• Bredesen, Gruber, and employer coverage

    Since I’m not a professional blogger, I can’t cover all developments in health care and comment on all opinions that appear in major papers. I assume readers who want that level of coverage are following Kaiser Health News and Igor Volsky of the Wonk Room. Of course there are other good bloggers, journalists, and sources (see my Google Reader bundles).

    Anyway, I happen to have a few minutes and a reader specifically asked me to comment on one of the issues of the day. So, … today Tennessee Governor Philip Bredesen published an op-ed in the Wall Street Journal claiming that to show

    how the economics of dropping existing coverage is about to become very attractive to many employers, both public and private. By 2014, there will be a mini-industry of consultants knocking on employers’ doors to explain the new opportunity. And in the years after 2014, the economics just keep getting better.

    The consequence of these generous subsidies will be that America’s health reform may well drive many more people than projected out of employer-sponsored insurance and into the heavily subsidized federal system. Perhaps this is a miscalculation by the Congress, perhaps not. One principle of game theory is to think like your opponent; another is that there’s always a larger game.

    Did Bredesen get his math right to back up his assertion that employers will find dropping coverage very attractive? Jon Gruber says, “No.” (Follow the link for the math.) Moreover, he concludes,

    Bredesen, in other words, has it backwards. The Affordable Care Act will not lead to widespread erosion of employer-sponsored insurance. Rather, it will provide the necessary protection for those who are suffering from the erosion that is already taking place.

    I’m siding with Gruber on this one. I’ve already written about how the ACA won’t erode employer coverage very quickly (it hasn’t in Massachusetts), though gradually it will (I’m talking decades). And that’s a good thing.

    • Jon Gruden’s critique assumes that the state will raise salaries enough to pay for the additional cost of insurance. Why would the state do that?

      • @RZ – Because if they don’t they won’t retain their employees in the long term. (Yes, in today’s labor market they need not worry. But down the road the will.) Total compensation is set by the labor market. If an employer reduces compensation by eliminating insurance, it has to compensate employees for the loss or it will be at a competitive disadvantage. If that were not the case, then the employer is overpaying as it is and should have already reduced salary or benefits. (I’m not making this up. This is well established by labor market economists, of which Gruber is a preeminent one.)

    • RZ>>>>That is what the Governor said Tennessee would do (in his thought experiment) in his piece.

      ….”First of all, we need to keep our employees financially whole. With our current plan, they contribute 20% of the total cost of their health insurance, and that contribution in 2014 will total about $86 million. If all these employees now buy their insurance through an exchange, that personal share will increase by another $38 million. We’ll adjust our employees’ compensation in some rough fashion so that no employee is paying more for insurance as a result of our action.”….

    • The RAND corporation came to the same conclusion in a NEJM article you recently blogged upon 9or did you just cite that one.)


    • The question is why the current law hasn’t eliminated most employer benefit plans as that cuts costs more today than it will in five years.

      the best explanation is the owners of businesses need insurance for themselves and insurers will charge them a lot because only sick people will pay the high cost of individual insurance.

      Or maybe, lots of business people think Milton Friedman was dead wrong and that business has a moral responsibility to the community that goes beyond profit.

      Of course, moral business owners must make a deal with Friedman’s amoral Wall Street MBA insurance execs who look for way to shed any hint of profit cutting moral responsibility.