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It’s Time to Uncouple Health Insurance from Employment
It’s a little-known fact in the great outside world — although probably widely known among Ricochet readers — that employer-paid health insurance is an artifact of the Roosevelt administration.
When employers were prevented by law from raising their employees’ salaries, they compensated by offering benefits, such as health insurance, to make it more desirable to stay on as employees.
Fast forward seven decades, during which the common practice went from lifetime employment with one company to a more free-flowing job-hopping style, when both employers and employees were more likely to look at other opportunities in the market. And now, taking that to the next logical step, the “gig economy” — independent contractors not beholden or dependent on any one company — is growing around the world.
Most of the evidence of the growth of free-lancing is anecdotal because it’s hard to get firm measurements. In 2016, CNBC estimated that the number of independent contractors had grown by 27 percent more than payroll employees over the last two decades. The McKinsey Global Institute interviewed 8,000 people in the United States and Europe and reported that “up to 162 million people in Europe and the United States — or 20 to 30 percent of the working-age population — engage in some form of independent work.” That includes people who like to work solo, those who do a side hustle for extra money, those who would prefer a regular paycheck, and those who are doing independent work to scrape by. But if you’ve ever spent a morning in Starbucks, you know that a lot of people are keeping office hours there.
So when people talk about generals fighting the last war, they’re also talking about Congress making laws about health insurance. They’re making rules to maintain a status quo that’s going the way of the buggy whip.
On top of that comes a disturbing report from PJ Media this morning: This Secret Obamacare ‘Replacement’ Lets Your Boss Invade Your Privacy AND Gut Your Paycheck. H.R. 1313, Preserving Employee Wellness Programs Act, allows employers to coerce employees into “wellness” programs (that don’t even have any record of success) and dock their paychecks if they don’t comply. It also gives employers intrusive authority to look into employees’ health records, including genetic testing. (If you wonder why the gig economy is growing, this kind of behavior is part of the reason.)
But let’s just stipulate that not all employers are fascists. Why are the bad ones given such control over employees’ lives? By Republicans?
It’s time to put a stop to it.
- Count employer-paid health insurance as a paid benefit for tax purposes
- If you allow tax deductions for health insurance, allow them for all health insurance, whether paid by the employer or paid by the individual.
- Allow all employees to choose from the entire universe of health insurance — across state lines and outside their employer’s offering — if they want to.
- Make current laws protecting employee genetic-testing and health-screening privacy apply to insurance companies and employers.
Not everybody wants to participate in the gig economy. Many, maybe most, people want the security and teamwork of working for a company, at least for now, particularly while the health-insurance deck is stacked against self-employed workers. Let people make up their own minds.
But freelancers provide valuable services — they write books, drive cars, provide skills, craftsmanship and expertise, and too many other services to name. They take the risk to do something unique and specific. Small businesses find freelancers to be a boon in not having to pay for more employee hours than they need. Freelancers get to set their hours and priorities.
Small business is the biggest source of growth in our economy — the Small Business Administration says, “Since 1995, small businesses have generated 64 percent of new jobs, and paid 44 percent of the total United States private payroll” (Houston Chronicle) — and microbusinesses, one-person shops, and solopreneurs provide valuable support to those small businesses.
Last I checked, Roosevelt was out of office, and the Internet has upended a lot of our expectations about business. Get the US government out of the way and stop large corporations from treating their employees like private property, so that we can have a robust economy and the kind of freedom we were promised when this nation was founded.
UPDATE: As @Chuck Enfield pointed out, H.R. 1313 gives employers the right demand genetic testing and health screenings from employees as part of “workplace wellness programs.” This ought, it seems to me, to be against the privacy policies of HIPAA, but apparently it’s not.
It is against a 2008 genetic law that “prohibits a group health plan (the kind most employers have) from asking, let alone requiring, someone to undergo a genetic test. It also prohibits requiring such tests for ‘underwriting purposes,’ which include basing health insurance deductibles, rebates, rewards, or other financial incentives on completing a health risk assessment or health screenings” (Tyler O’Neil, on PJ Media).
I’ve revised the article for accuracy.
Published in Healthcare
Exactly. That is why repeal and replace isn’t the answer. Just repeal it.
Yes!
I agree completely, but I don’t hear anyone in Congress even talking about this idea. It ought to be one of the first things they do.
Count me in too as being in complete agreement.
Your prescriptions make sense except the 4th one. HIPAA already applies to employers and insurance companies. You probably have something in mind that needs to be addressed, but you’ll need to find another way to articulate it.
Thanks. I’ll revise it.
Yes, absolutely. I have thought healthcare should be separated from the job. Not only is this an issue for the “gig” people, but those who work for a company also have limited choice in healthcare too. You get whatever the company gives you. Sure you can opt out, but that causes a big financial penalty. I’m 100% pro-healthcare privacy and I know companies do abuse employees in cases. It’s crazy to have open access healthcare as a condition of employment. That’s where the law needs to step in to protect civil liberties.
Me too.
It can’t be a ‘free’ market solution as long as the government incentives are controlling the market. Give individuals the tax advantage employers now get for supplying insurance, and open up the insurance market across state lines – the rest will handle itself.
