Not everyone buys industry’s arguments about rising health costs imposing a competitive disadvantage on firms. Conventional economic theory maintains that firms should be indifferent to whether they pay employees cash wages or benefits. The two are seen as fungible, and are both tax deductible. So if the cost of health benefits rises, employers ought to be able simply to cut wages--or pass on those costs as higher prices to customers.

This theory is correct over the long term but falls apart in the short term, argues Len Nichols of the New America Foundation, a Washington, DC-based think-tank. In competitive global markets, firms usually cannot pass on health costs as easily as price increases since rivals overseas do not pay nearly as much via taxes to support state health systems. LINK