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May 06, 2005

States and Employer-Paid Health Care

The New York Times gives a full analysis to the trend of states requiring employers to cover employee health care costs. They cite a few obvious examples, like the Maryland bill targetting Wal-Mart through a bill requiring large employers to spend 8% of their payroll on employee health care and the barely defeated California initiative to require all large employers in the state to provide health care for employees.

There is little question that the status quo is economically and socially idiotic. Good employers who provide health care are punished in the marketplace by competitors who don't pay the costs of health care.

So you can solve the problem in two ways.

A mandate that each employer cover employee costs makes sense in that it levels the playing field and stops companies from dumping their costs onto public sector hospitals -- forcing them to internalize their externalities in econospeak.

The other way to level the playing field, of course, would be for the government to guarantee universal health care for everyone. From a global perspective, that would help lift the burden of health care costs from decent companies finding it hard to compete internationally. The announcement that the bond ratings of General Motors and Ford have been reduced to junk bond status is largely based on the health care costs dragging those companies down.

Which is one reason so-called "pay or play" legislation is attractive-- the idea is that companies either are required to pay for health care for employees or pay into a state-run fund to provide health care for employees. As more and more companies pay into such funds, they would become the core of state-run health care systems that could supplant employer-run health care across the country.

Something's got to be done. A society where General Motors goes bankrupt because it takes care of its employees and Wal-Mart thrives because it doesn't is not a viable economic model.

Posted by Nathan at May 6, 2005 08:06 AM