Should We Get Rid of Employer-Based Insurance?

Free market and consumer-based health care reformers have been calling for this since at least the 1990s, and recently the issue is getting some coverage once again. Here’s The Federalist’s Greg Scandlen on “breaking the tie between employment and health insurance.”

The advantages given exclusively to employer-sponsored coverage have badly warped, not just the health care system, but employment and labor policy, as well. It also spawned the creation of Medicare and Medicaid. These programs were enacted in 1965 in part because the elderly and the poor were the two groups of Americans who could not benefit from the health care advantages government gave workers.

Most people are aware that the only reason we have a job-based insurance system is as an artifact of the wage and price controls of World War II. Companies couldn’t attract workers by offering higher wages, so they offered “fringe” benefits instead. The Internal Revenue Service said such benefits would not be considered taxable income. They were “excluded” from the tax rolls.

Should Republicans avoid keeping something that might have merit just to deprive Democrats of a talking point?

This might have worked in the post-war era when families were typically made up of a single-wage earner who worked for the same company most of his (usually a “his”) life, and divorce was uncommon. But it makes no sense at all in today’s society where people change jobs frequently, both spouses work, divorce is common, and child-rearing responsibilities are divided. It is typical today for a husband and wife to each get coverage from his or her own employer and make kids a jump ball depending on which parent has better dependent coverage at any given time.

The Cato Institute’s Michael Tanner devoted an entire op ed to the topic, “Get Bosses Out of Health Insurance Altogether.” Regarding the recent Hobby Lobby decision Tanner writes, “The bigger question should be: Why is some woman arguing with her boss about what benefits are included in her insurance plan in the first place?”

The entire concept that our boss should provide our insurance is an anomaly that grew out of unique historical circumstances during World War II. At the time of a significant labor shortage, President Roosevelt imposed wage (and price) controls, preventing employers from competing for available workers by raising salaries. In an effort to circumvent the regulations and attract workers, employers began to offer non-wage benefits, among them health insurance.

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.

Read Scanlen’s article here.

Read Tanner’s article here.