How Many Employers Will Stop Providing Health Insurance?
By Bryan Caplan
Why is employer-provided health insurance so prevalent? Economists usually point to the tax code. Cash is taxed; health benefits aren’t. One interesting side effect of Obamacare is that it’s going to put the standard view to the test.
How so? If preliminary summaries of Obamacare are true, it looks like individual health insurance will soon be a better deal than employer-provided health insurance. In the individual market, you can now wait until you’re really sick to buy insurance: “Heads I win, tails I break even.” Firms won’t have that gimme – and it seems more valuable than premiums’ tax deductibility. Admittedly, Obamacare imposes a small penalty on individuals who don’t buy insurance, and a moderate penalty on firms that don’t provide it. But it still seems like it will be in the financial self-interest of many firms and their workers to get rid of insurance, and split the (cash savings minus penalties).
I seriously doubt that prominent institutions like GMU or Microsoft will take advantage of this golden opportunity during the next few years. The outcry would be too great, and they care about their image. But if most lower-profile employers take the bait, the stigma might melt away.
The big question, then, is: Will lower-profile employers stop insuring their workers? Financially it seems like it makes sense (though the legislation is complicated enough that I could be mistaken). If you buy into Robin Hanson’s “showing that you care” model of health altruism, however, you’ve got to think twice. People still get married despite the tax disadvantages; apparently people will pay thousands of dollars every year to avoid hurting each others’ feelings. Will employers and employees make a comparable choice – to leave thousands of dollars on the table every year to show how much they mean to each other?