Milton Friedman on Health Care

Milton Friedman was one of the most influential economists of the twentieth century.  He popularized the Chicago school of economics and helped turn the University of Chicago into one of the best econ. departments in the world, which it still is today (see rankings page).  He was the author of many books including Capitalism and Freedom and A Monetary History of the United States.  These two famous books, show the dual nature to Friedman's career, his academic writings and his popular writings, or pop economics.  In both of these settings, he was practically unparalleled in his career.

(photo via Ellen Meiselman)

Friedman won the Nobel Prize in 1976 and retired from teaching shortly thereafter.  He focused more on making his ideas impact a broader audience.  He starred in the PBS television series, Free to Choose, with a best selling book of the same name.  He also appeared several times on the daytime television show Donahue, and served as an economic advisor to Ronald Reagan.  He died in 2006.  His greatest contributions to economics in general was the permanent income hypothesis and a lifetime of writing on monetary economics.  Although it is a matter of opinion and not fact, he could easily be called the greatest scholar of monetary economics.

Milton Friedman was well known for his total grasp of economic principles and the quick and understandable way that he had for communicating complex ideas.  So his speeches are really a perfect introduction for students that are interested in economics.  This speech is one that he delivered in 1978 at the Mayo Clinic in Rochester, Minnesota.  It is focused on health care, and he offers many interesting and startling prescriptions to this group of doctors.  It is especially interesting to see how predictive Dr. Friedman has been, and that none of his prescriptions have been taken, although I imagine that he would also predict that as well.

I would say more, but I don't want to "steal his thunder."

30% of Employers Likely to Drop Insurance After 2014

Before the Patient Protection and Affordable Care Act was signed into law by President Barack Obama, the Congressional Budget Office estimated that 7% of employers would stop offering health insurance to their employees.  A new survey by the consulting group McKinsey found a starkly different answer.

Photo: Jacob Windham

 
January 1st 2014 is when the majority of the act goes into effect.  The act expands Medicaid eligibility to 133% of the poverty line and subsidizes health insurance to 400% of the poverty line.  Tax credits are given to small businesses under 25 employees, and $2,000 penalties (per employee) are given to businesses over 50 employees for not insuring their workers.  Health insurance exchanges and other changes are introduced at that time as well.

McKinsey found that 30% of employers were likely to stop offering health insurance as part of their compensation package for their workers.  Among employers that had a high awareness of the reform, that number jumped to 50%.  McKinsey also surveyed employees to find that 85% of employees would stay at their job even if they lost their health insurance, although 60% of them expected increased compensation.  They also found that 30% of employers would gain economically if they eliminated their insurance even if they increased wages the same amount.

The gaming of Obamacare has not even begun yet, but it seems clear from this study that it will lead to a period of profound transformation.  Employer expectations of imminent change coupled with the likelihood of increased worker turnover and overall employment market volatility make it possible that employers have had an increased and increasing reluctance to hire until the rules take effect in 2014.  If this is true, it is not helped by the fact that the law may be thrown out by the Supreme Court before then.  Lower courts already have conflicting rulings, which virtually guarantees the Court's attention.

If it does stand, it is possible that the Affordable Care Act may actually lead to lower total compensation for U.S. workers.  If the the employment situation hasn't recovered to pre-recession levels, employers may use it as a method of fighting the wage-price stickiness issue.  This will have to be one of worst unintended consequences in the history of Congress, if it does happen.