Urban Institute Claims Wages and Other Benefits to Be Reduced Under Obamacare

Drew Gonshorowski / October 11, 2012

Recent analysis by the Urban Institute says that Obamacare has “a negligible impact on total employer-sponsored coverage and its costs.” But a closer look at the results of the study uncovers some other important points:

• Two-thirds of employees observe decreases in wages while their employers deal with increasing costs. The Urban Institute claims that mid-size firms will see spending per person increase by 4.6 percent, while large firms will see spending increases by 0.3 percent per person. According to the U.S. Census, this accounts for 65.1 percent of employees—or roughly 79 million—in the U.S. who are employed by medium- or large-size firms. The study suggests: “Any increase in employers’ health-related costs will be offset by decreases in other compensation—whether wages or other benefits.” This means that individuals in mid- and large-size firms will receive less in take-home wages (or other benefits) and pay a greater proportion of their compensation to health care due to Obamacare.
• The study does not take into account a “wage floor.” The study assumes that adjustments to compensation can occur in benefits and wages for all workers, but there are instances where, if wages and benefits are already low, they could not be lowered any further to pay for increases in health care costs. We already observe service industries trying new methods through moving workers from full- to part-time employment in order to avoid increased Obamacare costs.
• The study assumes that small businesses use the Small Employer Health Insurance Tax Credit, but this is not the case. According to a Government Accountability Office study, only 170,000 small businesses (of the 1.4 million to 4 million eligible) took the credit. In other words, only 4 percent to 12 percent of small businesses took the tax credit. This is quite different than the claim made in this study that “most workers’ firms will be dominated by workers who will receive better benefits and, through the tax system, better subsidies through employer provided coverage.” A recent survey by The Wall Street Journal also confirms that it is not safe to assume that small businesses are taking the credits.
• Are cost increases really “unchanged”? The Urban Institute analysis finds an overall increase in spending in 2012 due to Obamacare of $12.4 million, or 2.7 percent. It is apparent that this sort of effect is far from negligible.
• Assumptions also matter. Amidst the discussion of what is, in actuality, a “negligible” change for employers is a question of assumptions. These assumptions include essential benefits packages not imposing new costs on small businesses, which is still unclear. Also, assumptions on increased enrollment in healthy groups are unclear. However, the most telling assumption of the analysis is: “The fact that both the number and the share of people covered by employer-sponsored insurance remained statistically identical between 2010 and 2011 suggest that implementation of these reforms had little impact on costs.” If a researcher proves his or her hypothesis in assumptions, of course the result is confirmation. The greater question, however, is whether or not the assumptions are founded in reality. In the case of this study, it is clear that many assumptions should be re-evaluated.