Monday, January 09, 2006

Unintended Consequences...


She goes on to observe that these states don’t really have the resources available to enforce such requirements, and concludes that small business aren’t the real targets of such policies, large retailers are.

This is an interesting post, and one that’s worth a read, but it’s really the comments section that intrigues me. For example:

And this nugget:

Let me state from the outset that I enjoy Kate’s blog and generally find her posts to be interesting and informative.

You just knew there’d be a “but.”

Statements like “employers should pay for it” and “requiring companies to provide health insurance” reveal a stunning ignorance of how our system works:

Companies do not pay taxes, and they do not pay for health insurance.

In case you missed that, let me repeat:

Companies – businesses – pay neither taxes nor insurance premiums.

Companies do collect (sales) taxes, and pass them on to the states in which they do business. They also include any business taxes due in the price of the product or service. They pay employees a portion of their salary, and forward the balance to the insurance carrier (and/or state government).

They do not actually pay the taxes, nor the insurance premiums.

“Henry,” you ask wearily, “why is this such an important point that you repeat it 3 times?”

Because if (or when) government requires an employer to pay for health insurance, several things happen, not many of them good:

First, if the employer doesn’t already have a group plan in place, he has to either install one (assuming that this is even possible) or begin reimbursing his employees for their privately owned plans. This then requires that he set up either a Section 105 plan, an HRA, or some other qualified arrangement, none of which are free, and all of which require additional paperwork. It also ignores the problem of employees who either can’t qualify for insurance, or who flat out don’t want it.

So let’s presume that we’ve surmounted the availability issue. How does the employer then “pay for the insurance?” What many folks – including, apparently, the commenters noted above – don’t understand is that when one is paid a wage, there are really two pieces: the one we see, and the one we don’t see.

The one we see, which is our stated salary or hourly wage, is our paycheck, net of taxes and FICA and all the rest. The other half, the “hidden paycheck,” includes health insurance and worker’s comp premiums, vacation and sick days, and various other expenses associated with being employed.

Look at it this way: When Joe was hired, his employer budgeted $60,000 for Joe's compensation; $50,000 is paid to Joe as wages, and the other $10,000 is sent to the insurance company and various government agencies (and, of course, some is to defray the costs of vacation and sick days, etc).

So if the gummint insists that Joe’s employer pay an additional 8 or 10 or 12 percent toward health insurance, that’s 8 or 10 or 12 percent that Joe’s employer won’t be giving him as a raise next year. In fact, it could very easily wind up costing Joe his job altogether: his employer may decide that he’s not worth that extra 8 or 10 or 12 percent.

Try not to break it.

UPDATE: Chad from Tusk & Talon has some more thoughts on this subject. In-depth and interesting...Check it out.

UPDATE 2: And Elisa at Healthy Concerns also weighs in with another perspective. Good stuff. Kate herself (whose post started this whole link-fest) gets the final word (for now).

UPDATE 3: Maryland's legislature has overriden the Governor's veto. More on the implications of this new development coming up.
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