February 7 2014

Disconnect Insurance From Employment

Real Clear Policy

Hadley Heath

The Congressional Budget Office just reported that Obamacare will reduce the hours Americans work by the equivalent of 2.5 million jobs by 2024. The health law's advocates say that's good news; these are people leaving their jobs voluntarily -- so they can care for their young children or retire earlier, for example -- because they no longer have to depend on employer-sponsored health-insurance benefits.

Undoubtedly, there are some happy tales of people who are better off because of the health-care law, freed from the need to work because of taxpayer-subsidized benefits. Yet that's only one chapter in the Obamacare employment saga, and there are also many stories of people exiting the workforce or seeing their hours reduced involuntarily because of Obamacare's costly mandates.

But this CBO report should stimulate a discussion of health insurance and job lock. Americans should be aware of a deep, serious flaw in our health-care system that predates Obamacare: In America, employment and health insurance are linked. Obamacare doesn't fully address the problem, and there are alternative proposals that could unlink employment and insurance in a better, fairer way.

How did this link develop? After all, our employers don't buy our auto insurance, even if our ability to commute to work safely contributes to our productivity. Employers offer health benefits, and employees demand them, because our federal tax code exempts employer-sponsored health plans from taxation. Employees save money by buying health insurance through an employer, rather than in the individual market, where they would have to use post-tax dollars.

This creates great inefficiencies, making the marketplace less competitive and encouraging employees to obtain more generous health-insurance packages than they need. It also raises insurance prices for the unemployed and self-employed. In the past, this bias also contributed to the problem of preexisting conditions; some Americans stayed in suboptimal jobs solely because they wanted or needed to keep their insurance.

On the one hand, Obamacare doubles down on the link between employment and health insurance by mandating that large employers offer health benefits or pay a penalty. Furthermore, the law mandates that all insurance plans cover "essential health benefits," and it caps how much employees can contribute to their coverage. These provisions make it more expensive for companies to hire and retain workers. That's why a headline about Obamacare's negative impact on jobs shouldn't come as a surprise.

On the other hand, Obamacare attempts to give people an alternative to employer-provided health care through highly regulated exchanges. The subsidies will be enough to encourage some to leave their jobs and buy health insurance separately, but others in this individual market are finding they have unsatisfactory options and face higher costs.

There is a better, fairer way to dissolve the link between employment and health insurance: Remove the tax exclusion that employer-sponsored plans enjoy. This could be a painful transition, but policymakers could replace the employer tax exclusion with a universal tax deduction or credit for any plan an individual or family might choose.

Not only would this encourage insurers to offer a more diverse selection of plans, but it would also allow people to keep their insurance while changing jobs. This portability and continuity would be especially important to those with preexisting conditions.

Such health-reform plans exist -- although you wouldn't know it from mainstream-media coverage. During the past seven years, Republicans have introduced Ten Steps to Transform Health Care in America Act, the Every American Insured Health Act, the Healthy Americans Act, the Patients' Choice Act and the Empowering Patients First Act, the American Health Care Reform Act, and the Patient CARE Act, all of which include provisions that unlink employment and insurance to varying extents (some with flatter credits, others with means-testing).

With all of these alternatives on the table, we should reconsider Obamacare's misguided approach. Millions of jobs -- and the robustness and vibrancy of our health-care system -- hang in the balance. Our health-care system needs reform, but surely we can do better than Obamacare.

Hadley Heath is the director of health policy at the Independent Women's Forum.

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