It would be a catastrophic political and policy mistake to take away the tax benefits for employer-sponsored insurance as part of this year’s tax reform.
It would be a catastrophic political and policy mistake to take away the tax benefits for employer-sponsored insurance as part of this year’s tax reform.
T he long-term goal of the Left and the Democratic Party is to move all Americans to a health-care system controlled, either directly or indirectly, by the federal government. This guiding principle led to the creation and later expansion of every government health-care law in the past 75 years — Medicare for the elderly, Medicaid for the low income, veterans health, Indian health, and of course Obamacare. The one area of health insurance that remains relatively free of government health control is employer-sponsored insurance (ESI), and for that reason ESI needs to be preserved in any tax reform law this year.
ESI is the most widespread form of health insurance available today. It covers 178 million people, including 63 percent of working-age adults. Compare that to 80 million Americans enrolled in Medicaid and CHIP, 68 million Americans enrolled in Medicare, and 21 million enrolled in Obamacare. Unlike those government programs, private sector health care offered at work can be designed in a more flexible way — the result is more innovative plan designs than found in the other three, more robust networks so you can see the doctors you want to go to, and easier access to health savings accounts (HSAs).
Health insurance offered at work is also popular. Sixty-three percent of people with ESI are satisfied with it, and 68 percent of workers with health-insurance coverage prefer to get it there instead of from the federal government. When President Barack Obama said, “If you like your plan, you can keep your plan,” people believed him. Taking away well-liked plans is what fueled much of the anger against Democrats on health care in 2010. De facto eliminating employer health coverage would have a similar effect on Republicans in the latest round of tax reform.
Policymakers should ask what rational employers would do if they could no longer deduct the premiums they pay for health insurance, and their employees could no longer participate in “cafeteria plans” that allow pre-tax health-insurance paycheck payments — as some recent proposals have recommended. Economists will tell you that ending a fringe benefit could result in more generous fringe benefits elsewhere, or more likely in higher wages. That sounds great, except the employees in question still need to obtain health insurance for themselves and their families. There is only one place most will be able to go at that point: Obamacare.
Having 178 million people forcibly migrated from employer-sponsored coverage they like to Obamacare coverage (or worse, Medicaid coverage) they won’t like is a recipe for a Republican wipeout in the 2026 midterms and 2028 presidential elections. Obamacare plans are expensive and poorly designed. They have much skinnier networks than employer-sponsored plans (meaning the network might not include your doctor, your local pharmacy, or your nearest urgent care). Thanks to constrictive plan designs (actuarial value limits, medical loss ratio caps, limited community rating, mandatory health benefits), Obamacare plans are to health insurance what East German architecture was to buildings — ugly, barely functional, and all looking the same shade of gray. Medicaid is even worse.
If Congress is looking for some pay-fors in the budget resolution, and wants to make the health-care system marginally freer, it should consider site-neutral payment reforms in Medicare. Today, Medicare patients are charged two to four times more when they receive care in a hospital outpatient facility than at a physician’s office. And increasingly, hospitals are buying up physician’s offices and turning them into hospital outpatient facilities. That means patients and payers are paying more for the same care, provided by the same provider, at the same location. The only thing that has changed is the sign on the door.
If site neutrality in Medicare was passed for all major types of services — drug administration, imaging, and diagnostics — the ten-year savings for taxpayers would be $138 billion. The savings in the second decade and beyond would grow astronomically. Those savings could be plowed into much-needed Medicare reforms (like reversing the damage done by congressional Democrats to seniors in 2022’s so-called Inflation Reduction Act), or to extend the solvency of the program. All this can be done without cutting a single dollar of Medicare value to seniors.
It would be a catastrophic political and policy mistake to take away the tax benefits for employer-sponsored insurance as part of this year’s tax reform. Besides making a whole lot of middle-class voters very angry, it would be the biggest booster possible for enrollment in government-controlled Obamacare and Medicaid programs. Conservatives should not achieve tax reform by making socialized medicine a reality.