Friday, October 22, 2010

An Attractive Option: Dropping Existing Coverage

From yesterday's WSJ, an article by the Democratic governor of Tennessee, Philip Bredesen:

"Our recent health reform has created a situation where there are strong economic incentives for employers to drop health coverage altogether. The consequence will be to drive many more people than projected—and with them, much greater cost—into the reform's federally subsidized system. This will happen because the subsidies that become available to people purchasing insurance through exchanges are extraordinarily attractive.

For a person starting a business in 2014, it will be logical and responsible simply to plan from the outset never to offer health benefits. Employees, thanks to the exchanges, can easily purchase excellent, fairly priced insurance, without pre-existing condition limitations, through the exchanges. As it grows, the business can avoid a great deal of cost because the federal government will now pay much of what the business would have incurred for its share of health insurance. The small business tax credits included in health reform are limited and short-term, and the eventual penalty for not providing coverage, of $2,000 per employee, is still far less than the cost of insurance it replaces.

For an entrepreneur wanting a lean, employee-oriented company, it's a natural position to take: "We don't provide company housing, we don't provide company cars, we don't provide company insurance. Our approach is to put your compensation in your paycheck and let you decide how to spend it."

The economics of dropping existing coverage is about to become very attractive to many employers, both public and private. By 2014, there will be a mini-industry of consultants knocking on employers' doors to explain the new opportunity. And in the years after 2014, the economics just keep getting better."

12 Comments:

At 10/22/2010 11:46 AM, Blogger Doug said...

Makes sense.

* Gets back to separating job from insurance.
* Shows a cleaner measure of any costs of the insurance rather than pushing part into business ledgers.

 
At 10/22/2010 12:07 PM, Blogger Eric said...

Phil should know. TN's TennCare program resulted in 25% of the state's population enrolling and lots of folks moving in from out of state to take advantage of "free" healthcare. There was much ado by legislators about big, evil Wal-Mart having part time employees enrolled in TennCare (and claims of Wal-Mart allegedly encouraging this) rather than providing health insurance for them (for free?). However, Wal-Mart employees were at exactly the state population average with 25% of their PT employees enrolled in TennCare.

Nobody wanted to notice the state's largest employer: the state. Of course, they have the so-called "Cadillac" plans with taxpayers shelling out $1000 per month per employee toward their health plans (with the employee paying another $250). Starting next year, TN is finally getting more reasonable about their plans - actually approaching ones that the private sector affords after we pay for theirs.

 
At 10/22/2010 12:26 PM, Blogger misterjosh said...

This is a good thing, but forcing people to buy insurance is not & bureaucrats prescribing what benefits must be offered is dumb too.

I'm still baffled how the government can justify the tax advantage that employees can receive compared to people who have to buy insurance on the open market. A much better world would have all "income" taxed the same (no deductions & a lower percentage). but even a slightly better world would have health insurance equally deductible for both parties.

 
At 10/22/2010 2:48 PM, Blogger Eric said...

"but even a slightly better world would have health insurance equally deductible for both parties."

Yeah, but then how would the bureaucrats and their bankster accomplices get a cut of that 17% of the economy?

 
At 10/22/2010 3:39 PM, Blogger PeakTrader said...

If the government understands the insurance industry so well, why not also reform other types of insurance, e.g. life, auto, fire, etc.?

 
At 10/22/2010 4:28 PM, Blogger PeakTrader said...

This comment has been removed by the author.

 
At 10/22/2010 4:32 PM, Blogger PeakTrader said...

If you want to move forward with more intrusive and failed reforms, you shift into "D." If you want to reverse layers of intrusive and failed reforms, you shift into "R." :)

 
At 10/23/2010 1:28 AM, Blogger randian said...

That article seems to make the bizarre assumption that businesses can "offload their costs onto the government", as if the government had a source of money other than the very businesses doing said offloading.

 
At 10/23/2010 3:34 AM, Blogger PeakTrader said...

Randian, maybe others will take up the slack. One way government can look good is after raising taxes, imposing fines, and taking control of health care, it can effectively reduce the 130,000 pages of health care regulations to reduce costs.

 
At 10/23/2010 10:05 AM, Blogger juandos said...

From the Heritage Foundation blog:

Side Effects: Obamacare Strengthens Compliance-Based Medicine...

Obamacare alters the practice medicine by putting a stronger emphasis on adherence to government-determined measures of quality...

How many 'mom & pop shops' are going to either lay off or close down because of this intrusion into the market place?

 
At 10/23/2010 2:45 PM, Blogger sethstorm said...

Increase the fines, and make it so they can't be abstracted or contracted away. At the very least, change it to a painful percentage.

 
At 10/23/2010 2:58 PM, Blogger sethstorm said...


For an entrepreneur wanting a lean, employee-oriented company, it's a natural position to take:

That isn't employee oriented, as that leanness stands in opposition to being such.

If anything, benefits will still be offered. Things will largely not change, and a few spiteful people will have a harder time hiring due to that lack of benefits.

 

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