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Will Employers and Employees Ever Come to Their Senses about Rising Insurance Costs?

Will Employers and Employees Ever Come to Their Senses about Rising Insurance Costs?. Mark V. Pauly The University of Pennsylvania. The Argument. Some reactions to rising insurance premiums make (economic) sense and some do not. There are worse things than rising costs.

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Will Employers and Employees Ever Come to Their Senses about Rising Insurance Costs?

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  1. Will Employers and Employees Ever Come to Their Senses about Rising Insurance Costs? Mark V. Pauly The University of Pennsylvania

  2. The Argument • Some reactions to rising insurance premiums make (economic) sense and some do not. There are worse things than rising costs. • Employers and employees are seeming to have both types of reactions, sensible and nonsensical. • There are public policies that would help yield more of the former and less of the latter.

  3. What Seems to Be Happening • Back to business as usual: insurance premiums outrun compensation and productivity (?) growth. • Employers not reducing offering, but are increasing cost sharing and premium sharing. • Employees increasingly declining (any?) offered coverage. • Uninsured ranks swelled by the non-near-poor.

  4. Some Messages from Economics • Employees pay for their benefits one way or another. THIS IS IMPORTANT! • To employers: Increasing premium shares is probably worse (or no better) than reducing raises. • Be careful about increased cost sharing. • To workers: Don’t decline coverage unless the premium you pay is much higher than the benefits you expect to get. • Charity care isn’t that great.

  5. Some Important Factoids • For many workers, increasing worker premiums increases taxable income, given total compensation. • And it drives workers to become uninsured: so how fit with employer objectives? Ask this! • Very healthy workers might find group insurance a bad deal, especially if they are stoic when uninsured or can find terrific individual coverage. • But unlikely that young workers get back average employer contribution. Pay Starbucks wage?

  6. Confronting Irrationality • If it is irrational to raise worker premium shares, why do employers do it? • Myopic people in silos, “Everybody else is doing it,” heterogeneity of workforce. • If it is irrational to drop coverage in the face of a small premium relative to benefits, why do workers do it? • Misinformation, economic inertia.

  7. Some Messages and Some Policies • Maybe almost all of the employee “dropees” have already dropped. • Maybe employers will respond to labor market competition when the economy recovers (since they have goofed before). • Maybe more transparency/better information is a government job too.

  8. My Messages for Policy • Dealing with the uninsured through employer provided coverage is like pushing with a rope (a strong rope): You can’t push but you can pull. Are there ways of improving matching, reacting, and transparency? Drop the fig leaf; total compensation approach as public policy? • Would greater tax neutrality help or hurt? • Can the political process come to terms with cost and crowd-out/tax cuts?

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