Jobs and Health Care, Disconnected

In addition to his unfortunate decision to take the single-payer option off the table in the health care reform debate, President Obama made another important threshold decision that may seem less dramatic but in many ways constrains our choices even more severely. Specifically, he decided to continue the connection between health insurance coverage and employment. This decision is fully consistent with Obama's unwillingness to make major changes in the basic forms of our social institutions, but it is yet another example of a missed opportunity to do something that would have meaningfully enhanced prospects for genuine improvement going forward. No matter whether there is a public insurance option, continuing to run health care through the employer-provided model perpetuates a major part of the problem that led us to our current crisis.

Tying insurance coverage to employment is so much a part of the American system that it is sometimes difficult even to remember how unnatural the system is. There is no obvious reason why the provision of health insurance benefits should ever have been part of the compensation package offered to employees -- and there is even less reason why the government should ever have begun to subsidize health insurance purchases by employers for their workers.

No matter how this system began, it became entrenched at a time when there was good reason to believe that one could stay with one's employer for life. (This was never actually the norm for the majority of American workers, but it was much more common in the 1950's and '60's than it is today.) If a person stayed with their employer indefinitely, the problem of "portability" would never arise. As employment became less and less permanent, however, Congress had to cobble together ways to prevent people from becoming uninsured because of a job loss, resulting in the highly imperfect COBRA legislation that permits people to buy (very expensive) continuing coverage after losing their jobs.

The problem goes beyond job loss, however, because workers who even consider changing jobs must still walk the difficult path of determining whether the health insurance that they could purchase at a new job (if any) is better or worse than their current coverage. This reduces employee mobility both because some jobs that would otherwise be an improvement will not be appealing once health care is taken into account and because the sheer difficulty and annoyance of trying to figure it all out deters many people from even considering a potentially better job.

The more salient problem with employer-based health care is seen most clearly in the battered U.S. auto industry, where the "legacy costs" of providing health insurance for retirees put GM, Ford, and Chrysler at an enormous disadvantage relative to their foreign-nameplate competitors (even those with U.S. production facilities). The infamous and misleading "$73/hour labor costs" that the U.S. producers supposedly faced -- even though the actual cost per hour for current employees under existing union contracts were highly competitive with foreign producers' labor costs -- were entirely a matter of the companies continuing to pay for a system that ties health insurance to employment.

One major reason that changing this system would require the president to take real political risks is that changing to a system where health insurance was provided to citizens rather than employees would make an implicit tax explicit. Imagine that an company employs 1,000 workers and that health costs per employee are $5,000 per year, thus adding $5 million each year to the company's labor costs. If changing to a universal, non-employment-based system of health care did not lower overall costs (which is highly unlikely), the company's overall cost situation could be unchanged if the government taxed the company an additional $5 million per year to pay for health care coverage. From the standpoint of the company, nothing would change (except that it would no longer need to spend money administering health insurance for its employees, which is hardly trivial).

From the standpoint of politics, however, unpleasant substances would hit the fan. Five million dollars in "new taxes" would surely be decried as a plot to destroy capitalism as we know it, whereas limping along with the current system is just good old private enterprise. (Note that this is especially odd because, as noted above, this system could be run entirely through private health insurers, removing the "socialized medicine" attack line.)

On the other hand, changing to a non-employment based health insurance system would significantly improve the system in general and could even have some unexpected political benefits. Beyond the job mobility issues mentioned above, a truly universal system could almost surely reduce overall health care costs for the economy (in large part by reducing the costs of emergency care that constitute the "health insurance" that former President Bush once extolled.)

Consider, however, another political benefit. A few weeks ago, engulfed by very well-deserved anger over his administration's deplorable record to date on gay rights issues, President Obama hastily announced that he was signing an executive order to extend certain benefits to gay federal employees' families. In addition to the obvious criticism of the cynical nature of the announcement, Obama's critics pointed out that the order could not extend health insurance benefits to those families because doing so was prohibited by the Defense of Marriage Act -- which, by the way, Obama has also not tried to repeal.

If health coverage were tied to citizenship rather than employment, however, it would not matter what kind of relationship a person is in. A gay federal employee's partner and children would be covered because they are Americans, not because they are in the same family as someone whose job status entitles them to provide benefits to their loved ones. In other words, if employment and health care were separated, at least one contentious issue in the culture wars would become entirely irrelevant.

Politics is messy and uncertain, but it is at least worth noting that political "non-starters" might have political benefits that go beyond their social and economic benefits. In any event, as we watch the current health care debate unfold, it is worth remembering that our efforts to improve the health care system in its current basic form are -- while undoubtedly important -- still a matter of putting lipstick on the proverbial pig.

-- Posted by Neil H. Buchanan