The Agenda

John Cochrane and Allison Schrager on Portable Benefits

John Cochrane uses the HHS decision on birth control to make a broader point:

If the government wants to subsidize birth control, OK, pass an explicit tax, and sensibly subsidize all birth control. And face the voters on it. The tax rate and spending debates that occupy the media are a small part of the effective taxes and spending that the government achieves by these regulatory mandates.

What Cochrane objects to is the use of insurance mandates to achieve the same goal:

Every increase in coverage means an increase in premiums. If your employer is paying for your health insurance, he could be paying you more in salary instead. Or, he could be lowering prices and selling his product to you and all consumers more cheaply. Someone is paying. Not even HHS tries to claim that these “recommended preventive services” will lower overall costs.

Moreover, insurance mandates can have perverse consequences for cost-saving innovation:

The minute pills are “free,” under insurance, the incentive for drug companies to come up with cheaper versions vanishes. So does their incentive to develop safer, more convenient, male-centered or nonprescription birth control. And by making pills free but not condoms, the government may inadvertently be contributing to an increase in sexually transmitted diseases.

Ultimately, we’d be better off if the tax treatment for employer-provided insurance and for insurance purchased by individuals and families independently were the same:

You don’t get the tax break if your employer gives you the $100 and you buy a policy—a policy that will stay with you if you get sick, leave employment or get divorced. The pre-existing conditions crisis is largely a creature of tax law. You don’t lose your car insurance when you change jobs.

Allison Schrager, writing at Free Exchange, makes a related argument concerning the benefits of portable insurance:

Economist Brigitte Madrian has found that if it were not for employer health insurance, job turnover would be 25% higher. It also may discourage entrepreneurship. Alison Wellington found people are more likely to be self-employed when they are not dependent on their job for health insurance. The tax deduction employers get to provide health care makes it much more expensive for individuals to buy their own health insurance (it remains to be seen what the impact of health-care reform will be for individual buyers).

It is often too expensive for a middle-earning breadwinner to work as a contractor, even if that would be a sensible career move. If America wants its workers to better adapt to the new economy, it should reform its welfare state to better accommodate flexibility and the accumulation of individual skills.

The politics of encouraging portable benefits are, alas, problematic, as the majority of the under-65 electorate that is covered by employer-sponsored insurance is extremely reluctant to see current arrangements change, which is one of the reasons why President Obama and his allies sought such an usual structure for their coverage expansions. One wonders if the political landscape might change as ESI continues to deteriorate under the pressure of new insurance mandates, new regulations designed to protect incumbent providers, and continued cost growth.


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