Sunday, April 25, 2010

Healthcare Reform...A good Business Model??

My two previous posts are hard to understand unless you have your eyes open. All business is based on incentives in one way or another. Marketing and sales are the art and science of convincing a prospective customer to buy a product or service at a profit from the seller. Incentives are widely used to do that. But what if a business sold its product for less than it cost the long do you think that business would survive? Isn't that exactly what the government has done with healthcare? The first post discussed how many businesses would drop healthcare coverage for their workers since the cost of the fine to do so is roughly one fifth the average cost of employer provided healthcare. Since the government guarantees everyone heathcare there isn't even a moral issue with dropping that employee benefit. In fact, any business could give their employees a $4,000 raise and still lower their costs by an average of $4,000 per employee. That raise would also cover the fine to the employee so everyone makes out except the healthcare system since the original aim was full coverage for all. So to recap, just so us Average Americans can understand the brilliance of government mandated healthcare, businesses are required to provide healthcare but the fine for not providing is less than the cost of providing it. The employees will be fined for not buying helathcare but why would a healthy young person pay $9 or $10 grand when the fine is a third or that or less. It looks to this Average American like the incentives are on the wrong side of both deals. It sounds a bit like General Motors, who lose money on every sale but figure to make it up with volume.

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