Health care reform : Motivation for discrimination?

One of the major issues in the health care reform debate is the requirement that employers pay a portion of their employees' health insurance premiums. This paper examines the method for calculating the employer share of the health care premiums, as specified in the President's health care reform proposal. The calculation of the firm's cost of providing employee health care benefits is a function of marital status as well as the incidence of two‐income earner households. This paper demonstrates that this method provides for lower than average premiums for married employees with no dependents in communities in which there is at least one married couple where both individuals participate in the labor market. This raises the non‐wage labor costs of employing single individuals relative to individuals which are identical in every respect except their marital status. This paper explores the economic implications for hiring, as well as profits, for firms located in a perfectly‐competitive industry. The results of the theoretical model presented here are clear. Under this proposed version of health care reform, ceteris paribus, firms have a clear preference for two‐earner households. This paper also demonstrates that the incentive to discriminate is related to the size of the firm and to the size of the average wage of full‐time employees for firms which employ fewer than fifty individuals. While this paper examines the specifics of President Clinton's original proposal, the conclusions reached here would apply to any form of employer‐mandated coverage in which the premiums are a function of family status and the incidence of two‐earner households.