ILRLE Paper . All Employers Should Be Required to Provide Health Insurance for Their Workers

ILRLE Paper . All Employers Should Be Required to Provide Health Insurance for Their Workers

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Yi Cai; yc639 Jakubson; ILRLE 2400 December 5, 2008 1 “All Employers Should Be Required to Provide Health Insurance for Their Workers” Introduction All employers should be required to provide health insurance for their workers in the United States. This policy would entitle all full-time working residents in the US to a standard package of health benefits. If more generous packages are offered by the employers, the employees are given the ability to choose the best suitable plan. In addition, there will be a community rating in which premiums could not vary with age or health conditions. In contrast to the current system, health insurance, acting as a quasi-fixed cost for employers, would no longer be an optional fringe benefit of employee compensation, but rather an implicit “tax” on employed workers. 1 To elaborate and justify the mandate of employee participation in this health insurance plan, it is imperative to realize that if employees are given the choice to opt-in or opt-out, adverse selection prevails. High-risk employees aware of their condition are more likely to buy the plan, while low-risk employees also aware of their condition are more inclined to refuse the plan. Therefore, a risk pool of policy holders comprised of high-risk employees and a little or no low-risk employees will not cover all of the cost. Market failure is then a result. To avoid this predicament, regulation on participation induces low-risk employees’ contributions, thus subsidizing the risk pool. The manifestation of this policy is an increase in the number of workers insured. The policy will also increase the number of workers employed. Ultimately, employment-based health insurance will allow better use of federal budget. 1 Zweifel
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Yi Cai; yc639 Jakubson; ILRLE 2400 December 5, 2008 2 Section I - Effects by Theories Primarily, employer-provided health insurance affects wage change. In the US, the supply curve and the demand curve are steep. 2 This is because both employees and employers are less responsive to changes in the wage rate. When it is required that all firms include health insurance, it is similar to placing a payroll tax on the employer. Represented by a decrease in “taxes” on the demand side below, Figure 1 illustrates the labor market change from uninsured firms to insured firms under the provision. Figure 1: Supply & Demand Graph for Uninsured Firms The employers’ and employees’ contributions are determined by the steepness of the demand or supply curves. In the case shown in the graph above, the employee’s contribution is greater than the employer’s contribution, but in the end, health insurance is paid by the employee in the form of lower wages. The effect of mandatory employer-provided health insurance on uninsured firms is, in this case, a decrease in employment. 2
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This note was uploaded on 01/16/2009 for the course ILRLE 2400 taught by Professor Smithr during the Fall '07 term at Cornell University (Engineering School).

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ILRLE Paper . All Employers Should Be Required to Provide Health Insurance for Their Workers

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