Why is it that your boss is determining what health-care package is right for you, asks Michael D. Tanner, a senior fellow at Cato Institute. Mr. Tanner explains that health insurance was offered as a perk during WWII. Because of the significant worker shortage, President Roosevelt imposed wage and price controls, which prevented employers from competing for workers by raising salaries. As a way around this, employers offered non-wage benefits, including health insurance, to woo workers.
In 1953, the IRS’s ruling that employer-provided health insurance was not taxable exacerbated the problem. Rather than raising salaries (taxable), employers began offering health insurance (nontaxable) to workers.
Mr. Tanner reminds readers that two problems arise with employer-based health insurance: (1) It hides the true costs of health care and can lead to overuse of health benefits. (2) Health insurance is often not portable. If you should lose your job, you might also lose your health insurance, especially if you have a preexisting condition.
But what is more insidious, using Hobby Lobby as an example, is that your boss has the power to determine what is or is not part of your insurance plan. As Mr. Tanner notes, “The government’s answer, of course, is simply to mandate that certain benefits, in this case contraceptives, be included. But that merely substitutes the government’s judgment for your boss’s. Thus we infringe on your employer’s desires and your own, leaving both of you at the mercy of politicians.”
Read here from Mr. Tanner what changes need to be made to the tax treatment of health insurance and why both the right and left, in a perfect world, could “agree to start transitioning away from employer-provided insurance and into a system where each of us owns personal and portable insurance, independent of our job.”
Employer-provided insurance is problematic for several reasons. Most significantly, it hides much of the true cost of health care from consumers, encouraging over consumption. Basing insurance on employment also means that if you lose your job, you are likely to end up uninsured. And once you’ve lost insurance, it can be hard to get new coverage, especially if you have a pre-existing condition.
But, in the context of Hobby Lobby, employer-provided insurance is even more insidious: It gives your boss the power to determine what is and is not included in your insurance plan. The government’s answer, of course, is simply to mandate that certain benefits, in this case contraceptives, be included. But that merely substitutes the government’s judgment for your boss’s. Thus we infringe on your employer’s desires and your own, leaving both of you at the mercy of politicians.
Instead of fighting over religious liberty vs. contraceptive coverage, both sides should agree to start transitioning away from employer-provided insurance and into a system where each of us owns personal and portable insurance, independent of our job.
Getting there requires changing the tax treatment of health insurance so that employer-provided insurance is treated the same as other compensation for tax purposes: that is, as taxable income. At the same time, to offset the increased tax, workers should receive a standard deduction, a tax credit, or expanded Health Savings Accounts (HSAs), regardless of whether they receive insurance through their job or purchase it on their own.
As a result of this shift in tax policy, employers would gradually substitute higher wages for insurance, allowing workers to shop for the insurance policy that most closely match their needs. That insurance would be more likely to be true insurance — protecting the worker against catastrophic risk, while requiring out-of-pocket payment for routine, low-dollar costs. And it would belong to the worker, not the employer, meaning that workers would be able to take it from job to job and would not lose it if they became unemployed.
But it would also mean that workers, not their bosses, would decide what benefits they want to pay for. People could have contraceptive coverage or any other kind of coverage if we wanted it and were willing to pay for it.
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