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The Washington Post reports,


Maryland lawmakers yesterday approved legislation that would effectively require Wal-Mart to boost spending on health care...

Lawmakers said they did not set out to single out Wal-Mart when they drafted a bill requiring organizations with more than 10,000 employees to spend at least 8 percent of their payroll on health benefits -- or put the money directly into the state's health program for the poor.


Basic economic theory says that what the lawmakers are doing is reducing the take-home pay of Wal-Mart workers. The more money that goes into health care benefits, the lower will be their net wages.

For Discussion. How do legislators know that 8 percent is the right number for the percent of payroll to spend on health care benefits?


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TRACKBACKS (1 to date)
TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/232
The author at A Stitch in Haste in a related article titled Economics 101 and The Politics of the Warm Fuzzy Feeling writes:
    An interesting comparison and contrast –

    ITEM: It sounds so simple -- if people are drinking too much then just raise the price of alcohol. [Tracked on April 6, 2005 2:54 PM]
COMMENTS (37 to date)
John Brothers writes:

First, it seems like they shouldn't be called 'Blue Laws' - they should be called 'Red Laws' or something...

Second, I would imagine that they think that 8% is somewhere close to the average of what portion of one's income one spends on health-related activities.

"Johnny, I don't care that you're 17 years old, and saving up for college. You need to have health care, young man. I don't want to hear that you have health care from your parents. You need to listen to the State! The State knows what's best for you.'

Randy writes:

The same way they know that the employer should pay half of Social Security.

I'm kind of curious as to why Maryland thinks it has an interest in making itself non-competitive in luring large employers in the future.

Boonton writes:

Or is Maryland offloading the costs for caring for their low income population onto a major employer of their low income population? Would you be happier if Maryland instituted an 8% payroll tax to cover their Medicaid expenses (actually it would be less than that since a payroll tax would be accross the board, raising revenue from high paying companies as well as Wal-Mart)? If Wal-Mart lowers pay wouldn't that, in effect, be making people pay for their own healthcare?

Boonton writes:
The same way they know that the employer should pay half of Social Security.

I'm kind of curious as to why Maryland thinks it has an interest in making itself non-competitive in luring large employers in the future.

But this is much more complicated. Suppose that Wal-Mart's cheapness with health care results in basically letting the state pick up the tab for its workers when they get sick. In effect, all the other businesses in Maryland are paying for health care for their workers and families AND ALSO paying taxes to care for Wal-Mart's workers.

Then the effect is that not having this law is more like a subsidy for Wal-Mart. Why doesn't this apply for other fringe benefits? Because healthcare is one of the few benefits that gov't is mandated to step in an provide if it is needed and patients cannot afford it themselves.

Dave Schuler writes:

In support of the previous post Wal-Mart (and other similar employers, if there are any) is offloading its payroll costs onto Maryland taxpayers and insurance buyers. By law (not to mention ethicially) hospitals can't turn away sick people just because they can't pay or are uninsured. The health care costs for people who have no health insurance nor any ability to pay will be borne by someone and it won't just be the hospital. The tab will be picked up my Medicaid (in which case it's the taxpayer) or by the hospital raising its rates (in which case it's people who pay insurance premiums).

Randy writes:

Boonton,

Walmart's cheapness with health care? What does Walmart, or any business, have to do with health care? Health care is an individual responsibility - and it always has been.

Corporations originally started providing fringe benefits to avoid paying out real money in wages. Now that the fringe benefits are costing more than they are worth, the corporations are dropping them. The truth is that the workers would have been better off had they demanded wages all along.

Who's to blame? People who are too lazy to accept responsibility for themselves.

Joshua Sharf writes:

Perhaps 8% is about average now. There's no reason to think that number will remain static. Based on historical numbers, we'd expect it to rise, rendering the legislation obsolete fairly quickly.

Also, since Wal-Mart doesn't realistically have the option of abandoning the Baltimore and suburban Washington markets, in the way that GM could shut down one large plant, for instance, this really does constitute a tax of sorts on a captive company.

Boonton, "all the other businesses?" Even the ones that don't pay for health care coverage?

Things we don't know: 1) what Wal-Mart is already required to provide; 2) what, if anything, Wal-Mart's not paying for health insurance (I doubt they pay directly for care) is costing the state.

Tom writes:

Boonton writes: "Or is Maryland offloading the costs for caring for their low income population onto a major employer of their low income population?" No, Maryland is "offloading" some of the cost of its program of health care for low-income persons onto certain low-income persons, namely, Wal-Mart employees.

