Controlling Health Care Cost or…
…shifting health care costs. There is this curious notion that comes up occassionally that by switching to universal health care (read government funded health care) corporations could control their health care costs. Frankly I think people who think this way have it wrong. Even if we assume that the government is going to do it for exactly the same cost as the private sector (a highly questionable assumption) this does not control costs, but merely shifts the cost from the corporations to the tax payers. Your salary might go up, but you’ll be paying more in taxes. Further, it is quite possible that after tax income goes down.
Here is how it could work out. Suppose health care costs are $1,000 for a worker (lets keep it simple and keep the cost the same per worker). Along comes government funded health care and your salary/wage rate goes up so that you now get $1,000 extra in your paycheck (this follows if the labor market you are working in is competitive, if you work in an industry where there is only one demander–a monopsonist–then your S.O.L.). But you now have to pay taxes on that $1,000. In keeping with the simple nature of this example lets suppose the tax rate is 10%. Now, you actually have only $900. On top of that your taxes will have to go up. Assuming the government is no better or worse than business your taxes will go up by $900 (this follows from the fact that the government now has to collect $1,000 per worker, which is precisely your raise; the government got $100 when your salary/wage increased, so it will tax away the rest of your raise…that $900). So where does that leave the worker? No better or worse.
Of course, this simple example assumes no increase in the deadweight loss due to the increase in tax rates. Thus, it could very likely come out as a loss for the worker. Add on that many of the people who don’t have insurance don’t have insurance because they have pre-existing conditions which will further increase the cost of government provided health care and things aren’t looking like much of deal. Of course, one possible source of improvement would be ending the current patchwork system that is very expensive and inefficient. Could this offset these other costs? I don’t know. The bottom line here is that rarely are (if ever) free lunches in economics. It could be possible that by simplifying the current health care delivery system quite a bit of savings could be realized. I just don’t expect the federal government to be the ones to provide such solutions.