We should de-couple health care from employment

author : Robert B. Reich topic : health care

by Robert B. Reich

Wal-Mart and General Motors have been in the news recently for their efforts to cut the costs of their employee health insurance. They are singled out mainly because they're so large. As health costs soar across the economy, every company that once provided full heath coverage to its employees is actively paring it back.

So why not go all the way? Let's de-couple health care from employment.

The reason employers ever got into the business of providing their workers health insurance in the first place is it's a form of payment that's not taxed. That made it attractive to both employers and employees, before medical costs skyrocketed.

Yet even though employer-provided health care is now shrinking, it still constitutes the biggest tax break in the whole federal tax system. According to recent estimates, if health-care benefits were considered taxable income, employees would be paying $126 billion a year more in income taxes than they do now.

Think of employer-provided health care as a kind of back-door, $126 billion-a-year health insurance system. But what a bizarre system it is. First, you're not eligible for it when you and your family are likely to need it the most -- when you lose your job. And these days, that's happening more and more. Employers are slashing their payrolls. No job is safe. Why add to employees' anxieties by ending their health insurance just when they're shown the door?

Second, the system distorts the whole labor market. It prevents lots of people from changing jobs for fear they'll lose their health insurance, or won't get the benefits they do now. And it invites employers to game the system by seeking young, healthy employees who pose a low risk of ill-health while rejecting older employees who are likely to have more costly health needs. It also encourages employers to try to push their married employees onto their spouse's health insurance plan so that the spouse's employer bears the cost.

Finally, the system is upside down. The lower your pay, the less coverage you're likely to have. Workers in the lowest paying jobs have no health insurance at all. But the higher your pay, the more health coverage you get -- with top executives getting gold-plated plans guaranteeing top-notch medical attention for just about every health risk you can imagine.

This means that the $126 billion tax subsidy goes mainly to upper-income people. Lower-income workers are losing their employer coverage. And the loss is happening at exactly the same time the costs of private health insurance are going through the roof.

For all these reasons, it's time for the nation to wise up. Instead of condemning companies for looking for ways to cut their health bills, we ought to be instructing companies to stop providing health benefits altogether. Eliminate the current $126 billion tax subsidy. Use the money instead as a down payment on a universal and affordable system of health insurance -- available to everyone regardless of how much they earn, where they work, or even whether they have a job.

Printed with permission. Robert B. Reich, a professor at Brandeis University, is the author most recently of "Reason" (2004, Alfred A. Knopf). He was Secretary of Labor in the Clinton administration.