For years, many Democrats to have he blamed the fact that some workers at large for-profit corporations — from Amazon to Walmart to McDonald’s — receive Medicaid benefits.
Their reasoning is not difficult to understand: To qualify for safety net programs, one must have a low household income. And why should anyone working in a highly profitable business earn a low income? Indeed, Walmart can afford to pay its cashiers a living wage and health benefits. By not doing so, the Walton family is “living on corporate welfare from the federal government,” as Senator Bernie Sanders put it in 2020.
This argument is intuitive. But it’s also wrong – and completely at odds with the left’s broad vision of social welfare.
Unfortunately, Democrats are on the verge of turning their party’s “corporate welfare” fantasy into real tax policy. In New Jersey and Coloradolawmakers are currently pushing to fine the companies for each Medicaid recipient who continues their payments, in order to get funding for the program. As Republican Medicaid cuts strain state budgets, others may be tempted to follow their lead.
That would be a mistake. These suggestions are possible harm low-income workers, while strengthening the model of employer-provided health insurance that progressives rightly oppose.
Medicaid is not “corporate welfare”
At a high level, there are two problems with many people’s criticism of Medicaid as “corporate welfare.”
First, there is no real basis for the assumption that the program subsidizes large companies by allowing them to pay their workers low wages.
In fact, America ran a large real-world experiment that disproved that theory. In 2014, the Affordable Care Act provided new Medicaid funding to enroll millions of workers who were previously ineligible. This gave researchers the opportunity to measure the economic impact of Medicaid by looking at how conditions changed as different states expanded the program. And no results of case studies found that increases in Medicaid benefits caused employers to lower wages.
Furthermore, there is no good reason to expect that public health insurance would reduce wages, even in theory. In contrast, mainstream welfare economics would suggest the opposite.
When workers are guaranteed health insurance and nutritional assistance by the government, they enjoy more leverage over employers in the labor market, not less. If unemployment means going hungry — or refusing medical care — then most workers will take the first job they can find, no matter how poorly compensated it is.
In contrast, if the government provides unemployed workers with some of their basic needs, then more will be able to hold on to higher wages.
All of that is to say, programs like Medicaid and food stamps subsidize workers, not their employers. To suggest otherwise is wrong and politically dangerous: If you tell people that Medicaid works like a subsidy for Walmart, they’re bound to think that cutting the program isn’t a bad idea.
Second, the majority argument affirms the notion that workers should get health insurance from their employers, rather than the government — a notion that runs counter to the vision of universal health care promoters.
In Sanders’s formulation, when Walmart hires a Medicaid recipient, it effectively takes out taxpayers. This means that the best company would take responsibility for the health insurance of its employees, thereby relieving the taxpayers of the burden.
And yet, in another context, progressives say that we should break the link between health care and employment.
Sanders is the nation’s leading proponent of Medicare-for-All — a policy that would replace employer-provided health insurance with government payments. This would be a long process politically. But the main case for moving our system in this direction is inescapable: The employer-based health care model is inefficient (as it produces high administrative costs than a more centralized system) and unbalanced (since it leaves Americans have access to health care depending on labor market success).
Denigrating Walmart workers’ use of Medicaid as evidence of a “corporate welfare” scandal — rather than an example of what the entire health insurance system should look like — runs counter to the reformers’ own goals.
Fining companies for hiring Medicaid recipients is a bad idea
Alas, despite its conceptual flaws, many people’s complaints about workers at large companies using Medicaid are becoming more persuasive. What was once a cynical rant against low-paying employers is now on the verge of generating real policy.
In New Jersey, Democratic Governor Mikie Sherrill has he suggested a fine for all large employers with Medicaid recipients on their payrolls. Under his plan, such companies would have to pay the government $725 annually for each Medicaid enrollee they hire.
Meanwhile, some Democrats in the Colorado state legislature they are pushing such a proposalon the grounds that “Colorado taxpayers should not be subsidizing large national corporations in the way our state provides Medicaid to their employees.”
These plans respond to a real policy challenge: Thanks to President Donald Trump cuts in federal Medicaid fundingMost states need to find new revenue to maintain benefits.
But fining companies that employ Medicaid recipients is not a good solution. Indeed, such a policy would hurt the very workers it seeks to help, for at least two reasons.
First, Sherrill’s proposal gives employers an incentive to discriminate against workers who appear likely to use Medicaid benefits.
Eligibility for Medicaid is not determined by the employee’s personal income, but by household income and family size. Because of this, single mothers are more likely to qualify for the program. So, under Sherrill’s plan, employers looking to fill low-wage positions can save money unbiased applicants who appear to have children and/or are single. Similarly, companies that already employ Medicaid recipients will have a greater incentive dismiss such employees.
Second, and related, the proposal could prevent low-wage workers from enrolling in Medicaid, even when their employer’s health plan offers worse benefits, for fear of making themselves a target for layoffs.
“This would discourage workers from enrolling in Medicaid because doing so would make them unemployable,” Peter Chen, senior policy analyst at the New Jersey Policy Perspectives think tank, told me. “And yet, Medicaid is often the preferred product for them because it’s portable and often provides better coverage for children than employer-based plans.”
If you want to raise the minimum wage, do it
When Democrats wonder about Amazon workers using Medicaid, they point to real problems. American workers deserve more cuts to our economy’s income. And many states need to plug holes in their Medicaid budgets.
But the fact that most workers have public health insurance — which follows them from job to job and provides full benefits — is nice matter, not a problem solved.
If you want to increase Walmart workers, you can increase the minimum wage. If you think that the rich should contribute more to developing social programs, you can raise higher tax rates for all individuals and corporations.
But the billing companies that hire Medicaid users don’t directly increase anyone’s premiums. And such measures generate far less revenue than large tax increases, even as they encourage discrimination and undermine the broader fight for public health insurance.
In other words, the best way to raise the wages of the working poor – or the taxes of the rich – is to do just that. There is no need to hurt workers with bad policies or prevent taxpayers from hating safety programs in the process.