If there must be tax incentives, they should belong to the individual, not their employer.
I like the way you think.
Preaching to the choir here.
@janbear Agree, agree! I have never understood why healthcare has continued to be tied to employment. I have seen mediocre employees who do just enough not to get fired, stay at a job just to keep their healthcare when a better, more motivated person could have been hired. I personally have stayed working f/t when I should have been p/t just to keep health care benefits for my family. I’ve had less-than-optimal coverage because I have no longer have choices from my employer.
Benefits are supposed to be a way for employers to entice people to work there, not an expectation, and why can’t I also get a tax benefit if I purchase it on my own?
I cannot even begin to explain how this issue has had a damaging impact on both my family and my professional life.
Jan,
You’ve hit the bulls-eye. There is nothing that gives Big Business a greater unfair advantage over Small Business than this aspect of American Health Care. Uncoupling would level the playing field and we would see an incredibly diverse vibrant economy burst forth with a new wave of creativity.
How do you untie the Gordian Knot.
Regards,
Jim
Count me among the many here who agree that the employer-sponsored insurance tax exemption is perhaps the most damaging and pernicious feature of our health care system.
However, there’s a sticky point which makes it incredibly hard to scale back: employment-based groups are how we skirt the thorny problem of pre-existing conditions. Companies essentially function as risk pools, and healthy employees don’t care that they’re overpaying for their coverage since they don’t even see the premium bills in the first place.
Remove job-based pooling and the pre-existing condition/expensive-to-insure problem rears its ugly head fast, and that will be politically untenable. Sure, quite a bit of the problem will disappear on its own when healthcare costs drop dramatically. But fear of being unable to afford insurance on the individual market provided the political impetus for Obamacare, and back then only about 10% of Americans were actually on the individual market.
Now imagine how big that collective fear would be if a good 60% of Americans were on the individual market. So unfortunately, we won’t see the employer tax exclusion go away until a new (top-down) system is in place to deal with the pre-existing condition problem.
Better yet, decouple healthcare services from insurance for all but the most expensive procedures. The analogy is to auto care. I don’t want to buy a third-party autocare plan because then my autocare premiums spiral up as my fellow plan holders decide to get as much gas and as many tires as they can each year to get their money’s worth from the autocare buffet. I pay for the gas/diesel I use, replace my tires when necessary/desired, and pay $1500/year to insure against collision and bodily injury and all for 2 vehicles.
For health, one needs to pay for what one wants in the daily grind – the chiropractic & massage for low back & neck pain; Z-Pak to deal with the sinus infection following the annual winter cold the rugrats bring home, the urgent care trip for the deep cut that needs a stitch or two, etc. – and have the freedom to contract for insurance for rare and expensive problems.
Talking about “free market incentives” in the insurance market as a solution to deflate this sector’s excessive cost/price problem is woefully myopic. The third party is the problem.
Is this a real problem or a made-up problem?
In either case, as soon as we do away with the prepaid medical care plan we call “health insurance” the so-called problem goes away.
The other issue is that ALL insurance is governed by the states. Might the States not put up a horrible fuss about having their control of insurance taken away? If you remove medical insurance from the province of the states, what about auto and homeowners’ insurance?
Don’t we like Federalism anymore?
I agree with points:
However, on the genetic testing, I don’t see why the government should prohibit insurers from using genetics to create low risk pools. It should be perfectly acceptable to have a company offer an insurance service that mandates each person to do genetic testing who wants to use the insurance. By better analyzing the risk of each person, an insurance company should be able to offer less expensive insurance to healthy people.
Similarly, companies should indeed be able to pay people more if they stay/become healthier. After all, healthy employees are more likely to be more productive and less likely to suddenly die, which I assume is very expensive for companies.
As for companies requiring genetic testing and being able to look at the results themselves, I agree that this would be reasonable to disallow. Of course, you combine that with removing health insurance choosing from businesses altogether and that becomes a simpler issue.
I answer this by saying that insurance is one of the best fits for the interstates commerce power of the federal government. Health care regulation is appropriate at the state level, but health insurance is an interstate financial service. The correct entity to regulate an interstate financial service is indeed the federal government.
The Obama administration tried to take life insurance regulation away from the states at the same time as it was nationalizing the banking and financial industries. But they resisted. I don’t know the details and am not up-to-date, but I root for federalism.
Healthcare regulation seems to me to be inextricably entwined with health insurance regulation. States are free to harmonize their regulations any time they see fit. I would imagine that there would be more than a few states excited to garner the benefits from this harmonization for their citizens. Isn’t trying out this idea in the laboratory of Federalism one of the benefits of the principle?
Republicans control 35 (?) state legislatures. If this is idea is indeed all that and a bag of chips then it should be straightforward to get some states to harmonize and show the proof of concept. No?
I’m all in favor of federalism. But the thing about crossing state borders with health insurance means that you can make risk pools based on something other than employer. Jobs, hobbies, interest groups, etc.
And how does AARP get to sell Medicare add-ons? (Honest question. Do they offer different products in different states?)