Later, Boonton writes: "Suppose that Wal-Mart's cheapness with health care results in basically letting the state pick up the tab for its workers when they get sick. In effect, all the other businesses in Maryland are paying for health care for their workers and families AND ALSO paying taxes to care for Wal-Mart's workers." Wal-Mart's supposed cheapness with health care means that Wal-Mart pays its employees higher wages than they would earn by working for employers who are less "cheap" with health benefits. Thus, as Wal-Mart employees, they have greater control over how to spend their income.

The lack of a law mandating a minimum level of health-care benefits doesn't represent a "subsidy" to Wal-Mart, contrary to Boonton's suggestion that it does. Wal-Mart is simply paying its employees in a different way than those employers who choose to put a higher proportion of their employees' compensation into fringe benefits (e.g., health insurance). It's all a shell game, Boonton. Maryland can't increase employee compensation (wages plus benefits) simply by mandating higher benefits. And if Maryland were to try to mandate higher total compensation the predictable result would be greater unemployment in Maryland.

Finally, where is it written that "healthcare is one of the few benefits that gov't is mandated to step in an [sic] provide if it is needed"? That's not in my copy of the Constitution. (The "general welfare" clause has nothing to do with it. You can look it up.)

nmg writes:

I'll gladly make a bet with anyone who thinks this is a good idea.

In five years:

1. Real wages for the affected employees will decline in the State of Maryland.

2. Job creation for the affected employees will be slower in that five year period than during the five year period leading up to it.

3. Walmart will be roundly criticized by the Baltimore press for paying low wages and "destroying" local jobs ....

nmg

Mcwop writes:

My in-laws work for Wal-Mart her in MD. They have coverage, and it is fine. My father in law is legally blind and Wal Mart employs him. In fact WM was the only ER willing to take him back after he got bored in retirement. Any potential pay cut would hurt my in-laws, because they live on a tight budget.

Maryland message to large employers looking at MD- "Don't do business here or don't have more than 10,000 ee's."

I sense an Ehrlich veto of this one, and automated checkout systems being installed to start cutting the head count.

Boonton writes:

Walmart's cheapness with health care? What does Walmart, or any business, have to do with health care? Health care is an individual responsibility - and it always has been.

Do you know what's an individual responsibility? Cable TV. If you can't afford cable TV there is no 'TV stamps' or other gov't program to give you TV. Healthcare, though, is mandated. Hospitals have to provide needed services and gov't picks up a large portion of the cost through Medicare & other programs.

Corporations originally started providing fringe benefits to avoid paying out real money in wages. Now that the fringe benefits are costing more than they are worth, the corporations are dropping them. The truth is that the workers would have been better off had they demanded wages all along.

Really? Why? Were people just dumb in 1950 and now they are finally getting around to being rational?

Things we don't know: 1) what Wal-Mart is already required to provide; 2) what, if anything, Wal-Mart's not paying for health insurance (I doubt they pay directly for care) is costing the state.

To the degree that Wal-Mart already spends on providing health insurance then it's not really affected by this law.

Boonton, "all the other businesses?" Even the ones that don't pay for health care coverage?

Yes since they pay taxes as do their customers. Of course, Arnold didn't say that the 8% law only applies to Wal-Mart so I think it would hit them as well.

The lack of a law mandating a minimum level of health-care benefits doesn't represent a "subsidy" to Wal-Mart, contrary to Boonton's suggestion that it does. Wal-Mart is simply paying its employees in a different way than those employers who choose to put a higher proportion of their employees' compensation into fringe benefits (e.g., health insurance). It's all a shell game, Boonton. Maryland can't increase employee compensation (wages plus benefits) simply by mandating higher benefits. And if Maryland were to try to mandate higher total compensation the predictable result would be greater unemployment in Maryland.

No it means that Wal-Mart (and other businesses) let the state take care of their employees health care leaving Wal-Mart and the employees better off at the expense of everyone else. I don't buy the 'some employees' argument either. In effect, poor employees are 'covered' by the state and that is a benefit to them even if they don't get sick. After all, if I paid your car insurance premium for a year that would certainly be a benefit to you even if you never got into an accident!

Finally, where is it written that "healthcare is one of the few benefits that gov't is mandated to step in an [sic] provide if it is needed"? That's not in my copy of the Constitution. (The "general welfare" clause has nothing to do with it. You can look it up.)

