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Thursday, November 19, 2009

Why do employers want to continue providing health-care benefits?

Ezra Klein has a theory that this is basically upper class solidarity at work. They don't want spending decisions to be public, because the public wants to soak the rich and they are rich. I strongly suspect that this arguments only works if managers do not as faithful stewards of the interests of shareholders and pigs don't fly, so I give young Ezra high marx.

I have two other thoughts. They start with the fact that employers have tended to reduce the generosity of the health insurance they provide. Why is this not just like cutting wages ?

First, I think there is the power of nominal rigity. The amount they pay in premiums per worker has increased. People react very differently to an effort to restrain the increase in an expence than to an effort to cut an expense. This enabled US employers to get away with very low real wage growth during periods of inflation (in Europe the workers caught on to what was happening quicker and used the law to mandate cost of living adjustments).

Second there is the advantage of having a scapegoat. The employer can blame the insurance company for demanding higher premiums for the same coverage (note same coverage as in deductables and copays not the same health care which improves as technology improves).

This means that employers have reduced the share of health care spending which they cover and yet haven't angered their employees as much as they would have if they had cut wages.

he odd role of employers as intermediaries between the workers and the intermediaries between the workers and health care providers is useful to the employers.

OK look I have a third thought, which is that CEOs are asking human resources managers for advice and those human resources managers want to keep their jobs. Are CEOs that dumb ? Is there any evidence to the contrary ?

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