larger
employers are more likely to offer retiree coverage. The analysis of changes in health spending by industry
indicates that only the manufacturing, and transportation sectors would see a net decrease in costs. Table 8
shows the change in health spending per worker by industry and firm size.

Average employer payroll tax payments would equal about $1,162 for firms that do not now offer insurance
(Figure 6). By contrast, firms that currently offer coverage would save an average of $28 per worker. These
savings are not uniform across employers, however. For example, employers with between 100 and 499
workers who currently offer coverage would see an increase in costs averaging $616 per worker.
Figure 6
Change in Health Spending Per Worker by Firm Size and Current Insuring Status:
Before Wage Effects

Percent of Workers by Firm Size
19.3                 8.8                 12.8                    13.6                    5.8                      39.7                     100
a/  Insufficient Data.
Source: Lewin Group estimates using the Maryland version of the Health Benefits SimulationModel (HBSM).
Table 7
Employer Health Spending in Maryland under Current Policy and under the Single Payer
Proposal by Firm Size and Industry in 2001: Before Wage Effects
a/Includes the employer contributions for benefits for workers, dependents and retirees.
b/Includes payroll tax payments and the cost of continuing wrap around benefits for workers, dependents and
retirees.

Source: Lewin Group estimates using the Maryland version of the Health Benefits Simulation Model (HBSM).

Table 8
Impact of a Single Payer Program on Private Employers in Maryland by Firm Size and
Industry in 2001: Before Wage Effects
Source:Lewin Group estimates using the Maryland version of the Health Benefits Simulation Model (HBSM).
C. Wage Effects
Empirical evidence indicates that employers are likely to pass on much of the increase in employer costs to
employees in the form of reduced wages or lost jobs. Employers are typically limited in what they can charge in
the market place necessitating changes in other compensation costs as employer payroll taxes are imposed. The
economic literature indicates that much of the cost of increased health care spending has historically been
passed on to workers.

Based upon a review of the literature, we assume that 88 percent of the change in employer's cost due to the
payroll tax will result in changes in wages to the employee. Conversely, in firms that see net savings under the
Act most of these savings are likely to result in wage increases as labor markets force adjustments to overall
employee compensation packages in response to these changes in employer health benefits costs. We estimate
a net reduction in wages of $703 million under the single-payer program for Maryland.


6 See, for example, Jonathan Gruber and Alan B. Kreuger, "The Incidence of Mandated Employer-Provided
Insurance: Lessons from Workers Compensation Insurance," in Tax Policy and the Economy (1991); Jonathan
Gruber, "The Incidence of Mandated Maternity Benefits, " American Economic Review, (forthcoming); and Lawrence
H. Summers, "Some Simple Economics of Mandated Benefits, " American Economic Review (May 1989).
7 See, for example, James Heckman, "What Has Been Learned About Labor Supply in the Past Twenty years?"
American Economic Review, (May 1993).
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