Recently, Maryland became the first state to require big companies such as Wal-Mart to contribute a certain percentage (8% in Maryland’s case) of their payroll toward health insurance for their employees. Even though I am not from Maryland, I am personally interested in this for 3 reasons: I think health care is going to be one of the biggest political, social, and economic issues we face in the 21st century, similar laws are being considered in at least 30 other states, and I hate Wal-Mart.

Given my admitted bias against Wal-Mart, you’d expect me to be all for such laws. In Maryland’s case, the new law only affected Wal-Mart. In most other states, Wal-Mart would be one of the few, if not only, businesses affected by the law. One could safely assume that Wal-Mart would be affected the most on a nationwide level by such laws being enacted. So, do I agree with such laws? Not really.

Its not that I disagree with the intent of the laws - in my opinion, companies like Wal-Mart should, under our current system, be paying a higher share of employee health care costs. Indeed, one of the biggest complaints about Wal-Mart is how it encourages employees to rely on public assistance for health care and othe necessities, effectively forcing the rest of us (including, perversely, the very companies Wal-Mart competes against) to subsidize Wal-Mart’s labor costs. Leglislation that has been passed or that is being considered, however, will not rectify this situation.

The major problem lies in how Wal-Mart is “forced” to contribute a certain amount of money to employee health insurance. In the Maryland law, for example, a company meeting certain criteria must contribute at least 8% of its total payroll toward health insurance. Let’s look at a very simplistic example:

Say I am a big company paying you $10.00 per hour to work for me. I currently contribute 5% of your wage to your health insurance - $.50 per hour. Thus, the total cost of your labor to me (ignoring taxes and other costs) is $10.50 per hour. Now, let’s pretend this new law affects my company, and I now must contribute 8% of your wage to health insurance, my new cost is $.80 per hour, making your labor cost me $10.80 per hour.

Now, you may get slightly better health insurance out of this, but I will take a big hit in profit when you realize I have thousands of employees. So, what do I do? Simple - I adjust base wages so that my total cost is the same as it was prior to the new law. Now, I probably won’t cut your wage, but will instead refrain from raising your wage in the future. Or, perhaps the new people I hire will only be paid $9.72 per hour.

The result is that, while you may enjoy slightly better health care for a short period of time, you’ll likely end up paying for it in the long run with lower wages. Since my contribution to your health insurance is tied directly to your salary, you’ll end up paying a higher and higher share of your health insurance every year, too. In the end, very little changes.

The deeper reason that this is bad policy is that it tries to solve a complex crisis by simply throwing more money at it - and even better, it is other people’s money. Further, by implementing a solution at the expense of private companies, we run the risk of forcing even more jobs to countries where labor costs are much lower. Now, we certainly can’t bend to the will of private industry at every issue, but it makes sense to first attempt to solve the problem in a way that is less antagonizing - especially when the result is so small.