ACT LOCALLY Glen Whitman writes on California’s Proposition 72, which would require large and medium-sized businesses to provide health insurance to their employees:

. . . the mandate will act as a tax on employment. That’s true of any form of income tax, of course. But it’s true in an especially pernicious way with a mandate like this, which attaches to number of laborers instead of labor hours. That will induce employers to reduce their total number of employees while expanding the number of hours each employee is asked to work. In other words, the policy would tend to cause unemployment of some workers while shifting their hours to other workers.

Second, given the small-business exemption (one of the few saving graces of the proposition), there will be a tendency for employers to “bunch up” around arbitrary threshold defining the difference between “small” and “medium” businesses. If it’s defined at, say, 50 employees, expect to see lots of businesses with 49. Businesses may also find ways to start converting regular employees into “freelancers” or temps to get around the requirement.

Third, there’s a potential rent-seeking problem. The state legislature will have to define the set of benefits included in the standard benefits package (defined vaguely in the proposition as prescription drug, major medical, and preventive care). Lobbying groups representing the various medical fields will naturally press for the inclusion of their own specialties in the package. The package may start bare-bones, but eventually it will grow to include psychotherapy, chiropractic, dermatology, acupuncture, etc. As the package expands, the cost of insurance will grow, exacerbating the effects described above.