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Sunday, August 11, 2013


Mandating health care

Megan McArdle has an column (hat tip to Glenn Reynolds) entitled Fixing the Mandate from Hell. In it she refers to a column by Ezra Klein that brought me us short.  I run a small business and one thing Ezra Klein, the Wunderkind at the Washington Post, wrote  made me go "whoa."

Ezra Klein is a very good example of someone who has never been in business and who makes colossal analytical errors as a result. For example this comment is, frankly, amazing if you think about it:

"In Massachusetts, the employer mandate has been a success with a piddling $295 penalty."

I have no idea what that means because Klein doesn't bother to define "success." But from an economic perspective the comment is nonsense. The cost of insuring an employee is somewhere in the $10,000 per year range (often more), give or take a few thousand. Apparently Klein believes that a businessman would try to avoid a $295 penalty by shelling out $10,000. That's stupidity on steroids.

Let me tell you why employers, especially small businesspeople, will offer health insurance. They offer it to their employees so that they can cover themselves and their families using the business to pick up the bill. They are required to offer the same benefit to all full time employees if they offer it to themselves.

There can be other reasons, such as wishing to attract the right kind of employees who expect health insurance benefits, or even just being kind. But the idea that anyone with a brain would spend $10,000 to save $295 is one of those really foolish ideas that only people like Klein would write, figuring that few people would actually stop and think ... "What the hell?"
The cost of health insurance also explains why employers who don't provide company paid health insurance will go to great lengths to avoid it.  If you run a small shop, work there yourself, and have just a few employees you may want to give them the benefit of health insurance while covering yourself .  As the number of  employees grows the cost of insurance grows astronomically, often rivaling the cost of the pay for lower wage employees.  At that point, simple math points to buying your own insurance with after-tax dollars and not offering your employees health insurance.  
The ObamaCare penalty for failure to provide health insurance is very low.  There is no financial incentive to provide health insurance and every incentive to stop providing it.   As Nancy Pelosi said, now that they've passed the bill we're finding out what's in it.  For many employees, it spells the end of company paid health care. 

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