For years, many Democrats have lamented the fact that some workers at highly profitable corporations — from Amazon to Walmart to McDonald’s — receive Medicaid benefits.
Their reasoning isn’t hard to understand: To be eligible for safety net programs, one must have a low household income. And why should anyone working at a highly profitable enterprise earn a low income? Surely, Walmart can afford to provide its cashiers with a living wage and health care benefits. By not doing so, the Walton family is “living off corporate welfare from the federal government,” as Sen. Bernie Sanders put it in 2020.
This argument is intuitive. But it is also incorrect — and utterly antithetical to the left’s broader vision for social welfare.
Unfortunately, Democrats are on the cusp of turning their party’s incoherent conception of “corporate welfare” into actual tax policy. In New Jersey and Colorado, lawmakers are currently pushing to impose a fine on companies for every Medicaid recipient they keep on their payrolls, in order to shore up funding for that program. As Republican Medicaid cuts weigh on state budgets, others could be tempted to follow their lead.
That would be a mistake. These proposals are likely to harm low-income workers, while reinforcing the very employer-provided health insurance model that progressives rightly oppose.
Medicaid is not “corporate welfare”
At a high level, there are two problems with the populist critique of Medicaid as “corporate welfare.”
For one, there is no real basis for the notion that the program subsidizes large companies by allowing them to pay their workers lower wages.
In fact, America just ran a vast, real-world experiment that falsified that hypothesis. In 2014, the Affordable Care Act offered states new Medicaid funding to enroll millions of workers who were previously ineligible. This gave researchers an opportunity to gauge Medicaid’s economic impacts by looking at how conditions changed when various states expanded the program. And none of the resulting case studies found that increasing Medicaid benefits led employers to cut wages.
Further, there is no good reason to expect that public health insurance would reduce wages, even in theory. To the contrary, conventional welfare economics would actually suggest the opposite.
When workers are guaranteed health insurance and nutritional aid by the government, they enjoy more leverage over employers in the labor market, not less. If being unemployed means going hungry — or forgoing medical care — then many workers will accept the first job offer they get, no matter how poorly compensated.
By contrast, if the state provides jobless workers with some of their basic needs, then more will be able to hold out for higher wages.
All of which is to say, programs like Medicaid and food stamps subsidize workers, not their employers. Suggesting otherwise is both inaccurate and politically hazardous: If you tell people that Medicaid functions as a subsidy to Walmart, they’re liable to think that cutting the program isn’t such a bad idea.
Second, the populist argument validates the notion that workers should get health insurance from their employers, rather than the government — a concept that’s contrary to progressives’ own vision for universal health care.
In Sanders’s framing, when Walmart employs a Medicaid recipient, it is effectively leeching off taxpayers. This implies that a more upstanding company would assume responsibility for its employees’ health insurance, thereby relieving taxpayers of that burden.
And yet, in other contexts, progressives rightly argue that we should break the link between health care and employment.
Sanders is the nation’s most famous proponent of Medicare-for-All — a policy that would replace all employer-provided health insurance with government coverage. This would be a tall order politically. But the substantive case for shifting our system in this direction is unimpeachable: The employer-based health care model is both inefficient (since it generates higher administrative costs than a more centralized system) and inegalitarian (since it leaves Americans’ access to health care contingent on their labor market success).
Decrying Walmart workers’ use of Medicaid as evidence of scandalous “corporate welfare” — rather than a model of what the entire health insurance system should look like — is contrary to reformers’ own objectives.
Fining companies for employing Medicaid recipients is a bad idea
Alas, despite its conceptual flaws, populist complaints about workers at big companies using Medicaid are getting more influential. What was once just a rhetorical cudgel against low-paying employers is now on the brink of generating actual policies.
In New Jersey, Democratic Gov. Mikie Sherrill has proposed a fine on all large employers with Medicaid recipients on their payrolls. Under her plan, such firms would have to pay the state $725 annually for each Medicaid enrollee they employ.
Meanwhile, some Democrats in Colorado’s state legislature are pushing a similar proposal, on the grounds that “Colorado taxpayers should not subsidize the nation’s largest corporations by way of our state providing Medicaid for their employees.”
These plans are responding to a genuine policy challenge: Thanks to President Donald Trump’s cuts to federal Medicaid funding, many states need to find new revenues to maintain benefits.
But fining companies that employ Medicaid recipients is not a sound solution. Indeed, such a policy would likely hurt the very workers it purports to help, for at least two reasons.
First, Sherill’s proposal incentivizes employers to discriminate against workers who seem likely to use Medicaid benefits.
Eligibility for Medicaid isn’t determined by a worker’s personal income, but by their household income and family size. For this reason, single mothers are especially likely to qualify for the program. Thus, under Sherrill’s plan, employers looking to fill low-wage positions could save money by disfavoring applicants who appear to have children and/or lack a partner. Likewise, companies that already employ Medicaid recipients would have a greater incentive to fire such workers.
Second, and relatedly, the proposal could deter low-wage workers from enrolling in Medicaid, even when their employers’ health plan offers worse benefits, for fear of making themselves a target for layoffs.
“This could discourage workers from enrolling in Medicaid because doing so would make them less employable,” Peter Chen, a senior policy analyst at the think-tank New Jersey Policy Perspectives, told me. “And yet, Medicaid is often a preferable insurance 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, just do that
When Democrats grouse about Amazon employees using Medicaid, they gesture at real problems. American workers deserve a larger cut of our economy’s proceeds. And many states need to plug holes in their Medicaid budgets.
But the fact that lots of workers have access to public health insurance — which follows them from job to job and offers comprehensive benefits — is a good thing, not a problem to be solved.
If you want to get Walmart workers a raise, you can hike the minimum wage. If you think the wealthy should contribute more to sustaining social programs, you can raise top tax rates on all individuals and corporations.
But fining companies that hire Medicaid users does not directly raise anyone’s pay. And such measures generate much less revenue than broad-based tax hikes, even as they encourage discrimination and undermine the broader fight for public health insurance.
In other words, the best way to hike the working poor’s wages — or the rich’s taxes — is to simply do those things. There’s no need to hurt workers with bad policy or stoke taxpayers’ resentment of safety net programs in the process.
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