A reader asked why employers are going to drop health coverage after penalties are introduced when they can drop health coverage today with no penalty.
That's a good question. The answer depends on the context. Right now,
without Obamacare, if a company cancels health insurance it puts
employees in a serious bind. It is virtually certain that sicker and
older employees will have difficulty getting coverage, especially
comparable coverage at anything like comparable cost. So historically
companies haven't dropped coverage not because it wouldn't save them
money, but because there wasn't an acceptable alternative. Even
companies under financial stress have kept coverage in effect in the
past.
I anticipate--and we'll just have to wait to see if I'm
right--that once Obamacare is up and working, companies will have a
choice that they didn't have before. It will suddenly become practical
for them to drop coverage where it was not practical before. And that
just may prove enough of an impetus for companies, perhaps lots of
companies, to drop coverage. If you have any experience with how company
management views health coverage, you are well aware how much companies
have been frustrated by ever rising premiums that either reduced
profits or, if borne by employees, resulted in unhappy workers. In many
cases cases both happened.
Nobody knows what the outcome will be; but it will certainly be an interesting experiment.
As they crunch the numbers, corporate executives will
have to make educated guesses about whether the coverage employees can buy is
any good, how much employees can afford and how much the company can afford.
Whether a firm is financially stressed will play a part. Dropping health
coverage and effectively cutting wages is one way to reduce costs. Perhaps most
important, corporate decision makers will take into account what other
companies do. Unwittingly, the government is about to unleash a huge experiment in game theory.
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