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More Poison, Not an Antidote: Mandating Employer Health Insurance

Opinion Editorial
June 30, 2009

By Brian Schwartz

President Obama is either misinformed or lying about health care. He said the “free market has not worked perfectly.” There’s a market, but it’s not free. It’s infested with harmful political meddling. One example is government’s favoring employer-provided insurance, a poison to affordable medical care and insurance.

But unions and Congressional Democrats want to intensify the dose with a “pay or play” employer mandate. This would penalize employers for not buying medical insurance for their employees. This is not “reform;” it just entrenches flawed policies. It would violate rights, lower wages, and threaten jobs of minority single moms

Government’s favoring employer-sponsored insurance is the problem, not the solution. When your employer buys your insurance, it’s a non-taxable corporate expense. Employers save by “paying” you with insurance instead of higher wages.

This tax policy coddles insurance companies. They need only please your employer, not you. Most employers offer just one or two plans. Want more choices? If you prefer one of the many plans available at eHealthInsurance.com, you face a stiff tax penalty. Or try changing jobs. Insurers know you’re essentially stuck with your employer’s plan, so why should they please you?

Tax-discounted insurance has turned insurance into prepaid health care. If car insurance worked this way, it would cover predictable expenses like oil changes and replacement tires. You wouldn’t price compare or consider whether services were really necessary. Rather, you’d ask if “it’s covered.” Costs would soar. This has happened with medical care.

The tax bias for employer-sponsored insurance punishes those who incur medical conditions and then lose their job. A pre-existing condition can make them uninsurable.

This can create “job lock,” which stifles entrepreneurship. As Business Week describes: “fear of losing coverage keeps people at jobs .. . so many workers will keep hanging on to jobs they hate. … One single mom in New York, for example, is sticking with her graphic design job solely to retain the health coverage for herself and her son. … Her wish? To start a business doing bath and body products. ‘I feel stuck,’ she says.”

An employer mandate would further stifle entrepreneurs and destroy jobs. It would require a growing business to provide insurance when hiring its 10th or 20th employee. Since the additional employee would impose a huge cost, it might not hire anyone.

In response to an employer mandate, employers would shift this cost to employees by lowering wages. It’s worse for those with near-minimum wage jobs. These workers are “at substantial risk of unemployment if their employers were required to offer insurance,” write economists Katherine Baicker and Helen Levy. Employees “most harmed by mandated employer-paid healthcare are…more likely to be a minority, a single parent, and unmarried.” The employer mandate surely wouldn’t threaten union jobs, as unions support it.

An employer mandate would also violate our rights. Employers create jobs, and hence have the right to hire on terms mutually acceptable to both employer and employee. Politicians should not interfere with this private matter between consenting adults.

Tax-favored employer-sponsored insurance has created enough problems. Mandating it makes them worse. Politicians should not dictate whether you buy insurance directly from an insurer, through a membership group (like AAA), or through your employer. Legislators should both eliminate the tax exemption and decrease tax rates commensurately.

Second-best would be to make all medical insurance and expenses tax-exempt. This would remove tax bias toward excessive insurance coverage. Health Savings Accounts are a step in this direction, but they should be eligible to everyone, regardless of their insurance plan. Such “Large HSAs” would allow consumers to buy medical care and insurance with tax-free earnings.

Removing the tax code’s bias for employer-sponsored insurance can alleviate problems with job lock and pre-existing conditions. While some employers would offer insurance to attract employees, more people would buy policies directly from insurers when still healthy. Customers could choose — as many already do — a guaranteed-renewable policy, so the insurer cannot terminate coverage or raise premiums because you get sick.

The rigorous competition of a free insurance market could yield innovative products that protect against pre-existing conditions. For example, “health-status insurance” would pay for increases in your insurance premiums should your health status change, and you’d retain the freedom to buy a policy from insurers competing for your business. To learn more, look up “‘Health Status Insurance’ Provides Real Alternative to Universal Care.”

Mandating employer-sponsored insurance is wrong. It’s not a cure, but more of the disease: government’s bias for employer-provided insurance. This just benefits unions and politicians at our expense.

This was published in the Boulder Daily Camera on June 28 2009.