Regarding total employee compensation

Arnold Kling points to two recent articles on the labor market, one deriding the neoclassical conception of labor market mechanics and defending government intervention, and other pointing out that businesses are reluctant to bring in new employees due to the high cost of health care, which is continuing to rise even in a recessionary climate. (registration required if you follow the links in Arnold's post.)

The high (and increasing) cost of health care may explain why, in recent recoveries, the first jobs to recover are lower wage non-salaried (and presumably minimal-to-no-health-care added jobs). It is, after all, the main reason people point to the chronic unemployment in continental Europe, which is that each employee costs a hefty amount and they're difficult to get rid of when times go bad (so only hire people you absolutely need, based on very conservative estimates).

Arnold's post points out that wages for employees are not the total cost of an employee to a firm; indeed, there are the tax problems (social security), cost of providing health care, complying with other labor regulations per employee, and then rolling in all "compensation in kind" that form both the total cost to the firm and the employee's total compensation package.

So the question that Arnold posits, and I ask to the Catallarchy readers, is: What would be the economic advantages and disadvantages of doing away with employer-provided health insurance? Either short term or long term.

Talk amongst yourselves...

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Okay, I'll bite, with some

Okay, I'll bite, with some general, rambling comments.

I have very good employer-provided health care right now, and would love the opportunity to opt out in return for cash (say, 1/2 the average per employee per year) with which I would easily buy catastrophic coverage and pay out of pocket for expenses. However, that won't work since if my employer allowed us to opt out, those with low health expenses like me would do so and those with high expenses would remain, saving the company little money.

Okay, let's say they drop coverage for everyone and give everyone a raise equal to most of their costs per employee per year. Well, this helps everyone with lower than average expected or actual health care costs (depending on whether they use the money to buy insurance or not) but hurts those with higher than average expected or actual costs.

Long-term, the company will now find it easier to attract healthy workers, who like the high pay, and harder to attract unhealthy workers, who would rather have their health costs subsidized. Unhealthy workers will leave for employers with better health plans. If a lot of companies do this, the remaining companies will either have to begin discriminating against unhealthy workers or also drop coverage, in order to avoid the spiraling health-care cost increase they see.

Wouldn't the end result be

Wouldn't the end result be an unpooling of risk, and thus as employers dropped health coverage, there would be a nigh-uninsurable class of worker (still capable of work but with chronic conditions).

This would decouple health care from employment, which is a good thing, but it wouldn't, of course, do much to address health care costs per se. The health care cost problem though would be brought closer to the people paying for it, which gives incentives to health care consumers to be more discerning about what care is needed, whether the cost is less than the benefits, etc. One may see more pressure on the upward rise of prices (such as is seen in the cosmetic surgery market, where the price of operations has increased with the inflation rate, and not with the much higher rate of general medical care).

What would be a health-care financing solution to the high risk (or certain 'risk' people with chronic conditions) folk that doesn't leave those individuals bankrupt to stay alive?

What if companies designated

What if companies designated a certain amount for each employee, and all costs above that would be handled by the employee. Each employee would then be required to get a simple physical and blood test to determine exactly how much they should pay just like you do with life insurance?

In the late eighties the

In the late eighties the firm I worked for used, as a rule of thumb ,
that total employment cost was 1.35 times salary in the UK, 1.29 in the US and 1.65 times in France,
Don't know what they'd be today.

I think the crisis in health

I think the crisis in health insurance is purely because of third-party (employer) payer system.

Why isn't similar crisis occuring in, say auto-insurance?

Crisis in health

Crisis in health insurance
Crisis in health insurance is because of third party payer system. Why doesn't similar crisis occur in say auto-insurance?

There is no magic solution

There is no magic solution for those folks. They either have to pay the costs themselves, forgo treatments, or get someone else to pay them, either voluntarily (family, charity) or coercively through government action.

If they had foresight, they could insure the risk with some kind of lifetime catastrophic policy, before symptoms appeared, but that kind of policy would attract those who had a risk of developing expensive diseases, so it may not be affordable.

However, many such people are in just that situation now, and since a true market in health care would likely lower demand and therefore prices from what they are now, they may be somewhat better off on average.

I would take the cash. Of

I would take the cash. Of course, I'm healthy and young. A high-deductible plan for my wife and me costs in the neighborhood of $125/mo. I'll be setting up a health savings account next year, and I'm hoping my employer will contribute the money they save to the account. If they don't, however, it's still a net win for me because just my contribution, which is the difference between insuring me and insuring my wife and me, is $400. That's the price of having a copay instead of a deductible!

The trend toward no-deductible plans is a major contributor to the cost of health care. Hopefully HSAs will move the trend the opposite direction.

auto-insurance payouts

auto-insurance payouts though are capped based on the value of the vehicles involved, excluding personal injury which I believe those awards are also capped. Plus, when you have an accident your premium goes up and directly affects you.

If I'm overweight and keep eating and smoking and have a heart attack, my health care premium doesn't go up just for me, it goes up for everyone.

Also, there is no direct/identifiable pain in the pocket book when I abuse the health care system.

Ashish: exactly. The

Ashish: exactly. The problem is, people have a different reaction, emotionally, to the plights of:

a) What if someone is born with leukemia and can't afford treatments or insurance and they die?
b) What if someone is really fat and unhealthy and can't afford insurance or treatment for heart disease and they die?
c) What if someone is a really shitty driver and they can't afford car insurance so they can't drive?

Andy: "c) What if someone is


"c) What if someone is a really shitty driver and they canĂ¢??t afford car insurance so they canĂ¢??t drive?"

Maybe it's different where you live, but not having insurance never stopped anyone in Tennessee from driving.

I'm in the Peoples' Republic

I'm in the Peoples' Republic of Illinois. Insurance is mandatory, but that doesn't necessarily stop people without it from driving here, either. I lived in Tennessee for a couple of years, and carried insurance when I was there.

Insurance is mandatory here

Insurance is mandatory here as well; likewise, no one uninsured stops driving because of the law. It's much like the old slogan about guns - when being uninsured is outlawed, only outlaws will be uninsured. :neutral:

Andy, Read my blog

Read my blog regarding comparison between auto-insurance and health-insurance. Basically, if you force employers to pay for your car-insurance and you only have to pay a small co-pay everytime you take your car to the mechanic, I will not be suprised if the health-insurance like crisis happens. One is likely to overuse insurance benefits when he/she is not paying the costs directly. Service providers will charge more knowing fully that users have no incentive to control costs.