Free health benefits like free lunches are wishful thinking. There is no way to extend health insurance coverage to millions of people without paying for it. The employer mandate put forth in the Clinton health plan seems a poor way to pay the health bill. True, it would guarantee insurance to 18 million workers who now lack it. But this insurance will not be a gift, as the workers themselves will be compelled to pay for it through lower wages, and where wage rollbacks are infeasible, through reductions in employment.

The employer subsidies added to the Clinton mandate would reduce the share of the bill paid through the employer, and therefore they would ameliorate job loss and wage rollbacks. But the subsidies are not enough to eliminate job loss and wage rollbacks, which remain significant. The subsidies also come at a price. In addition to increasing budget expenditures by $40 billion, the subsidy scheme generates inefficient reorganization of business, creating peculiar incentives to form small firms and to segregate high-skill and low-skill workers. These market distortions would not be present if increased health coverage were provided to low-income families through direct subsidies rather than through an employer mandate.

This study draws on material in June E. O'Neill and Dave M. O'Neill, The Impact of a Health Insurance Mandate on Labor Costs and Employment: Empirical Evidence (Employment Policies Institute, 1993).