Paying for health insurance

Why do employers pay for health insurance?

One reason is that the corporate executives won't be able to get coverage unless they offer the same plan to all their employees. Otherwise they'd have to pay taxes on the benefit, and the insurers would charge them higher rates because the risk pool would be smaller and probably older and sicker.

The other is to attract and keep valuable employees -- the same reason they pay their employees more than minimum wage. If a company doesn't offer health insurance and a competitor does, the competitor will be picking off its best employees with the lure of health benefits. In the current market, where it's extremely expensive to get individual health insurance and you don't even get a tax deduction the way businesses do, that's a pretty powerful lure.

But if the competition doesn't offer health insurance, its costs are also lower, so it can attract more customers with lower prices for goods and services. There is a break point where the cost of the insurance doesn't make up for the benefit of having better employees. Once insurance costs get to that point, having a single business in a market drop health insurance could lead the others to quickly follow suit.

Most foreign competitors have no health care costs, either because they are in developing countries where employees get extremely low wages and benefits, or because their countries have national health plans that cost less in taxes than health insurance premiums cost in the U.S.

So those competitive pressures are already there, and they're driving jobs overseas. That's something people ought to keep in mind when they decide how to structure the new health plan. Current plans call for keeping the responsibility for most people's health coverage with their employers, then increasing that cost even farther by removing the tax deduction and by putting a surcharge on people with the highest income (a tax on a tax, for pity's sake).

Now those fabulously wealthy people can afford a little more taxes. And despite their protests, unless they want to move to a developing country, the taxes aren't going to be significantly different in other countries that already have national health plans. But many employers can't afford to pay more. In particular, unionized employers can't reduce wages without bargaining for it at the end of a contract, and raising prices may drive customers away without significantly increasing their gross income.

No one likes "taxes." People are willing to accept massive reductions in their potential take home pay under the current system. But if they actually get to see the money and then have to pay for something called a "tax," they're irate.

It's like the research that shows it's more effective to punish a child by giving him something and then taking it away than to not give it to him in the first place. If only the American public were willing to stop acting like children and accept a tax that wasn't hidden from them, the health care system would stop driving so many jobs overseas.

How will we pay for a new health care system? Well, how do we pay for it now?

While we're talking about how we can pay for universal health coverage, let's talk about how we pay for health coverage in the present system.

Currently, we have a bizarre system in which employees pay for their health insurance as part of their total compensation packages. Yes, I know you've been told your employer pays for it. But it's money that would otherwise have gone in your salary. Think of it as a deduction from wages that is taken out before the wages are calculated on your pay stub. It's part of what your labor costs your employer.

You probably have no idea how much that insurance actually costs, either. And it costs a lot, much more than the extra taxes paid by people in countries with government-paid health care.

Employees also rarely have any choice about which insurance companies and products will be offered to them, and they certainly have no choice about which drugs will be on those companies' formularies or which doctors and hospitals will be in their network. They're several steps removed from the people who make the contracts that determine what those hospitals and doctors will be paid for each individual procedure or office visit.

And they accept having people make those important choices without their input because they think they aren't paying for it themselves. The consumer of the services has no choice in the purchase of the services.

And we wonder why market forces aren't controlling these costs?