Job-based insurance means your employer pays — and the government doesn’t.
Although firms may boast about offering generous health-care benefits, the costs of coverage are largely borne by employees, in the form of lower wages than a competitive market would otherwise support. That helps explain why inflation-adjusted wages have remained flat, even while productivity has increased — it’s all going to cover rising health-care costs.
Also, the distinction between the public and private insurance sectors is not so sharp as many people imagine. By exempting employee and employer premiums from income and payroll tax, the government forgoes hundreds of billions of dollars in tax revenue each year. In 2016, this subsidy was worth $275 billion. (In contrast, the total savings projected from the either the House’s American Health Care Act or the Senate’s Better Care Reconciliation Act, which include savings from cutting federal costsharing subsidies in the state marketplaces, do not exceed this number in any year.)
The government subsidy is what ties employment to insurance. Taxing premiums would break the link, allowing individuals to choose jobs based not on the availability of health insurance but on their skills and preferences. Further, subsidies encourage overly generous policies, which put upward pressure on prices. Eliminating subsidies could help bring the costs of health-care premiums down.
As with any policy, there are disadvantages to taxing health insurance. For example, it may discourage younger, healthier workers from joining their job-based plans and prod them to seek insurance in the individual market, where they would not be pooled with older and sicker co-workers. Presumably, the benefit savings would be passed on in the form of faster wage growth, but this transition could be slow. Alexis Pozen is a professor of economics at CUNY School of Public Health and a co-author of the textbook “Navigating Health Insurance.”