Economics teaches that fringe benefits (like health insurance) are not gifts from employers. They are substitutes for money wages. And the sum total of a worker's compensation tends to equal the value of what the worker produces. Employees don't suddenly become more productive just because government mandates a benefit that doubles the worker's compensation. Something has to give. For millions of employees, what may give is their job. At least a full-time job.
For the moment, many employers of low-wage workers are providing "mini-med" insurance. These plans typically provide $1,000 or $2,000 worth of coverage and in some cases as much as $25,000 — but nowhere near the full coverage with no annual or lifetime limits required under Obamacare. Here is the interesting twist, however: the mini-med plans many of these workers have may be more attractive to them than Obamacare insurance.
The reason is that the mini-med plans pay upfront medical costs, with little more than a token co-payment from the patient. Obamacare, by contrast, allows thousands of dollars in deductibles and co-payments. As I wrote at my blog:
Health insurance is a way of protecting one's financial resources against the expense of a catastrophic illness.
But if you don't own a house, you have no need for homeowners insurance. If you don't own a car, you have no need for auto casualty insurance. Similarly, if you have no assets at all (other than your human capital) why would you want health insurance?
For low and moderate income households, the reason why mini med plans are attractive seems to be this: People living paycheck to paycheck have trouble maintaining a reserve for unexpected medical expenses. So as an alternative to personal savings and higher wages, they appear to be willing to take less in take home pay in return for a modest amount of health insurance.
All that is rational. What is irrational is to use almost all of your paycheck to buy a health insurance plan with an unlimited benefit ? one that, say, is able to pay a $1 million medical bill. Why would you buy a million dollars' worth of coverage if you don't have a million dollars of assets to protect?
As I have written previously, there are things employers can do to minimize the burdens of Obamacare. But minimizing burdens is not the same thing as making them go away.
So the White House is understandably worried. One wonders why it took them so long.
John C. Goodman is President of the Goodman Institute and a Senior Fellow at The Independent Institute. He is the author of the widely acclaimed book, Priceless: Curing the Healthcare Crisis. The Wall Street Journal and National Journal, among other media, have called him the "Father of Health Savings Accounts.”