Universal Benefits and Public Health Vulnerabilities

The case for universal, direct benefits over those funneled through employers is strong in normal times—direct provision of things like healthcare may cost more in taxes, but saving employers from that burden removes a major distortion from the market and ultimately maximizing liberty and efficiency for both firms and individuals.  But the case has perhaps never been stronger than in the crisis surrounding COVID-19.  The current set up of unemployment insurance, the payroll protection loans, and other programs all leave too many individuals behind; some are stuck without benefits, while others are forced to continue to work jobs they should have the choice to leave or take time off from. 

A major part of the stimulus plan passed to help the economy recover from COVID-19 was an expansion of unemployment benefits.  This was an enormous improvement over the system before the crisis—not only were benefits raised, but new groups, including gig workers and the self employed, were covered for the first time.  

Nonetheless, many people are inevitably going to slip through the cracks.  First, like any program with very specific criteria for eligibility criteria, unemployment insurance requires a certain amount of bureaucracy to administer.  In the face of the current crisis, this bureaucracy has in many states proven unequal to the task. Hundreds of thousands of people suffered dramatic shortfalls in income as their state bureaucracy struggled to process their claims; as late as mid-May the backlog in Florida had still not been full resolved.  Second, the requirements leave out those who are not counted as officially unemployed. Imagine an experienced waitress who quit her job to move to a new city in early March—her ability to find a new job in her previous line of work is now severely curtailed, but because she quit her initial job voluntarily, she does not qualify for unemployment insurance.  Given the high levels of natural job churn in a tight labor market—which is what we had before the COVID-19 crisis struck—this group is likely quite large; in February 2020 3.5 million people voluntarily quit their jobs. Some of these issues can be addressed by broader unemployment, and the most recent updates to unemployment law as part of the COVID-19 stimulus package have attempted to do so.  However, this has only expanded the bureaucratic hurdles, as states face many more claims and must on the fly adjust their processes for evaluating them.  

On the other side are those ‘essential’ workers who would rather not be working. People who are at special risk for COVID-19—or live or care for those who are—have every reason to wish not to work. Indeed, in the interest of public health it would be most responsible for them to stay home. However, in most states individuals who opt not to work will be considered to have voluntarily left their jobs, and are thus ineligible for unemployment insurance; South Dakota’s particularly blunt unemployment report from May 7 states that “Being uncomfortable about returning to work when recalled is not an acceptable circumstance to decline work”.  Given that for most workers, unemployment is the only substantial income supplement designed to get them through the present crisis, they are stuck between two difficult situations—face financial ruin, or risk their health in public.  This renders the rhetoric about people ‘choosing’ how much risk they want to take in the context of a reopening economy largely farcical; if stores reopen, many individuals will have no good choice. 

This leads to serious health consequences—ideally, the more people who manage to stay home, the better. However, when unemployment benefits take weeks or months to process, this is not viable.  Economic pressures make lockdowns harder to enforce and ultimately end up shortening them. In the abstract, public safety should outweigh individual income, but when the benefits system is overwhelmed and insufficient, this is an unreasonable expectation. Moreover, it undercuts liberal ideals surrounding free choice. Surely in any situation where individuals may be placing their health and lives at risk for some material gain, the liberal instinct is to give them the free choice; ‘informed consent’ is all that can make taking that risk acceptable to a civilized society. But where our benefits system fails, workers who ‘choose’ to return to work find themselves in the situation LT Hobhouse described, one where they  “consent[s] as one slipping over a precipice might consent to give all his fortune to one who will throw him a rope on no other terms. This is not true consent. “ The ideal of informed consent, especially in a pandemic, can only be realized if there is an adequate safety net to mitigate the coercive nature of that financial precipice in the face of sudden unemployment. 

This is to say nothing of the millions of people who have lost their health insurance, or face losing it if they cannot or will not return to their jobs. Now that their incomes have dropped precipitously, many can apply for Medicaid—but again, that application is a major hurdle, and the process of bringing on that many new beneficiaries is going to strain state bureaucracies yet again, leading to delays in approval and benefits. Moreover, in the unfolding crisis, people are going to lost and gain jobs quickly—furloughed workers will be brought back businesses reopen, but it’s entirely possible there will be a cycle of closures and openings as the epidemic ebbs and flows, or as businesses attempt to reopen but find insufficient demand from wary customers. Individuals rapidly gaining and then losing employer-based healthcare and eligibility for means-tested benefits will likely be the norm for the rest of the year as the US wrestles with the COVID-19 fallout. In the confusion, benefits will be missed or inappropriately taken (‘fraud’ by confusion), medical procedures will be delayed or missed, millions of hours of productivity lost in filling out and processing applications.  And when the economy has recovered enough for hiring to begin in earnest, it will still be held back by the burdens placed on employers to provide benefits that really should be universal.  

What would a better organized system look like?  For starters, while unemployment insurance is admirable both as a safety net and as a counter-cyclical fiscal policy, it leaves far too many behind. It needs to be supplemented with a more universal approach—a minimum income, universal basic income, or negative income tax scheme would cover more people, and a universal basic income could also provide a ‘safety net’ that was less dependent on paperwork processing to make function.  Universal stimulus checks were in many cases delivered well before unemployment checks could be processed; while there were some delays associated with paper checks, the majority—88 million—were deposited within a few weeks of the law authorizing them being passed.  If every American had a bank account on file with the Federal government (and not simply those who had filed taxes recently), such a stimulus would be even quicker to implement—indeed, if the infrastructure were in place it could be done almost immediately after congress voted for it. A basic income, meanwhile, could protect people from all manner of unexpected income losses and would likely take much of the variability out of the economy, leaving it more resilient in the face of both major and minor crises.  

A healthcare system divorced from employment would also fare much better in crisis, and provide benefits to both employers and employees, to say nothing of the currently ineligible.  Hiring could be done more easily and confidently, as a far greater portion of the cost of each employee would be spent on salary, rather than on health benefits whose cost varies from year to year.  Part time employees could be moved to full time without incurring dramatic new costs. Employees, too, would see greater freedom, as they could switch firms, go back to school, or move geographically without the hassle and risk of switching insurance.  This cost of changing employment doubtless decreases the efficiency of overall labor force; how many workers have forgone an employment situation that would ultimately have been better for them, be it moving to part time work, starting their own business, or going back to school, because of uncertainty regarding their health insurance?  And on the employers’ side there is evidence that at least some firms are limiting their number of full time workers, or intentionally remaining under the 50-employee threshold, in order to avoid the additional costs associated with benefits-eligible full time workers.  Directly providing universal health care would make the market more flexible and allow both employers and employees to more freely determine the right number of hours for a particular employee to work. 

In terms of both healthcare and supplemental income, then, universal programs outperform those that attempt to be narrowly focused.  They reduce the distorted incentives produced by more limited programs, and are easier to administer. They are also less fragile—a universal system of healthcare and benefits would surely hold up better to a crisis on the scale of COVID-19 than the current one.  Finally, and most importantly, they would expand the liberty of both businesses and individuals. Businesses could negotiate directly with their employees about hours and benefits rather than having to navigate a series of mandates, while individuals could make employment decisions without having to worry about falling outside narrowly tailored benefits systems. In the wake of this pandemic, there will be a great deal of rethinking the economy.  One of the first steps should be to orient it more towards these universal structures.  

Featured image is MTA Begins 24 7 Cleaning Operation and New MTA Essential Plan Night Service, by Marc A. Hermann