Get Bosses Out of Health Insurance Altogether: This Will Make Hobby Lobby a Non-Issue

The Supreme Court’s decision last week in Burwell v. Hobby Lobby has pushed all the buttons that could be expected when sex and religion intersect. Many on the right are celebrating because they value religious expression and feel rather less excited about sex, especially of the non-procreative variety. And much of the Left is outraged because religion is generally considered of far less import while sexual freedom has a high priority. But both sides are missing the point.

It is true that your boss shouldn’t be deciding whether or not your insurance plan includes contraceptives. It is also true that your boss shouldn’t have to pay for your contraceptives if it violates his or her religious beliefs. But why is this debate limited to employers with certain clearly defined religious beliefs, or for that matter to contraception?

The bigger question should be: Why is some woman arguing with her boss about what benefits are included in her insurance plan in the first place?

There’s no good answer. The entire concept that our boss should provide our insurance is an anomaly that grew out of unique historical circumstances during World War II. At the time of a significant labor shortage, President Roosevelt imposed wage (and price) controls, preventing employers from competing for available workers by raising salaries. In an effort to circumvent the regulations and attract workers, employers began to offer non-wage benefits, among them health insurance.

In 1953, the IRS compounded the problem by holding that employer-provided health insurance was not part of wage compensation for tax purposes. This means that if a worker is paid $40,000 and their employer also provides an insurance policy worth $16,000, the worker pays taxes on just the $40,000 in wages. If, however, instead of providing insurance, the employer gave the worker a $16,000 raise — allowing the worker to purchase his or her own insurance — the worker would have to pay taxes on $66,000 in income, a tax hike of as much as $2,400. This puts workers who buy their own insurance at a significant disadvantage compared to those who receive insurance through work.

As a result, Americans were driven to get health insurance through their job: In 1960, just a third of non-elderly Americans received health insurance at work, roughly. Today, 58.4 percent do. (That’s actually down from the peak of 71.4 percent in 1980).

Employer-provided insurance is problematic for several reasons. Most significantly, it hides much of the true cost of health care from consumers, encouraging over consumption. Basing insurance on employment also means that if you lose your job, you are likely to end up uninsured. And once you’ve lost insurance, it can be hard to get new coverage, especially if you have a pre-existing condition.

But, in the context of Hobby Lobby, employer-provided insurance is even more insidious: It gives your boss the power to determine what is and is not included in your insurance plan. The government’s answer, of course, is simply to mandate that certain benefits, in this case contraceptives, be included. But that merely substitutes the government’s judgment for your boss’s. Thus we infringe on your employer’s desires and your own, leaving both of you at the mercy of politicians.

Instead of fighting over religious liberty vs. contraceptive coverage, both sides should agree to start transitioning away from employer-provided insurance and into a system where each of us owns personal and portable insurance, independent of our job.

Getting there requires changing the tax treatment of health insurance so that employer-provided insurance is treated the same as other compensation for tax purposes: that is, as taxable income. At the same time, to offset the increased tax, workers should receive a standard deduction, a tax credit, or expanded Health Savings Accounts (HSAs), regardless of whether they receive insurance through their job or purchase it on their own.

As a result of this shift in tax policy, employers would gradually substitute higher wages for insurance, allowing workers to shop for the insurance policy that most closely match their needs. That insurance would be more likely to be true insurance — protecting the worker against catastrophic risk, while requiring out-of-pocket payment for routine, low-dollar costs. And it would belong to the worker, not the employer, meaning that workers would be able to take it from job to job and would not lose it if they became unemployed.

But it would also mean that workers, not their bosses, would decide what benefits they want to pay for. People could have contraceptive coverage or any other kind of coverage if we wanted it and were willing to pay for it.

In a less politically polarized world, that would be a reform that both left and right could embrace. In this one, I wouldn’t hold my breath.

— Michael Tanner is a senior fellow at the Cato Institute and the author of Leviathan on the Right: How Big-Government Conservatism Brought Down the Republican Revolution.

