Health Benefits in the Tax Code: The Right Incentives? (original) (raw)

To the degree that young and healthy workers leave the employment-based system, workers remaining in the system will be disproportionately older and unhealthy, which will drive up premiums in the system. As premiums increase, the youngest/healthiest workers will move to the non-group market, leaving relatively older/less healthy workers in the employment-based system, which will continue to drive up premiums for employer coverage. This phenomenon is known as the "death spiral" because it means the death of employment-based health benefits as a result of continued and increased adverse selection. Were the employment-based system go into the death spiral, employers could eventually drop coverage.

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