There is No free Lunch in Massachusetts
This is from an NBER Working Paper:
Relying on the reform implemented in Massachusetts in 2006, we estimate the empirical analog of our model. We find that jobs with ESHI [employer sponsored health insurance] pay wages that are lower by an average of $6,058 annually, indicating that the compensating differential for ESHI is only slightly smaller in magnitude than the average cost of ESHI to employers. Because the newly-insured in Massachusetts valued ESHI, they were willing to accept lower wages, and the deadweight loss of mandate-based health reform was less than 5% of what it would have been if the government had instead provided health insurance by levying a tax on wages.
In other words, health insurance costs come out of the workers’ pockets, not the employer’s. See our previous posts here and here. HT: Jason Shafrin.
Not sure this merited a paper as it has been well known for a long time. As an employer I just think of it as total compensation. If I pay less in one area, I pay more in another. No free lunch.
Steve
Employers are not stupid, they will not be suckered into overpaying for services.
As Steve pointed out, economists have known this fact for quite some time (mostly by labor economists and health economists). But, it’s worth repeating. But, in all likelihood, it’s not policymakers we need to convince. They may already know it. It’s employees that need to know they may be overpaying for health coverage thinking it’s free.
very interesting.
Why would this surprise people? Expenses are higher with employer insurance, so costs will be cut elsewhere. As the President likes to say, this is simple math.
Steve said it.
Right! So let wages rise, mandate individual health insurance, and get employers out of the mix.
Not surprising at all.
That’s OK. The number of people getting employer sponsored insurance in Massachusetts has gone down by 100,000 since RomneyCare was implemented at the beginning of 2008 (see http://byrondennis.typepad.com/masshealthstats/2012/10/more-left-wing-nonsense-about-employer-sponsored-insurance-under-romneycare.html)
Gotta go with Steve.
I wonder how much it costs taxpayers to point out the obvious.
“Because the newly-insured in Massachusetts valued ESHI, they were willing to accept lower wage…” This sounds to me like an employees-taken-advantage-of kinda situation. But again, we already know this.