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Wal-Mart and General Motors have been in the news recently for their efforts to
cut the costs of their employee health insurance. They singled out mainly because
they’re so large. As health costs soar across the economy, every company
that once provided full heath coverage to its employees is actively paring it
back.
So why not go all the way? Let’s de-couple health care from employment.
The reason employers ever got into the business of providing their workers
health insurance in the first place is it’s a form of payment that’s
not taxed. That made it attractive to both employers and employees, before medical
costs skyrocketed.
Yet even though employer-provided health care is now shrinking, it still constitutes
the biggest tax break in the whole federal tax system. According to recent estimates,
if health-care benefits were considered taxable income, employees would be paying
$126 billion a year more in income taxes than they do now.
Think of employer-provided health care as a kind of back-door, $126 billion-a-year
health insurance system. But what a bizarre system it is. First, you’re
not eligible for it when you and your family are likely to need it the most
– when you lose your job. And these days, that’s happening more
and more. Employers are slashing their payrolls. No job is safe. Why add to
employees’ anxieties by ending their health insurance just when they’re
shown out the door?
Second, the system distorts the whole labor market. It prevents lots of people
from changing jobs for fear they’ll lose their health insurance, or won’t
get the benefits they do now. And it invites employers to game the system by
seeking young, healthy employees who pose low risks of ill-health while rejecting
older employees who are likely to have more costly health needs. It also encourages
employers to try to push their married employees onto their spouse’s health
insurance plan so that the spouse’s employer bears the cost.
Finally, the system is upside down. The lower your pay, the less coverage you’re
likely to have. Workers in the lowest paying jobs have no health insurance at
all. But the higher your pay, the more health coverage you get – with
top executives getting gold-plated plans guaranteeing top-notch medical attention
for just about every health risk you can imagine.
This means that the $126 billion tax subsidy goes mainly to upper-income people.
Lower-income workers are losing their employer coverage. And the loss is happening
at exactly the same time the costs of private health insurance are going through
the roof.
For all these reasons, it’s time for the nation to wise up. Instead of
condemning companies for looking for ways to cut their health bills, we ought
to be instructing companies to stop providing health benefits altogether. Eliminate
the current $126 billion tax subsidy. Use the money instead as a down payment
on a universal and affordable system of health insurance – available to
everyone regardless of how much they earn, where they work, or even whether
they have a job.
