NCPA - National Center for Policy Analysis


October 12, 2009

Now that the Congressional Budget Office has concluded that the health care bill proposed by Sen. Max Baucus (D-Mont.) will shrink the federal deficit over the next 10 years, its champions are heralding the legislation as a model of fiscal responsibility.  But the CBO's comforting analysis relies on a big assumption that's highly questionable, an assumption that virtually no one on either side of the debate -- politicians, pundits, even economists -- is even challenging, says Fortune magazine.

The assumption is that America's employers will keep providing coverage for their workers.  But, in fact, the Baucus bill severely undermines the employer rationale for offering insurance.  Economist Michael Tanner of the Cato Institute points out two main reasons:

  • The Baucus bill would substantially increase the costs of coverage -- for example by requiring rich benefits packages and coverage for Americans with pre-existing conditions at far less than their actual expense; at some point, employers will decide that the appeal of offering insurance as a tool for recruiting and retaining employees no longer compensates for its soaring cost.
  • The bill is based on perverse incentives that no one is even discussing -- the subsidies it offers to citizens are so rich that if companies were to drop their plans, the majority of workers would get the same lavish coverage and extra cash in their paychecks to boot.

"Those two factors will change the equilibrium," says Tanner. "With the government providing huge credits, employers will feel a lot less guilty about dumping their plans."

In fact, the Baucus bill is practically inviting employers to do just that: It imposes a fine of just $400 per employee on companies that shed their plans.

So what happens if corporate America exits the health care field?

  • The foundation of the Baucus bill would pretty much collapse.
  • Upper-middle-class earners, who today make $65,000 and up, would suffer the equivalent of a huge tax increase.
  • And the extra revenue the government would collect from those families wouldn't remotely pay for the millions of relatively low earners who would absorb big subsidies in lieu of the premiums their employers now pay.

The corporate exodus from health care would mean that the Baucus plan, far from reducing the deficit, would actually increase it, perhaps sharply, says Fortune.

Source: Shawn Tully, "A dangerous secret to the Baucus health bill,", October 9, 2009.

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