Basically we have decided as a nation not to let people die on the streets due to inability to pay for healthcare. We have decided, though, that if you can't pay for TV we aren't going to help you. You are free to lobby against their principle & the law can certainly be changed.

Boonton writes:

Back when the Clinton healthcare proposal was the big thing I remember a few people saying things along the lines of 'only X% are uninsured, why should the proposal effect everyone rather than just dealing with that small X%'

If you try to do things half way, say letting gov't pick up healthcare for the poorest 20% you are going to create a scenero where some businesses (and poor individuals) will game the system. They will offload their employees on the state programs. Businesses that employer higher paid professionals cannot do this easily (so what, if you subsidize corn then businesses that can grow corn will do so...).

It's been reported that one of the ways Wal-Mart 'cares' for its employees is providing them with an 800 number to get advice on how to sign up for various state programs like food stamps, medicaid and so on. In other words, its no accident, businesses like Wal-Mart are rationally exploiting a loophole that lets them pull this off. The employees are in on it too. After all, why should they care who is paying the bill...when their kids get sick they just want to be able to take them to the doctor!

All I'm asking here is that you recognize the actual reality that this law is being proposed under. We are not in the ideal libertarian free market. If we were there would be no gov't aid programs for Wal-Mart and their employees to hitch onto. If we do NOT abolish the programs than this law makes more economic sense than it appears at first (although a more efficient way to accomplish the same goal might be a tax).

Mark Hornb writes:
If Wal-Mart lowers pay wouldn't that, in effect, be making people pay for their own healthcare?
I think that the answer is "no" because it doesn't carry all of the characteristics I would expect to see in someone buying something on their own. One critical characteristic is that individuals are not choosing to purchase more health care. The decision for that is being done by the Maryland legislature. And as such, individuals can't take any part in their own cost/benefit analysis (e.g. do I go to the doctor for this cold and incur an expense or do I just tough it out) - they're forced to purchase more healthcare than they might be willing to pay for. The problem with this is that it seperates the consumption decision from the payment. This leads to over consumption. Which is not what I would expect to happen when individuals are in control of their own spending.
Mark Horn writes:
We are not in the ideal libertarian free market. If we were there would be no gov't aid programs for Wal-Mart and their employees to hitch onto. If we do NOT abolish the programs than this law makes more economic sense than it appears at first (although a more efficient way to accomplish the same goal might be a tax).
Ok. But just because we're not in an ideal libertarian free market does not justify us moving further away from it. I would rather that we abolish the programs that Walmart is exploiting than add additional programs that create a potential loophole for someone else.
Mcwop writes:

Let us back up here for a moment. Wal-Mart already provides health insurance for most of their employees. So how is Wal Mart freeloading at the expense of others? A "freeloader" would be a business or individual that is providing no health insurance. This law is not addressing that. So the legislators in MD are lying about their intentions in passing this bill.

Regardless, I do not support this type of cherry picking interference by the government.

By the way MD also passed an increase to the state min wage today too.

Boonton writes:

From what Arnold posted, the law only effects Wal-Mart if their health insurance costs are less than 8% of payroll. The difference is put into the state's health program for the poor.

In effect, it would appear to say if you're a big employer and you're already spending a lot to keep people off the state's program then you're free. If you're getting by with skimpy coverage then you have to put into the pot.

Is this any different than saying, for example, businesses have to pay a tax to cover the state poor program but they can deduct charitible contributions from that tax on the grounds such donations lessen the burden on the state program?

Boonton writes:
Ok. But just because we're not in an ideal libertarian free market does not justify us moving further away from it. I would rather that we abolish the programs that Walmart is exploiting than add additional programs that create a potential loophole for someone else.

True but is it moving further away or countering forces that already are moving it away in the opposite direction? Wal-Mart is well known not only for dumping its employees on state programs but also winning assorted tax breaks, zoning variances, subsidies and other goodies from local governments. Goodies not available to 'normal employers' who cannot match Wal-Mart's promises of large job forces.

Randy writes:

Boonton,

Re; ...we have decided as a nation not to let people die on the streets due to inability to pay for healthcare.

You are correct. We have decided that. But how does this involve Walmart, or any other business? If we have decided to pay for healthcare for all, then let's dig into our own pockets and pay for it.

Aside from the impracticality of legislating compensation, perhaps the idea of providing health care for all is a noble idea. But how can something truly noble be founded on theft?

