Unintended consequences, ctd.

Austin Frakt makes an excellent point about my post from last night:

[A] big reason employees want health insurance through their employer is the tax subsidy. The only way to make the employees [compensation package] whole is for the companies to pay in wages the equivalent of that subsidy plus the penalty plus compensating for loss of insurance coverage itself. That has to be more expensive than just paying for tax subsidized insurance. The only way it isn’t is if companies screw employees and fail to compensate for the loss of coverage. Nevertheless, employees don’t really get the insurance-wage connection. So, dropping coverage will feel like a loss no matter what, and that will piss off a lot of people. The way it will happen is gradually, as the excise tax starts to bite.

Because of the tax subsidy for employer based insurance, employers get to give a bigger benefit for less money than paying people the money they’d need to buy the insurance themselves.  If they cut insurance, they’d either need to pay employees a lot more (costly) or risk ticking them off (bad for business).

Not to mention that I can’t see unions taking this lying down.  At all.

This doesn’t mean that there will be hard choices, as Austin points out, as costs continue to rise and more and more plans hit the level of the excise tax.

UPDATE – Edited quote from Austin, because he’s a perfectionist.

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