Last Thursday, the.Senate rejected the Blunt Amendment by a narrow margin of 51 to 48 votes. The amendment, added by Sen. Roy Blunt (R-Mo.) to an unrelated bill, would have exempted all employers and health insurance companies from having to offer coverage for medical products and treatments to which they object on moral or religious grounds. As the contraception controversy rages on, however, it will hopefully expose a problem that has plagued American health care for decades: the predominant provision of health insurance by employers. The solution both to this problem and to the contraception controversy is not difficult to see. The federal government should phase out the current system gradually and empower Americans to purchase their own private health insurance directly in competitive markets, with subsidies or vouchers for those who cannot afford it on their own.
The system of employer-provided health insurance dates back to World War II. The Roosevelt administration’s wage and price controls made it difficult for employers to attract the best and brightest talent in the labor market with generous compensation. Bosses reacted by offering health insurance coverage as a fringe benefit, since it suffered from no government-imposed ceiling. In 1943, the Internal Revenue Service decided to perpetuate this trend by not classifying it as taxable income, and Congress wrote this policy into law in 1954. After President Harry S. Truman failed to implement a national government health insurance program in the late 1940s, employer-provided coverage seemed like the next best option.
In the decades since then, however, problems have arisen. The most obvious one is that job-based insurance soon disappears for those who lose their jobs. Another is that the total cost of the coverage is often concealed from the policyholders, who thus lose a great deal of incentive to restrain their own consumption of health care services they may not need. This inflates the aggregate demand for health care, driving costs up rather than down. What’s more, the extensive regulation of employer-provided health insurance requires that certain treatments and medicines be covered. This further inflates costs, because every policy in a given state must then cover certain treatments that certain policyholders might not have chosen if they had been free to choose.
The employment-based status quo is also a recipe for unnecessary controversies like the one over contraception coverage. When employers are primarily responsible for providing health insurance, and the government tells them what they must insure, the coverage is guaranteed to be needlessly politicized. Instead of consumer choice determining what insurance is provided to whom, politicians and bureaucrats end up deciding it. As I argued in a recent PolicyMic article, the Obama administration’s contraception mandate did not combat a threat to reproductive freedom. Female employees of religious institutions remained free to obtain birth control elsewhere on their own, or with the assistance of private organizations like Planned Parenthood. However, the whole flap would have been avoided if employers were not responsible for insuring their workers’ health care choices in the first place.
A better alternative would be to end the practice of excluding health insurance from taxable income, as President George W, Bush proposed to do in 2007. This market-distorting tax exemption should be replaced with a tax break, subsidy or voucher for individuals and families to purchase their own insurance policies on the open market. This would help restrain the growth in health care costs, obviate avoidable political confrontations and give politicians less room to make fodder out of Americans’ medical decisions. These advantages make it a much better approach to reforming America’s ailing health care system.
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