The United States has the ability to solve many of the current problems with health care insurance not by massive and complex new legislation, but with a simple change to the tax code. Many of today’s most serious concerns with health care revolve around the fact that the US is one of the only countries in the world that ties most health care options to employment. Eliminating this system would solve two critical issues; it would eliminate the health care gap that comes when workers change or lose their jobs, and it would allow individuals an exponential increase in the number of choices for coverage. Solving these two areas would then result in a significant drop in costs.
The current system that ties health care insurance to your employer was created quite unintentionally in the 1940’s and then later reinforced in the 1960’s. Wage controls instituted by President Roosevelt in 1942 during WWII to help stabilize the domestic economy had an unintended effect; in order to attract skilled workers, employers offered health care as a paid benefit.
(Tumulty) This allowed them to raise compensation without raising wages, which was illegal. Employer based health care became a mark of high quality employers, and workers began to expect it. Congress formalized this system in the 1960’s, with a series of changes to the tax code that allowed businesses to treat health care costs for employees as a business expense, meaning they could deduct the cost for tax purposes. (Helms) A similar change allowed employees to accept health care as a fringe benefit, one which was not subject to taxation. Reversing these two changes to the tax code could have dramatic positive results.
Without a tax incentive to offer health care benefits, most employers would simply drop their health care plans and then offer higher pay in lieu of the premiums they now pay on behalf of their employees. Without the advantage of a tax exemption for medical benefits, most employees would accept higher wages because they could use those wages as they see fit. Higher wages would allow individuals to purchase medical insurance directly from an insurer, much as auto insurance is purchased in the US currently. Employers would lose the ability to claim a major tax deduction for premiums paid, but would save money by not having to implement and oversee complex health care plans.
(Eibner) Employees would lose the tax benefit of not having benefits taxed, but would save money by being able to purchase a policy tailored to their needs and join large insurance pools not currently available to them.
Additionally, the federal government would benefit by this change by the closing of this tax loophole. In 2007, this loophole cost the federal government an estimated 250 billion dollars, and for 2010 that number may be as high as 297 billion dollars.
(Greenstein) This additional yearly revenue coming into the government would likely be more than enough to cover the cost of adding the estimated 32 million uninsured individuals (Gould) to the Medicare program. Although it is very likely that with the dramatic reduction in the cost of monthly premiums, a significant portion of those uninsured individuals could now possibly afford to purchase their own insurance.
Currently in the United States, losing your job usually also means losing your health care insurance. Although provisions have been made by Congress for temporary extensions, these are complex provisions and usually involve a large increase in premiums for the individual. And most employees are reluctant to leave one job without having another job already secured to avoid having a temporary gap in health care coverage. If health care were purchased independent of employment, individuals would have more freedom to switch to a better job if one becomes available. Additionally, individuals who are laid off and spend time among the unemployed would still have the option of continuing their medical coverage at the usual rates, rather than the dramatic increase under current provisions. This would mean a huge increase in flexibility for temporarily or even long term unemployed workers, while at the same time offering a measure of stability at a time when stability is sorely needed.
Eliminating the employer based health care provision would also mean an exponential increase in the choices available for individual health care. Under the current system, most employees usually have one or two choices among different health care plans. Some larger employers (notably the federal government) offer more than a dozen plan choices that include premium and coverage levels. But a system where individuals choose their coverage directly would allow insurance companies to market to the individual, and would result in insurers offering a wide array, possibly hundreds, of choices. Again using the auto insurance comparison, there are 32 national automotive insurers in the US and nearly a hundred regional insurers as well. With each company offering dozens of different insurance plans marketed to groups and sub-groups of individuals, individuals in the US have more choices than they could likely ever need. In fact, several companies now specialize in browsing multiple insurers and selecting an insurance policy that best suits the individual, because of the large number of choices available to auto insurance customers.
Using the auto insurance industry as a model for medical insurance, it is easy to see the benefits that individuals would realize by eliminating the employer link. Individuals could choose from dozens of options the health care plan that best suits their needs, both medical and financial needs. For instance, younger individuals in good health and at low risk of disease or accident could choose a plan that covers less and costs less. Older Americans or those with a history of a specific disease in their family history could choose a plan that tailors their coverage to their specific needs. Those with chronic but manageable diseases such as diabetes or asthma could purchase medical coverage that reflected not only their current situation, but also include likely associated conditions, such as obesity for diabetes patients and severe allergies for asthma patients. This type of tailored coverage could also include educational efforts, such as treatment and prevention options.
The current US system of employer based health care was created not by design, but by a fluke of circumstance during WWII. Eliminating this health care dependency on employment would not only solve the critical problem of individuals losing health care when they lose their job, but it would also dramatically increase the number coverage options available to each individual. It would also reduce costs for employers and employees alike, while increasing tax revenue to the federal government that could be used to mitigate the problem of uninsured individuals. Best of all, this change could be made with a minimum of effort by the federal government. A few deleted lines in the federal tax code versus the current proposed 2000 plus page behemoth makes elimination of the employer based health care system an easy choice.
Eibner, Christine. Snapshot: Employer Health Insurance Costs in the United States. Policy analysis. Oakland: California Health Care Foundation, 2007.
Gould, Elise. "The erosion of employment-based insurance: More working families left uninsured." 31 Oct 2007. Economic Policy Institute. 24 Mar 2010
Greenstein, Robert. Statement to Senate Committee on Finance. Report to Congress. Washington, DC: Center on Budget and Policy Priorities, 2009.
Helms, Robert. Tax Policy and the History of the Health Insurance Industry. Policy Analysis. Washington DC: American Enterprise Institute, 2008.
Reinhardt, Uwe. Is Employer-Based Health Insurance Worth Saving? 29 Mar 2009. 23 Mar 2010
Tumulty, Karen. "Two Dems Want To Scrap Employer Based Health Care." 16 Mar 2009. Time.com. 23 Mar 2010