Employer-sponsored health insurance is the cornerstone of the American healthcare system—and it’s screwing everyone over.
Consider for a moment why almost half of the country gets their health coverage through their employer. We don’t receive food, clothing, or housing from our employer. And those factors probably have a greater effect on health outcomes than insurance. What makes health insurance different?
The answer is wrapped up in a story of government’s good intentions gone awry.
During World War II, the government wanted to limit inflation through price and wage controls. As a result, congress instituted limits on how much private employers could pay their employees.
This policy hurt businesses because they couldn’t compete for labor. So they started offering health coverage as a fringe benefit to get people to work for them.
Eventually, Congress began to give a tax break to employers who paid for their employees’ health insurance. To this day, this policy is known as the employer-based tax exclusion.
And it sucks. Here’s why.
Some people may like the fact that they don’t have to think about how to buy healthcare, but this system is causing healthcare costs to skyrocket. A market only works if individuals make decisions for themselves. This decision-making process forces companies to win more customers by either making better products or lowering prices.
What happens when individuals no longer make decisions about how the money is spent? Companies ignore the individual and look only to serve the party that is writing them a check. In the case of our current healthcare system, that party is the employer, not the individual patient.
Is it any wonder that the two industries that have the most price inflation—healthcare and higher education—also are the two industries in which the government or a third party, not individuals, are picking up the tab?
Health insurance companies (universities too) have more confidence that employers or the government can pay higher prices. They have less incentive to look out for costs because they know the size of the payer’s purse.
Aside from higher prices, the employer-based healthcare system has other negative effects that hurt patients. Aaron Carroll, a health economist who writes commentary for the New York Times, has enumerated the ways employer-based healthcare leads to “job lock.” Job lock means that people are stuck in their job because they need their healthcare.
Here are some of the side effects of job lock.
- Workers are less likely to move to a better job out of fear of losing their insurance.
- Workers are more likely to wait longer before retiring.
- Spouses of workers who need insurance are more likely to wait longer to retire.
- Entrepreneurs are less likely to start a business.
- Sick people, including cancer patients, keep working instead of focusing on treatment.
The intertwining of healthcare and employment drags the economy down, sedates the labor market, and hurts patients. Our antiquated WWII-era policy has created a system where insurance companies ignore the unique needs of patients. Instead, they are laser-focused on their corporate customers.
So, how exactly should we take care of this issue?
People who lean towards the political left, like Aaron Carroll, say that the government should mandate benefits to mitigate the aforementioned effects of job lock. In the video I linked to above, Carroll specifically argues that repealing Obamacare’s mandates would exacerbate job lock.
Those on the political right, like Kevin Williamson of the National Review, argue that we should get rid of the employer-based system instead of piling on mandates.
I tend to agree with Williamson. Employer-based insurance is the real problem that hurts our system. By empowering patients to take control of their healthcare through innovative insurance models like Health Savings Accounts, we can eliminate risks associated with job lock.
If the United States is going to remain a market-based healthcare system, we should at least remove the thorn in our system’s paw so patients, not employers, are the ones being served.
How would we transition to such a system? I’m not entirely sure. But I’m gonna find out.