I agree. But I also believe that insuring one's health and/or very existence, i.e. if I don't get the treatment I need in a timely fashion then I'm dead, is a far different proposition than insuring one's property such as car or house or business.

I'm in favor of making all health insurance illegal and requiring people to pay cash for all medical procedures. Those people who don't have the funds to pay could use their credit cards, take out loans, etc.

Those who are still unable to pay would have the government come in as a loaner of last resort. The government would provide funds for allowable procedures (i.e. no cosmetic breast enhancements) and create a payment plan. The payment plan would require the complete repayment of the loan with interest, but would have a max on how much the person would have to pay each year based on income and wealth.

The only cost to the government would be the portion of those loans that went unpaid when the person died.

This would severely limit the government's footprint in the health providing economy. The government could provide tax breaks for HSA's or health 401k's in order to encourage people to save for future health expenses, but besides that I see no need for any further government engagement in the health industry except in support basic science research.

I know it is anathema to conservatives, and libertarian conservatives in particular, to completely ban an entire industry, but I think that it would be a much simpler and better solution to say "Thou shalt not provide or receive health insurance" rather than what the government is currently saying: Thous shalt purchase health insurance through a corrupt and inefficient system.

The reason why the government needs to come in as a loaner of last resort is the same reason for any safety net.

In a more libertarian society the loaners of last resort would be churches, humanitarian organizations, doctors or hospitals providing pro bono aide, etc.

However, I believe that my proposal is a good first step allowing us to wean ourselves from both government programs and the nonsensical notion of insuring peoples' health.

In the future it will be possible that a thorough examination of a person (including a genetic screening) will give an insurance company a fairly accurate estimate of how much care that person will need over his/her life. If everyone is on his/her own then insurance makes no sense. Something like an annuity or HSA would make more sense where the person would put money in an investment fund that they could draw from when they need to pay for medical expenses.

If people are allowed to form groups for insurance purposes then you are naive if you think that the government won't want to get involved in terms of what types of groups can be created, who can be admitted or denied entry into particular groups, and what type of coverage people in a particular group have to support.

If each person pays for his/her own care then there is no need to worry about these grouping issues.

If we were to cancel Medicare and Obamacare and Medicaid tomorrow and tell everyone "You're on your own" that would instigate a major revolution which would most likely end up with us having a British style system or a single payer system like Canada.

These are all less desirable outcomes IMHO.

I think he makes some very good points.

However I will point out perhaps a few problems, not insurmountable problems perhaps, but ones that will require workers and individuals to shift their ideas about and their understanding, their many misconceptions, including the author’s of how insurance really works.

For one thing, the reason that employer provided health insurance is typically more affordable for most workers and their employers is that the risk and claim history is pooled. The larger the employer and the more people participating in the plan, the more the risk, based on things like average age and claims history, the more the risk is spread out over the entire group, something that keeps premiums lower overall. Of course if you work for a rather small employer and the majority of the employees are older and or, in the previous year there were a even a few large $ claims, for say for instance, even one employee who was treated for cancer or one employee whose wife gave birth to multiples or had a baby born prematurely who needed NICU and specialized care, the employer’s premium and ergo, everyone’s premium goes up the following year but not as much as it would if you alone were assessed on your individual risk. And I’ve seen this happen. The plus side is by pooling the risk, the costs are spread out somewhat. Now some might not think that is “fair”, at least until you have private health insurance and one year you actually need to use it, and need to use it lot. Perhaps other groups other than employers could join groups and be in a pool for health insurance.

And think of this way; in terms of home owners and car insurance. If you live in an area that is prone to floods or hurricanes, brush fires, landslides or live in an area where car thefts or accident rates are high you are, even if you’ve never made any previous claims, are going to pay more because you are in a higher risk pool than those who are not.

But nothing that your insurance covers for free is actually “free”. Sure you might get a yearly check up, a mammogram, well child care visits and vaccinations with no out of pocket costs or office visits and prescriptions with a small co-pay, but you are paying for it somewhere else.

