When a (Health Care) Fine is a (Health Care Price): Israeli Day Cares and HCR
posted by Dave Hoffman
Fortune reports that during the health care debate, AT&T, Verizon, Caterpillar, and John Deere all produced internal documents considering whether it made sense to stop providing health insurance and simply pay the fine:
AT&T produced a PowerPoint slide entitled “Medical Cost Versus No Coverage Penalty.” A document prepared for Verizon by consulting firm Hewitt Resources stated, “Even though the proposed assessments [on companies that do not provide health care] are material, they are modest when compared to the average cost of health care,” and that to avoid costs and regulations, “employers may consider exiting the health care market and send employees to the Exchanges.” . . .
Kenneth Huhn, vice president of labor relations at Deere, said in an internal email that his company should look at the alternatives to providing health benefits, which “would amount to denying coverage and just paying the penalty,” and that he felt he already had the ability to make this change under his company’s labor agreement. Caterpillar felt it would have to give “serious consideration” to the penalty option.
You might see these documents as posturing, whimsical make-work*, or simply good business planning. But I tend to think about this as an example of the Israeli day care problem: when you put prices on conduct that previously was enforced through social norms, you may increase its incidence.** This phenomenon, incidentally, would appear to be even more important when considering how to enforce the individual mandate .
*The whimsy story is supported by the unwillingness of the firms to stand behind their analysis today.
**Of course, you might object that employer-provided health insurance results from market incentives, not social practice, but I’m not so sure those concepts are easily segregated.
May 7, 2010 at 3:14 pm
Posted in: Behavioral Law and Economics
Print This Post
Responses (5)
anon - May 8, 2010 at 12:42 am
Just FYI: the results of the Israeli day care study have been widely questioned. The authors refused to allow independent verification of their data, obstructed the efforts to verify them, and ended up claiming to have “lost” the names of the teachers involved in the experiment, so that verification is now impossible. Experiments with lost documentation are not supposed to be published, and surely not supposed to be cited. See Rubinstein:
http://arielrubinstein.tau.ac.il/papers/behavioral-economics.pdf
Matt - May 8, 2010 at 4:59 pm
Even assuming it is true that companies might see it as better to exit the health insurance market, some people might view this as a good thing. Some supporters of HCR thought it did not go far enough in allowing anyone to opt into the exchanges. This will allow more people to get into those exchanges and allow people to make choices about employment or starting a business based on criteria that are separate and apart from health insurance.
Jim - May 9, 2010 at 1:51 am
Wouldn’t the conduct still be policed by social norms? The existence of a penalty (or HCR) doesn’t diminish the societal preference to seek out an employer who will offer health insurance. I just don’t see why these companies would find it more beneficial to make such a move now. Previously they would have only opened themselves up to the social costs of not providing health care to their employees. Now they’ll have to manage both the social costs and the fines.
How to find proven home business ideas and opportunities? | Earn Passive Income Today - May 9, 2010 at 2:40 pm
[...] Concurring Opinions » When a (Health Care) Fine is a (Health Care … [...]
dave hoffman - May 10, 2010 at 10:51 am
Anon
I’m aware of the critique, but the results have been replicated in the lab and in the field, so I don’t quite see the issue as you do.
Leave a Reply