In contract law, there is a term for the phenomenom whereby a party defaults on a contract and pays a penalty to the other party in order to take advantage of a cheaper business opportunity. So long as the breaching party is better off after the transaction, even after paying the penalty, the default is said to be an 'efficient breach' because the most economically efficient transaction has occurred. Though some may have qualms about breaking contracts or people who do so, this is a common occurrence in business. Indeed the potential for breach is often anticipated by parties in certain situations, with penalties for breach often being written right into contracts. This helps an economy run efficiently as parties have the freedom to find the best possible deal, keeping supply and demand pressures in check, particularly in markets for goods or inputs. It also helps avoid court time, and finally allows parties to contract fearlessly, knowing that, even if the other side doesn't perform, they can still expect a minimum payment. Though in contract law, the ability to pay a penalty to avoid fulfilling an obligation is attractive in economic terms, there are problems with allowing this type freedom in other areas of life. The 'pay or play' provision recent healthcare bill provides an example of this.
It is tough to say anything with great conviction when it comes to healthcare. There are so many numbers thrown around, so many accusations and so many contradictions that doing any kind of analysis can be more an excercise in frustration than a logical endeavor. Additionally, the Obama administration (at least publicly) is convinced that the plan that was passed will reduce costs. However, even some of the least controversial numbers paint a bleak picture of the future after a slightly more than skin deep look.
For example, the healthcare bill has provisions that allow employers to pay a penalty rather than pay for insurance for employees (the first bullet point in this Reuters piece does a good job explaining the numbers). This is called 'pay or play' and is presumably included to provide a disincentive to not providing insurance to employees. However, it may incentivize just the opposite behavior. If you believe these numbers, health care costs employers somewhere in the neighborhood of $4,500 to $7,500 per year per employee. However, under the pay or play provision, employers may only need to pay $40,000 total in penalties if they have 50 employees and they don't insure any of them. The math is pretty clear; there is an huge incentive for small to medium business owners to avoid paying for healthcare. This is especially true because they now know that these employees won't be left without coverage after the state-run exchanges are formed. Presumably, some of the penalty dollars will go toward subsidizing the exchanges, but it is clear that there will be a balance. What isn't clear is who will be responsible for paying this balance, but whether it is the government, the employees, or some combination, it represents a failing in the system, and in some cases will probably result in a higher cost per employee than exists now.
Efficient breaches of contract are so named because they result in efficient economic transactions and facilitate smooth interactions between parties. In such a situation, a penalty is a means to a positive end. Healthcare's pay or play however, seems to be a penalty on the economy, shifting costs around rather than reducing them. In the process, it will create headaches for employees, transaction costs, and incentives for employers to avoid the best possible employment packages for their employees. With the benefit of experience, it may turn out that there are parts of the healthcare bill that benefit employees and the overall system. Pay or play is, unfortunately, not going to be one of them.
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