Health Care: Let the Games Begin, Arnold Kling | EconLog | Library of Economics and Liberty

Health Care: Let the Games Begin, Arnold Kling | EconLog | Library of Economics and Liberty: "Here is the bottom line on how employers and employees together can maximize what they get from government. Many employers who don't provide insurance today will probably just choose to pay the tax ($400-per-employee under one scenario in the Senate Finance bill) for not carrying health insurance. Some small employers might be enticed back into the market by yet another subsidy they would get. Large employers will react by outsourcing more low- to middle-wage jobs and switch more workers from full-time to part-time employment. Such incentives toward a two-tiered labor market, partly segregated by income, aren't new, but they will expand under this type of reform.


Health care reform along the lines being contemplated currently faces too many constraints.

1. The average cost per family of the sort of health insurance that Congress wants us to have is $15,000 a year.

2. Even for families above the median income level, $15,000 seems like a lot. Hence, Congress wants to subsidize families up to relatively high income levels.

3. Congress cannot possibly hand out these subsidies to everyone. Therefore, it wants to deny subsidies to people with employer-provided health insurance.

The result is a Rube Goldberg scheme of penalties and inducements, creating a system that is ripe for gaming. For example, many workers may find it to their advantage to change their relationship with their firms from 'employee' to 'independent contractor' in order to enjoy the subsidy. Others, particularly high-income workers, may be better off keeping their employee status.

As the system gets gamed, the costs will be much, much higher than CBO is estimating.

The obvious solutions, which are politically infeasible, include:"