Yes, it is an interesting aspect of health insurance. I would argue that we need to change the way we think of health insurance and its relation to health care. For example, there are HMOs that tie insurance to care. I think that this type of plan may be regulated by the state and should be prohibited from being sold across state lines. On the other hand, a PPO is not tied directly to care, but does have some ties to specific “approved” entities.
So, if the states claim that insurance is inherently part of health care, then they have the right to regulate. However, if the federal government claims that insurance fits under interstate commerce, then the fed gets it.
Why should insurance fall under interstate commerce? I believe that it should since it is natural for insurance to be sold across state lines. Insurance even is better when the base of liability is more spread out, so restricting to within states is not good. Of course, companies can still just have different divisions in each state, but that causes its own problems.
Why should we separate insurance from care? I believe we should since how you pay for care is completely separate from the care itself. One can always pay cash for health care if one can afford it. Thus, insurance is not directly tied to care. Only in the HMO style where the company insuring someone also directly provides the care.
For years I’ve tried to explain to others that when your employer pays your health insurance premium it is the equivalent of having your employer pay your mortgage or buy your groceries, or take you to a restaurant and a movie.
Your employer doesn’t pay for your homeowners, auto, or life insurance why do we simply expect that your employer should make your health insurance payment.
We should form other groups, (ie: Church, clubs, professional associations) and have the employer pay the equivalent amount (of what they are currently paying for heath insurance on your behalf) in your regular pay and we can still deduct the premiums we pay on our 1040 (just like we deduct a deductible IRA to arrive at Adjusted Gross Income), and be in the same position we’re in now from a taxable income perspective.
It started in WWII to get around wage controls and the economic illiterate have simply taken it for granted that it’s some sort of benevolent gift bestowed upon you by your employer never recognizing it’s simply compensation no different than the money you get on your regular payroll check.
Absolutely and retirement as well. Some things should be obvious so naturally liberals can’t understand why this makes so much sense. The Republicans are thrashing about because they are trying to fix a gargantuan corrupt mess from within. It can’t be done. The Administration must dictate a simple solution. The other problem is that they are trying to find a way to insure for preexisting conditions. They can’t be insured they can be paid for. Pay for them outside other catastrophic insurance, which is insurance, while health care isn’t. This can never be fixed by using language and concepts pushed for years by the left.
There is some critical problems you are missing. One your employer does not have to pay their 7.7% FICA matching on the money they spend on healthcare you due. So even with health saving accounts were you don’t pay FICA or Federal income taxes your employees still has a tax advantage. Also what is with the communist lite health saving accounts use it or loss it? Seriously the goverment gets to keep my money if I don’t spend it all because they are so afraid of people putting to much money in the accounts and wanting to carryover the money to next year, piss off.
That is why I really don’t get people complaining about people not paying Income tax that they are somehow getting a free lunch. Nope everyone is paying at lest a 15% tax rate because all money if fungible. That is there is no lockbox FICA is just general funds taxes.
With the exception of workers comp which is highly dependent on a companies policies and how they operate we need to get ride of all fringe benefits and move them to salary. 100% of FICA needs to be paid by the employee. An employees can offer health insurance but they should have to give you the equivalent cost if you want to go buy it yourselves.
See an employers gets the same tax break if they spend money on benefits or they give the money to you. However if you try buying the same services you get taxed FICA, and Income Tax so its cheaper for you to get these things thru your employer in lue of getting cash. Therefore tax laws have a preserve incentive for employees to want to get some services thru employers because they get more bang for their buck even if they don’t know it.
So my proposals it two fold some of which Obamacare did on insurance which is the only prevision I know I would keep. An employer should have to on every paycheck disclose how much money have spent on you that you never saw and make its language very incendiary like “Your Salary that you never see but we spend for you”. Two get rid of the tax incentives. Instead of making workers pay-taxes make employers pay taxes on employee benefits. That is switch it so workers have the tax advantage over companies because these decisions are best left up to the individuals. Also included is making employees pay 100% of FICA and making Savings accounts easier to use. No more use it or loss it. Now its you pay all Income Tax and FICA plus a 10% penalty like 401ks if you withdraw the money for none healthcare cost. No more can’t touch it for any other reason.
NO…that is an FSA (flexible spending accounts — biggest misnomer in history). those suck. in an HSA (Health Savings Account) the money rolls over year after year and to make a withdrawal, you just say “give me $50.” You do not have to have EOBs and receipts reviewed by the administrator of the plan. In FSAs you have to justify your expenses before they will give you money. I got ripped off for $300 because they couldn’t understand that I’d paid $75/week for a summer daycare camp deposit and then had $150/week when the daughter actually went to the camp. They (including supervisors) just kept saying, “sir, you’ve already been reimbursed for that week.” With an HSA the only time you’d ever have to justify your spending would be if your income tax return were audited. as I recall FSAs were product of Dem Congress – total bureaucratic control; HSAs were product of Newt’s R Congress – your money, your choices, give the doctors/hospitals hell on prices because it’s your money.
In my experience, decoupling health insurance from employment is one of the few things that Democrats and Republicans mostly agree on. The leftyest leftists I know will happily agree with me on this topic.