However, if you are buying health insurance in the individual market, just as it with home owners and car insurance, it is your perceived risk and your own, age, health and or prior claims history (and that of any of your covered family member’s pre-existing conditions) alone, that factors into the premium you pay. That might be great if you are young and healthy and unmarried but will really suck if you are married, with a lot of young children or are older, have pre-x conditions like diabetes or HBP or have a family history of heart disease or stroke or cancer even if you yourself are healthy. But then again, perhaps you should, just as with your car and property insurance, have to pay more and not be forced to pay for coverage you don't want or will ever need. But how many of us would scream to high heaven about having to pay more…?

That is true; however this could, this might be offset by making the cost of private health insurance premiums fully tax deductible to the individual. However that requires one to spend their after tax dollars on the purchase of health insurance and then wait for a tax refund from the government, after the fact. And FWIW, I am all for not “feeding the beast” in the first place by taking advantage of “pre-tax” payroll deductions for my health insurance and also for my 401k and FSA and HSA deductions, not paying those taxes up front and then waiting for (and hoping for) a refund.

But then again how much of the premium should be “deductible” from taxes for my private health insurance. If I’m 100 pounds overweight, I have HBP and diabetes, I am a smoker, I have a family history of early death from stroke or breast cancer, lung or prostate cancer, etc. and my private health insurance premiums are through the roof based on the actuarial risks, should I get the very same tax deduction for 100% of my private insurance premiums as someone who does not have the same risks and is much healthier and pays a much lower premium?

He is also ignoring the fact that employers under the current tax system can deduct from their business tax returns, the cost of not only providing health benefits and other benefits like basic life insurance and STD and LTD coverage but also the cost of paying most salaries as a cost of doing business against their bottom line and their net taxable business profits.

So in his scenario, while the business could no longer have to offer any company provided pre-tax health insurance and in theory, just pay their employees a higher salary, at the end of the day the employer’s net taxable income will remain unchanged, however the employee’s taxable income will increase at least until they file their tax return and wait for a refund of “overpaid taxes”. I would also add that those theoretically higher wages paid in lieu of providing health care coverage are going to be subject to payroll taxes.

Basing insurance on employment also means that if you lose your job, you are likely to end up uninsured. And once you’ve lost insurance, it can be hard to get new coverage, especially if you have a pre-existing condition.

Here he is also wrong here, at least to some degree. Yes, if you lose your job and you then exhaust your 18 moths of COBRA benefits and you have an gap of insurance (are not covered by either an employer’s plan or by COBRA or a private insurance plan, a gap of insurance continuation of more than 60 days) and have to find insurance in the private market, yes, the insurer can make you wait a certain waiting period for coverage and or put in exclusions in the policy from some pre-existing conditions.

However under HIPPA, once your land a new job, your new employer and their insurance company cannot deny or limit your coverage based on any pre-existing conditions where as underwriters in the private insurance market can.

That is not to say I think that an entire overhaul of our present tax and health insurance system isn’t in order.

But rash ideas absent a hard analysis of the real consequences of such changes, is IMO an equally bad idea.

He is also IMO ignoring two very important things that very much drives up the cost of health care for all of us.

One being the cost that many private and public hospital ER’s units have to absorb the cost to treat the uninsured (including the care of illegal “immigrants” and more and more of them by the day) and for using the ER for basic and non-emergency and routine care (and even some people with insurance do this by not getting routine and preventative care), and the other being the cost of frivolous “malpractice” suits and the lack of any meaningful tort reform in this area.

FWIW, the last time I went to see my OBY/GYN for my yearly exam, he had this posted in his waiting room; a copy of his malpractice insurance premium bill with a note, that said something like; “Although I have always strived to give each and every of my patients and that of all their babies, believing that every human life is precious, the very best of my care and skills over my 40 years in practice and that I’ve never been successfully sued for malpractice – this is what it costs me every quarter in just malpractice insurance alone. When you ask why my rates and fees for routine office visits have gone up, why my fees for delivering your babies have gone up and why your insurances rates have also gone up, please take a look at this.” And it was staggering – he was paying nearly 250k per quarter, nearly a million dollars a year just in malpractice insurance alone.

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