Lawrance George Lux writes:

Eight percent rates are basically drawn from actural averaging in the State, but it coincides almost equally well acros the Country of Cost for Business of Wages/Health Care provison per Worker. The Law is simply trying to Strongarm Walmart into providing equivalent Health Care for Labor, as due other Business in MD.

By the way, Health Care provision is not uniform across the Walmart network. Each separate Store is offered whatever Health Care package for Workers that HQ decides, basically based upon ability to minimize Local area law. lgl

nmg writes:

This new policy is an example of central planning, pure and simple. We all know how that turns out....

The workers are the ones who will suffer, guaranteed.

nmg

Randy writes:

Boonton,

Re; Were people just dumb in 1950 and now they are finally getting around to being rational?

Yes.

We are beginning to see that giving up pay raises in lieu of health benefits and retirement plans that the corporation can just drop later may not have been such a great idea.

And we are beginning to see that giving the government our Social Security money may not have been such a great idea now that we know that the government can just change the benefit calculations at will.

mcwop writes:
From what Arnold posted, the law only effects Wal-Mart if their health insurance costs are less than 8% of payroll. The difference is put into the state's health program for the poor.

In effect, it would appear to say if you're a big employer and you're already spending a lot to keep people off the state's program then you're free. If you're getting by with skimpy coverage then you have to put into the pot.

Is this any different than saying, for example, businesses have to pay a tax to cover the state poor program but they can deduct charitible contributions from that tax on the grounds such donations lessen the burden on the state program?

What it says is that MD legislators are idiots. Show proof that less than 8% of payroll is skimpy. What if Wal Mart's negotiated coverage is better than other employers but comes out to less than 8% of payroll?

This is a nothing but a tax hike.

Boonton writes:
What it says is that MD legislators are idiots. Show proof that less than 8% of payroll is skimpy. What if Wal Mart's negotiated coverage is better than other employers but comes out to less than 8% of payroll?

It's not. Considering the typical Wal-Mart job is under $20K per year it is implausible to believe they have discovered the magic HMO that is able to deliever for $1600 a year what your plan (or your employers) is probably spending $500 a month on.

We are beginning to see that giving up pay raises in lieu of health benefits and retirement plans that the corporation can just drop later may not have been such a great idea.

Odd isn't it that health benefits are almost universally demanded by smart people who take smart jobs. I suppose we can dismiss the pay demands of university professors since their ranks have lots of head-in-the-clouds humanities professors but what about financial advisors, banks, hospitals, pharmaceutical companies, computer companies that require a highly intelligent labor force? Why do they insist on health benefits? Is it only because of the tax write off?

This is a nothing but a tax hike.

Basically it is. If you keep a large number of people out of the state's poor program you get a tax deduction. If you put a lot of people on you pay the tax. Since the state has a program that funds healthcare for the poor how should it be funded if not by a tax?

mcwop writes:
It's not. Considering the typical Wal-Mart job is under $20K per year it is implausible to believe they have discovered the magic HMO that is able to deliever for $1600 a year what your plan (or your employers) is probably spending $500 a month on.

Proof? Or are you making a baseless assumption just like the politicians in my home state? By your logic above it is still ridiculous. Let's say WM spends 6% on a $20K salary, which is $1,200. Now they up it to 8% or $1,600 or a $400 difference. That magically makes the plan better?

Basically it is. If you keep a large number of people out of the state's poor program you get a tax deduction. If you put a lot of people on you pay the tax. Since the state has a program that funds healthcare for the poor how should it be funded if not by a tax?

So WM employees account for all the poor people milking the MD state government? Prove it. What % are WM employees?

Bernard Yomtov writes:

I'm surprised, Arnold. I thought you favored making health insurance mandatory. By forcing WalMart employees to take part of their wage as health benefits isn't MD taking a step in that direction?

Mcwop writes:

Just a little funny that Giant Foods and the United Food Commercial Workers union have been going after Wal-Mart for years here in MD. Giant Foods is based in Landover, MD.

Arnold, the 8% came from Giant Foods. They told the representatives to pick a number that won't effect their business, but would effect Wal-Mart. It appears to be an effective lobbying effort.

