ANN Company currently purchases health insurance for all its 5,000 employees. Insurance costs the firm $4,000 per employee on average.
A consultant has advised that the company should provide a flexible plan where employees could be paid $4,000 in cash, or insurance coverage. The consultant says the firm will spend the same amount of cash, but the new plan would give the employees more flexibility. It is assumed that the employees would be better off because they could choose the option that they most prefer. Are there any problems with this idea?
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