Let Employers Decide How Health Insurance Should Be Subsidized at Work

There are two things almost all health economists are in agreement about: (1) you cannot have successful reform of the health care system if you ignore the 150 million people who get health insurance through an employer and (2) the way we currently subsidize employer-provided health insurance is very wasteful and inefficient.

There have been a number of suggestions for change: Sen. John McCain’s proposal to switch to a fixed-sum tax credit, the Affordable Care Act’s “Cadillac plan tax” and various versions of the same idea in proposed Republican alternatives to the ACA.

Yet there is one big problem with all of this. Every proposed change has been vigorously resisted by management and labor. The most recent example of the political power of the resistors is the two year delay in the imposition of the Cadillac plan tax. Many are predicting that the tax will be delayed indefinitely.

Does this mean that fundamental health reform is impossible? Not necessarily. If the economists are right about the waste in the current system, we should be able to make the same number of subsidy dollars available in a way that leaves both employers and employees better off. Further, we don’t have to convince every company and every union to go along with the change all at once.