This is simply certain businesses using the government to hurt their competitors. This has nothing to do with providing health care to the poor. Those programs are in place and are already paid for.


http://baltimore.bizjournals.com/baltimore/stories/2005/03/07/story3.html


http://news.ft.com/cms/s/b7491c2a-a637-11d9-b67b-00000e2511c8.html

Boonton writes:

Proof? Or are you making a baseless assumption just like the politicians in my home state? By your logic above it is still ridiculous. Let's say WM spends 6% on a $20K salary, which is $1,200. Now they up it to 8% or $1,600 or a $400 difference. That magically makes the plan better?

Suppose WM is required to spend $400 more per employee on health plans. I see two extremes in how they can choose to spend it:

1. Ask their provider to simply raise their premiums by $400.

2. Get their provider to give them $400 of additional value.

Since WM has a reputation for cutting costs to the bone it is pretty surprising to imagine them (or any competitive business) simply giving their insurance provider a gift of more money for nothing of value. Even WM has to compete for labor so it makes no sense for them to increase spending on a benefit without them being able to show anything of value for it. Why not simply let the state have the $400 for their poor fund in that case?

So WM employees account for all the poor people milking the MD state government? Prove it. What % are WM employees?

There's no need to. Obviously if the poor program covers poor people without insurance then increasing low wage workers covered by insurance decreases the burden on the program. (Also improving coverage also decreases the burden). This is the same logic by which charitable donations reduce taxes....charity reduces the state's welfare expense. Has anyone ever tried to figure out how much a $1 tax decrease for charitible contributions decreases the state's welfare burden????

This is simply certain businesses using the government to hurt their competitors. This has nothing to do with providing health care to the poor. Those programs are in place and are already paid for.

I don't doubt that for a second. Lobbying is never pretty but what do you mean the programs are paid for? Who is paying for them? Taxpayers. If the number of people who need the welfare program goes down that saves taxpayer money.

mcwop writes:
There's no need to. Obviously if the poor program covers poor people without insurance then increasing low wage workers covered by insurance decreases the burden on the program. (Also improving coverage also decreases the burden). This is the same logic by which charitable donations reduce taxes....charity reduces the state's welfare expense. Has anyone ever tried to figure out how much a $1 tax decrease for charitible contributions decreases the state's welfare burden????

If WM employees don't account for any of the people in the poor program then the number won't go down. This is not an across the board policy - it is a cherry picking policy that is a political payoff. It is bad policy.

I don't doubt that for a second. Lobbying is never pretty but what do you mean the programs are paid for? Who is paying for them? Taxpayers. If the number of people who need the welfare program goes down that saves taxpayer money.

Yes, taxpayers are paying for the programs for the poor, and the programs are funded.

Jon writes:

Walmart will not reduce employee pay by exactly the amount of the additional benefits; it will reduce employee pay be less. The reason is that the forced additional health benefits will have less utility to those workers than the amount of pay (otherwise the workers would be purchasing the benefits voluntarily!). Thus Walmart will only be able to take back part of that effective pay increase.

Arguing otherwise would be to imply that government choice is better (higher utility) than private choice in this case.

Boonton writes:
Walmart will not reduce employee pay by exactly the amount of the additional benefits; it will reduce employee pay be less. The reason is that the forced additional health benefits will have less utility to those workers than the amount of pay (otherwise the workers would be purchasing the benefits voluntarily!). Thus Walmart will only be able to take back part of that effective pay increase.

The problem is that workers may not be able to purchase the same package voluntarily. Wal-Mart & other large employers are able to use their bulk purchasing power to get better deals from insurance companies. They are also able to present insurance companies with a 'take it or leave it' bulk of policies thereby preventing them from screening out workers who are more likely to get sick.

If WM employees don't account for any of the people in the poor program then the number won't go down. This is not an across the board policy - it is a cherry picking policy that is a political payoff. It is bad policy.

If MN's program covers poor people then many of WM's employees will count in the state's burden. Remember, if MN is covering poor people's health care then it is a burden to the state (& benefit to the poor person) even if they don't get sick.

Is it cherry picking? To a degree. There's reasons to limit it to just very large employers. Imagine a 5 person law firm whose average payroll is $7M per year. If such a firm paid 1% of its payroll against healthcare each worker would have a policy costing $70K per year. You probably couldn't spend that much if you wanted too...let alone 8% of payroll.

The 10,000 or more rule covers the typical low income employer (any organization out there pay a huge average payroll & have more than 10,000 people?).

Yes, taxpayers are paying for the programs for the poor, and the programs are funded.

