End employer-provided

May 1, 2014 -- Why is your health insurance provided by your job? Why not just buy it yourself? The usual claim is that it's a perk that employees appreciate. But the real reason is that companies can deduct it from pre-tax income and individuals cannot.

Why do we have this crazy system? It is the outcome of some terrible compromises made 60 years ago, especially the 1954 decision to make employment-based health coverage tax deductible for businesses. (See e.g. this Health Policy Brief).

Today's New York Times article, Envisioning the End of Employer-Provided Health Plans by Neil Irwin asks, "Why should quitting a job also mean you have to get a new health insurance plan? Why should your boss get to decide what options you have and negotiate the cost of them? Employers don't get to select our auto insurance or mortgage company, so why should health insurance be any different?"

Indeed. Now that the ACA has given us health insurance exchanges from which no one can be turned away, and subsidies for those who could not otherwise afford it, there remains only one reason to continue the present system: that tax deduction.

My opinion? Rescind this. Instead, make health insurance premiums deductible by individuals rather than by businesses. Make people buy their own insurance rather than tying it to their jobs. This would be popular. Paychecks could be increased by the amount of the employers' healthcare savings.

So I offer a modest proposal: let companies pay their employees what they would have spent on health insurance (fatter paychecks!) and let every American deduct from their pre-tax income whatever they spend on health care. The net change in revenue to the government will be zero. The net change in costs to companies will be zero. Employee mobility and choice will be enhanced.

Problem solved.

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