George Mason University economics professor Don Boudreaux writes a letter to The Washington Post correcting columnist E.J. Dionne’s mistaken defense of Barack Obama’s health care plan:
According to E.J. Dionne, “Few investments would help businesses more than offloading a share of their health-care costs to the government. It’s social justice with an economic kick” (“Hoover vs. Roosevelt?” October 10). Overlooking the questionable “justice” of forcing Peter to pay Paul’s insurance premiums, Mr. Dionne’s economics is wrong.
Government provision of universal health insurance won’t reduce employers’ costs of employing workers. Worker pay – wages and benefits – is set by competition among employers for employees. If competition obliges Acme Inc. to pay a worker an hourly wage of $20 plus health benefits worth $5 hourly, this fact means that Acme must pay this worker a total-compensation package of $25 per hour. Because government provision of all health insurance would not reduce the value of this worker to Acme and other potential employers, competition would oblige Acme to raise the worker’s hourly wage by $5 – the amount that Acme no longer must pay for health-insurance premiums. Acme would still have to pay this worker a total-compensation package worth $25 per hour.
Contrary to Mr. Dionne’s assumption, government provision of universal health insurance would not reduce firms’ costs — although it would surely raise their taxes.