Ok, so let's imagine taxpayers are paying 1% sales tax to cover this program. If Wal-Mart is pushing people onto this program then they are transferring some of their payroll costs to the state (a less savy employer like Kmart probably has yet to realize they can get their employees health coverage cheaply by showing them what forms to fill out with social service. A tragedy of the commons effect is also present since Kmart shares in some of the lost business due to the 1% sales tax). Then this type of policy would just transfer some of the cost back to Wal-Mart. The same thing would happen in a more extreme manner if the state simply ended the program & left the poor to fend for themselves.

Mr. Econotarian writes:

Can we just end the tax linkage between employers and health insurance? I don't get my car insurance from my employer.

Boonton writes:

Now that you mention it my previous employer belonged to some type of association or organization that allowed its employees to buy auto insurance from NJ Manufacturers....who generally has low rates but only accepts clients whose employers belong to their association. Some people at my old company took up the offers, others ignored it.

If auto insurance cost as much as health insurance you very well might be getting it from your employer!

DeadHorseBeater writes:

One wonders why it's more important for the state's coffers to get the relatively few organizations with 10,000+ employees (how many are there besides WM? Does this apply to the government of MD as well?) than the many organizations with a mere 500+ employees?

If we're worried about the impact on state coffers, should we be interested in knowing the fraction of employees without HI who work at large organizations vs. the fraction that work at small firms?

It has always seemed to me that WM's competitiveness stems from combining the logistical and procurement advantages of a large cooperation with the employment conditions of the small local businesses that they are accused of driving out of business.
What's good for the goose is good for the gander, yes?

Bubonic Chronic writes:

Really? Why? Were people just dumb in 1950 and now they are finally getting around to being rational?

The practice of providing health care benefits began during WWII when wage controls made it difficult for businesses to attract employees. The government gave a wink and a nod to the practice and eventually granted a tax deduction for it.

Nothing has distorted the market for health care more than the practice of employers providing health care benefits. It has driven up costs by eliminating the incentive for consumers to make rational spending decisions. Moreover, it tied employees' health care insurance to their jobs, which ultimately hurts employees since nobody holds a job forever.

Boonton writes:

I agree that having health insurance tied to your job is a big negative since it forces many people to stay in jobs they don't want for fear of going uncovered. Nonetheless, insurance has a unique advantage when it is purchased in mass....the buyer can insist on universal coverage. Buying on the individual basis allows the insurance company to profile you and price you out of the market if you're profile matches more of a sick person than a healthy person.

IMO, the best solution would be a universal voucher that people could use to purchase any insurance they want. The conditions on the voucher would be that any company accepting them would have to agree to limit variation in the premiums & accept anyone who applied (with reasonable limits). Beyond this universal coverage healthcare and insurance would become completely market orientated. People would be free to supplement the universal voucher with their own money, bargain with their employers for 'premium health plans' and so on.

Randy writes:

I'm thinking that if employees had received wage compensation instead of health care benefits, health insurers would have responded by selling lots of individual plans, resulting in the same economies of scale. But the employees would have been less at the mercy of employers. Nor would they have been forced to accept plans which they had no real use for (e.g., young single men). Same goes for retirement plans.

Boonton writes:

Insurance only works when no one knows the future. Take 5 people and their health costs:

1 $200
2 $5000
3 $0
4 $50
5 $250

The average health cost here is $1,100. If no one knew anything at the beginning of the time period an insurance company would offer a policy for $1,100. The money raised would cover all the health costs for the group (IRL the company would also factor in profit as well as investment earnings on that money).

However, suppose person #3 knows he will not need insurance so he excludes himself from the pool. Now the average cost is $1375. Getting rid of that person who didn't need health insurance raised costs for everyone else by $275.

Suppose the insurance company knew who the $5000 cost would be. They could offer insurance to the original group of 5 for $1,100 per person and they would accept since $1,100 would be each individuals expected health costs fo rthe year. Yet by excluding the $5000 person the insurance company raises $4400 ($1100 * 4) but only spends $500.

Yet if gov't chooses to provide coverage for those who don't have (or can't afford) insurance everyone in the economy still has to chip in to pay off the $5000 bill. So the spending on health care is $4400 from the insurance premiums plus $5000 for the taxpayer paid benefit.

On the other hand, if you mandated universal coverage you could spend just $5500 on supplying the same healthcare. These numbers are exagerrated but not by that much. For many people their financial planners plan on having them give up their assets so they can slip onto Medicaid rolls...especially at the end of life.

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