Remember when I wrote?
…how can a simple relative price, whether a distortion or not, corrupt the cost control practices of an entire industry? And if government provision of health care is ineffective and costly, isn’t there a positive externality from the purchase of private health insurance?
The tax break for employer-provided insurance is, more or less, thirty percent. Therefore the cost burdens of employer-supplied health care should not exceed that same thirty percent. Have you noticed that current problems come in the form of cost escalation at high ongoing rates, and not just from a one-time cost bump upwards?
If you think the tax break is behind the spiral of rising costs, you need only wait. Once the sum total of those unnecessary costs exceeds thirty percent, the tax subsidy won’t be worth it, we’ll move to a more rational system, and all will be well, more or less.
That hardly seems believable.
Consider an analogy with food. Say my restaurant expenditures were subsidized by thirty percent (remember the tax deductible business lunch?). They might put too much on my plate, and they’ll start overcharging me. Maybe. But once the initial adjustment occurs, it won’t lead to 5-10 percent cost escalation for meals each year. And if it did, in a few years’ time I would simply switch to the unsubsidized meal sector, thus checking how bad the problem could get.
Addendum: See also Becker and Posner today.
My restaurant… may put too much on my plate and start overcharging me…”
And this is different from what restaurants do today – how?
Pat, in search of a decent meal in the portion size I was reared to, back when a computer’s input device has lead at one end and an eraser on the other, and a quarter pounder was a big burger.
I’m not sure why Glenn Hubbard’s argument is so hard for you to credit. Okay, sure, in a rational world people would negotiate higher salaries in exchange for forgoing employer-provided insurance once the excessive costs outweighed the tax subsidies. But people aren’t rational. They think they are getting health insurance “for free”, despite the transparent idiocy of such a concept.
Costs that you don’t understand you bear produce the same behavior as costs that someone else bears. Call it externality-by-stupidity.
Isn’t this a sort-of prisoner’s dilemma? It only takes a little tax incentive to get people into the healthcare commons. But once we’re in the game, where the costs of individual healthcare purchases are severed from individual benefits, prices skyrocket, and the costs of unilaterally opting out become huge — much larger than 30 percent.
They think they are getting health insurance “for free”, despite the transparent idiocy of such a concept.
The employer’s share of Medicare, Social Security, and health insurance should all appear on an employee’s pay stub.
It isn’t so much the tax break that matters, as the laws that have grown up pre-supposing that people will have employer-based healthcare. As a result, the cost disadvantage to freelance healthcare, is probably much more than the tax disadvantage.
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I think you bring up a good point, but it’s not as simple as it seems; there are many things you need to be aware of. PEO
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