The REAL GOP War on Obamacare
The Supreme Court ruling in favor of Obamacare barely had a chance to register during the 24 hour news cycle between states rapidly taking down Confederate flags and the legalization of same sex marriage. Naturally, Democrats claim victory and consider the issue closed, while Republicans vowed to fight on to repeal Obamacare with future administrations. The long game being played is not over the Obama legacy on his signature healthcare bill. The long game between the GOP and Obamacare is a war over the future and demise of employer based health care.
Over 150 million Americans receive health insurance through their employer as a fringe benefit, nearly half (48%) of the population. Less than 20 million Americans purchase insurance individually, (6%) of the population. The origins of this system are well documented, the short version summarizes the employer sponsored health insurance as a legacy carried over from benefits provided to employees during the World War II wage freezes, i.e.: health insurance was a means to increase total compensation for workers in lieu of raising their salary. Total compensation equals wages plus benefits.
The IRS tax code allows employers to deduct health insurance as an expense. An employer which pays ~$5,000 to cover an individual health insurance policy today pays an effective ~$3,500 total after deductions.
On the other hand, an individual must purchase individual health plans using after tax dollars. An identical ~$5,000 plan to an individual on an exchange is paid from after tax money. An individual will need to earn ~$8,000 pre-tax to afford the same plan.
Employers enjoy a significant financial comparative advantage purchasing group insurance: $3,500 for employers verse. $8,000 for individuals for similar policies. Since Citizens United, employers are considered people, apparently, they also have better tax deductions than real people!
The current system is designed poorly. Linking healthcare benefits to employment reduces the mobility of the labor force and reduces the ability of entrepreneurs to start companies. Additionally, the employer sponsored system introduces religious doctrine into plan design. Within the past year, the Supreme Court has ruled on contraception issues in key cases involving Hobby Lobby and the University of Notre Dame.
Employers are taking different approaches to Obamacare. A number of healthcare IT startups. including Benefitter and Wellthie are helping employers navigate the decision process of whether to keep insurance or dump employees onto the public market. Other employers, particularly with low wage, high turnover workforces are utilizing private exchanges run by companies such as Liazon and Bloom Health as a means to continue providing employer sponsored health insurance, albeit with an individual marketplace look and feel.
Why do we persist in this employer sponsored health insurance system?
In a perfect, market driven, competitive world; health care is purchased from private insurers by individuals with full information and price transparency. There is no government intervention or subsidies. However, we don’t live in a perfectly competitive world. Government intervention exists where the markets have failed, such as Medicare, when elderly people could not purchase health insurance because, well, they are higher risk for getting sick.
Given the lack of comparative advantage for individuals, it should come as no surprise that the largest demographic enrolling onthe insurance exchanges are by Medicaid patients who receive a federal subsidy to purchase insurance. The subsidy is creating an an active market for individual insurance.
For individuals without subsidies, the playing field should be balanced, at least from a tax perspective. But it’s not.
Theoretically, the GOP should be willing to change the tax code to allow health insurance deductions for individuals. This position would be congruent with lower taxes, competitive free markets, and a belief in personal responsibility based on high deductible health plans coupled with health savings accounts (HSAs), which are the most purchased plans on the individual exchanges.
In fact, the Obama administration frequently points out insurance exchanges were a GOP idea. Utah, a state Obama lost by 28% in 2008, passed the first bill to create an exchange in 2008, before Obama was elected.
Given their original support for individual exchanges, the GOP could remove the employers comparative advantage from the tax code with a simple change extending the deductions to individuals and resist the temptation to bundle this change with a comprehensive package that includes other tax amendments such as banning the estate tax which has no chance of being signed by the President.
But the GOP will not entertain that solution.
Many article have been written about the fear of employers dumping employees to the exchanges and that may still happen. Removing the comparative advantage from employers would increase the velocity of that change. Most of the article have been written as if this would be an unintended consequence of Obamacare, a bug in the original law.
However, it’s not a bug, but rather a feature.
Obamacare will eventually mean an end to employer sponsored health care. This may take decades to realize. The impact would be not only a thriving individual marketplace, increase labor mobility, and allowing individuals to make their own healthcare decisions congruent with their religious beliefs.
It’s a rare case where both the Democrats and the GOP appear to philosophically agree on an outcome that shifts healthcare from employer sponsored to individual plans. And it may be agreeable if there was some understand that this shift would end there, with a fully functioning individual market.
The Long Game
The war being waged in the courts now is part of the long game. In this long game, the end game is a single payer healthcare system.
While a thriving individual market may be agreeable to the GOP, an employer sponsored healthcare system, with 150 million Americans, is the largest obstacle standing between a private health insurance market and a single payer system. The comparative advantage employers have over individuals purchasing health insurance is the keystone holding the current system together.
There are almost 75,000 pages in the IRS tax code. One additional deduction, a deduction currently offered to corporations, extended to individuals would have an monumental impact. Removing the small keystone would bring the entire employer sponsored system crumbling to the ground, paving the way for a single payer system.
The first step would be welcome, even by conservatives. If only William F. Buckley Jr. stood between the private insurance markets and the a single payer yelling, “STOP!”.