Massachusetts Healthcare and Dunkin Donuts
Those of you outside of Massachusetts (or the United States) may not have heard about our recent healthcare insurance debates. Left Center Left has some interesting entries on the lack of local political analysis and confusion about why the business community opposes the various legislative solutions where those solutions appear to be basically in their self interest.
The proposed solutions are converging on a tax on employers who do not pay for their employees’ healthcare. That tax would help pay for statewide coverage of all or most citizens, and hopefully encourage employers to provide insurance for their employees to avoid the tax. (There is strong dissent, for example from the Massachusetts Taxpayers Foundation, as to whether the tax would actually raise any money).
Critics argue that the tax will discourage employers from coming to Massachusetts. The two large employers singled out most frequently in the State for not providing healthcare benefits to their large work force are Wal-Mart and Dunkin Donuts. Is it even remotely possible that Wal-Mart and Dunkin Donuts would actually shut down (or stop opening up) stores if they have to insure their employees or pay an additional tax? Obviously increased labor costs (whether through tax or insurance) could cut into profitability—but is there any evidence at all that it would represent a “tipping point” that would cause these employers to shut down? (Note that despite Massachusetts’ reputation as “Taxachusetts,” a study last year that I can’t locate right now pointed out that the overall tax burden on Massachusetts citizens was about in the middle, compared to other states).
Even if the health insurance mandate depresses wages, it’s worth noting that it is cheaper for the employer to buy group health insurance for its employees than it is for each of those employees to buy it individually—both because of the bulk buying power and for tax reasons. It is thus not a “zero sum game” where employees wages should be depressed by the exact amount of the increased health care costs.
Finally, wouldn’t this measure actually encourage employers to come to Massachusetts who already insure their employees, since presumably the statewide insurance mandate should decrease costs to those already providing insurance as they will no longer be effectively subsidizing the uninsured who work for competitors and other employers? And aren’t those the kinds of employers we would like to attract, rather than more Dunkin Donuts and Wal-Marts? (In fact, wouldn’t fewer Dunkin Donuts lead to less heart disease, thus also cutting down our health care costs overall…?)
Anonymous Jan 28
I believe the more important question to ask is “why is it the responsibility of businesses to insure the people of the state”? There is no justification for this tax, apart from attempting to tell businesses how they ought to run themselves, since obviously the government knows better, being the pinnacle of an efficient, well-run organization.
Furthermore, let me note that just because you don’t like McJobs doesn’t mean they shouldn’t exist; given the choice, would you rather work at Dunkin Donuts and earn minimum wage, or would you rather not work at all? Plenty of people face that choice. Why in the world should a minimum-wage employer be required to pay health insurance for their employees, or face a tax designed to do the same thing for the entire state? (And that’s not even going into the discussion on the minimum wage itself.)
Finally, nothing stops all the employees of Dunkin Donuts or Walmart from associating together on their own, for the purposes of bulk-buying insurance.
(This is of course ignoring the broader issue, which is that the high cost of healthcare, the high cost of insurance, and the attempts by government to make insurance more widespread amongst those who don’t have it, are all closely linked and perpetuating each other. I’m not saying there’s a trivial solution to that problem, but we don’t need to make it worse. It was a multiple-step slide: 1) people buy insurance, 2) healthcare providers realize that they can charge more and people won’t feel it (directly anyway), 3) insurance providers pay more, 4) insurance providers charge more, 5) everyone pays ridiculous fees, not just those getting medical care. If nobody had insurance, and thus nobody could afford to pay the exorbitant fees currently required for medical care, those fees would go down by supply and demand.)
Nathan Smith Jan 28
Comment on above comment: on supply and demand. You’re absolutely right that the rising costs of health care jeopardize the capacity for the health care to work effectively (in, effect, the health care industry is its own heaviest burden). And you are right that the capacity for health care providers to charge more without their consumers feeling the effects directly, is one of the principle motors driving this problem. Which is exactly why you are wrong that supply and demand can be of any help here. Here is a link to an article by Paul Krugman on this issue http://select.nytimes.com/2005/11/14/opinion/14krugman.html, which unfortunately will require you to be a member of the NYtimes select service in order to read (the NY times has decided to clamp down on free access to its editorials, even shutting down the “Unofficial Paul Krugman home page” which _was_ posting all of his columns). At any rate, the free market is a great tool, if we know how to use it well. But it doesn’t operate in health care, for many of the reasons you cite.
As for MA, many people believe that employer insurance coverage is the fastest track to insuring all Americans. This bill appears to head in that direction.
Adam Rosi-Kessel Jan 28
Anonymous: I hesitate to engage in a point-for-point rebuttal in blog comments; first, because I don’t know that you’ll even read it, and second, because it’s an awkward medium for debate.
