Managerial Economics & Organizational Architecture 6th Edition by James Brickley , Clifford Smith ,Jerold Zimmerman

Exercise 21

The Good Beer Brewing Company currently purchases health insurance for its 10,000 employees. The company is considering a flexible plan where employees can have either $2,000 in cash or insurance coverage (the insurance costs $2,000). The company figures it will expend the same amount of money either way. However, employees will be made better off because they can choose the option that is most preferred. Do you see any potential problems with this idea Explain.