Home > Uncategorized > A GOOD Article on Health Benefits and Wages by Ezra Klein.

A GOOD Article on Health Benefits and Wages by Ezra Klein.

WOW. Color me impressed: Ezra Klein wrote a piece that could’ve easily been written by National Review’s Tevi Troy. He is absolutely right that the central problem with this healthcare debate is that employees don’t know that they are getting shafted when they get a healthcare benefit as opposed to the extra wages the employer pays for the employer benefit. Unfortunately, he comes to the wrong solution. Cost control will NOT lead to higher wages. What Klein forgets to mention is that during that time when wages were increasing, so was productivity. Productivity determines wage increases, not cost controls on healthcare. Here, Ezra defines the problem:

“But health-care coverage is not a benefit. It’s a wage deduction. When premium costs go up, wages go down. When premium costs go down, wages go up. Yet workers don’t know that. In fact, the information is hidden from them.”

The last sentence is key: if the information is “hidden” then the solution to the problem is to reveal it and let consumers determine what their true costs of healthcare and health insurance are. Cost controls do not do this. If anything, cost controls will be a bigger distortion in the market than having employers continue to pay their employees’ health benefits as resources will be woefully misallocated (think gas price controls of the 70s and rent control).

Occam’s Razor: if you want to bring down the cost of healthcare, put the “tags” back healthcare services and health insurance. Anything else and it is not going to bring the costs down.

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