That said, I have a few responses.
You could, of course, make this argument about any business regulation, including statutes governing basic corporate structure and disclosure requirements. More on point are unemployment insurance and worker’s compensation. Given the option, it is unlikely that businesses would “opt in” to these two requirements, and yet most people would agree that we are better off with both of these systems because they efficiently distribute risk.
I didn’t say I don’t like “McJobs.” I was hypothesizing that one effect of a tax on non-insuring employer may be to make the business environment more attractive to employers who already provide insurance and less attractive to those who don’t. If the net effect is maintaining a constant level of employment but shifting toward employers who already provide health benefits, I don’t see how this could be anything but a good thing. If a Dunkin Donuts job is replaced with a legal secretary job, the net social welfare is probably increased.
Transaction costs stop that from happening, among other things. The collective action problem is a well recognized economic phenomenon, and there is a consensus that in some cases regulation is the only solution to achieve the goal.
As Nathan correctly observes, your “supply and demand” analysis is flawed. It is certainly possible that health insurance rates could remain high and just be available to a very few people. The fact that Ferraris are very expensive and only a few people can afford them has not resulted in a gradual decrease in price so more people can buy them. Moreover, “demand” for health insurance or health care is a difficult concept: you don’t actually need health insurance at all–until you do, and then it’s too late.
In any case, your conclusion that “people don’t feel” increased health care costs is just flat wrong. The consumer may not be the end user of the health insurance but rather the businesses that are purchasing insurance on behalf of their employees, and the health insurance organizations that are ultimately paying the bills, and they all are putting pressure on the health care system to cut costs. HMOs in particular are notorious about that kind of thing.
Matt Jan 28
On a lighter note, you may be right, but I like my Dunkin Donuts in the morning!
Anonymous Jan 28
I’m here, and I do follow up on my comments. :)
In response to Nathan Smith’s comment, as I’m not a member of the Times Select service, I’m not able to read that article, so I can’t respond to your post. I would indeed be interested in seeing counterarguments on that particular point, but note that that point was simply a side note, not related to the rest of the argument.
Being a libertarian, I do indeed make the same argument about almost any regulation, whether on businesses or individuals. I believe you should be able to count the functions of government on one hand.
Those two statements are contradictory. The point of a non-uniform tax is to attempt to encourage one type of behavior (the less-taxed behavior) over another; the only reason to do so is because one behavior is preferred. Non-uniform taxes are discriminatory.
Not necessarily. All else being equal, you’ve put someone out of work, who can’t take the other job due to being unqualified; furthermore, you have no guarantee that you aren’t destroying one job *without* creating another. (And that’s ignoring the questionable value of lawyers to society. :) )
No, but that isn’t the point of supply and demand. In a non-monopoly market, demand may well be satisfied by an alternate supply. Ferraris haven’t become cheaper, but current trends in the automotive market include the introduction of “luxury” models by previously lower-end manufacturers, as well as decreases in the lower end of the price range (new vehicles in the 4-digit price range, for example). The target of some of these markets is those who might otherwise have to buy used or do without, neither of which makes the manufacturer money.
The same thing has happened in other markets as well. If Intel hadn’t ignored the ultra-low-cost segment of the market for a long time, AMD might not exist today; now, they not only have a strong foothold in that market, but they are competing heavily in the high-end market as well.
You seem to be refuting a statement that people don’t feel increasing health care costs by changing the focus to “consumers” and then classifying businesses in that category. The fact that I’m a libertarian doesn’t mean I’m pro-corporation; quite the opposite in some cases. I don’t think equating them with people was ever a good idea, and I think many (if not most) of the problems with corporations would go away if the idea of a corporation as a shield against personal liability went away. In any case, when I said “people”, I meant exactly that, and thus my statement still holds. Also note the parenthetical, “(directly anyway)”: it is certainly the case that people feel the indirect effect of increasing health care costs.
In short, my opinion on government is that it serves the same function as a charity, without the option of taking your money elsewhere where it can be spent more efficiently (or not taken at all). Here are two useful thoughts to consider every time you think government should have yet another function:
First, if you make a statement like “I believe the government should pay for my healthcare”, rephrase it as “I believe my friends, neighbors, relatives, and everyone else should pay for my healthcare”. Then decide if you’d ask them to do so personally. If you claim that businesses are the only ones paying for it, keep in mind that eventually the money has to come from somewhere, like the income of the people whose jobs no longer exist.
Second, consider the case where government was only as big as it absolutely had to be, and ask yourself if you’d voluntarily donate half your income to a charity which served all the same functions with the same efficiency. Perhaps you might choose to donate less or donate elsewhere. Do you honestly think you and others should be denied that choice?