Sunday, January 15, 2006

Maryland’s New Health Insurance Law Is Bad for Economy

Last week, over the governor’s veto, the Maryland Legislature passed a bill that requires employers with over 10,000 workers in the state to boost health care spending in Maryland to the point where it is 8 percent of the firm's Maryland payroll. (or, alternatively, donate the funds to the state's Medicaid program). In addition to being of questionable constitutionality, this bill is a lose-lose outcome for all involved.

By its design, the bill only affects Wal-Mart since the only two other employers in the state with more than 10,000 workers already spend over 8 percent of their payroll on healthcare. Not surprisingly, this measure was pushed by labor unions and by Wal-Mart’s competitors (or non-competitiors). I suppose the Legislature envisions a "Ben and Jerry's" retail world where "warm gushy feelings" rank ahead of efficiency.

Wal-Mart, with 52 stores and 15,000 employees in Maryland, will now have to re-think its growth strategy in Maryland. Already, Wal-Mart officials are leaking statements to the effect that the company will not open its distribution center planned for the state. This center would have employed over 1,000. Given that Maryland borders, Delaware, the District of Columbia, Pennsylvania, Virginia, and West Virginia, it makes sense for Wal-Mart to expand in these states and even contract employment and stores in Maryland. Certainly, it would be folly for Wal-Mart to add distribution centers in Maryland. The costs to Maryland of the lost jobs and tax revenues will far exceed any benefits from reducing the state’s net spending on Medicaid.

The only way that such a strategy might work for the Maryland Legislature and the citizens is if Maryland’s geographic neighbors passed similar misguided laws. Otherwise, Maryland will join other Blue states as they lose population, jobs and political influence. The best outcome for Maryland citizens is a ruling by the U.S. Supreme Court that the Maryland law is an unlawful restraint of trade.


1 comment:

Anonymous said...

Yes, isn't it lovely when Wal Mart's competitors can increase its costs through the mechanism of the legislature. But, those incremental costs will ultimately have to be passed on to consumers -that is, those price sensitive consumers who derive utility from Wal Mart's retailing efficiencies. Alternatively, the company may choose to simply reduce its economic exposure in the state by 30 to 35% - notwithstnding the fact that the Maryland AG will probably try to claim the move is illegal.

In addition, one wonders how the Maryland legislature came up with the magic 8% number, since the composition of the employer's work force would determine the fraction of its payroll devoted to health care. For example, a spouse working part time and younger workers may not want or require coverage. At any rate, Wal Mart already offers health care coverage to both part and full time employees.