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The Problems With The Employer Mandate

Tyler Cowen wants to know whether I support a mandate on employer to provide health insurance or pay some sort of tax. The correct response, I guess, is define "support," kemosabe.

The employer-based system is a dumb beast. I don't support policies that entrench it. I support policies that blow it to smithereens and build something better atop its ashes. But we're not going to get that sort of reform. So the question, then, is whether I support the employer mandate in the context of this system.

I try to keep a simple principle in mind when I'm tempted to oppose mediocre policy because it doesn't fit into my normative view of the world: I don't need help. Thinking of health-care reform as a fascinating policy puzzle is a luxury. There are, however, a lot of people who actually need help. They don't need the "right" solution to their plight. They need a solution, full stop. Meanwhile, the system that is supposed to develop solutions seems to me to be irrevocably captured by partisanship and special interests and anti-majoritarian institutions. It's not clear to me that, under the circumstances, actual "change" is possible. But improvements might be.

So I welcome Wal-Mart's support for an employer mandate, irrespective of its motivations. I welcome CBO's score showing that an employer mandate cuts costs and increases coverage. I welcome all this because it makes it a bit likelier that we're going to spend a shade over a trillion dollars helping people protect themselves from illness and bankruptcy. And I think we might, on the margins, do some good for the health-care system along the way.

But probably not that much. Improvements now, however, don't preclude change later. In fact, they might accelerate it. And if, in a couple of decades, we all sober up and decide we need to do something about the health-care system itself, I'll support those efforts, too.

By Ezra Klein  |  July 2, 2009; 5:33 PM ET
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Ezra writes: "The employer-based system is a dumb beast. I don't support policies that entrench it. I support policies that blow it to smithereens and build something better atop its ashes. But we're not going to get that sort of reform."

I agree with this. But I would argue that if we get an employer mandate coupled with pay/play tax, we will, for the first time since WWII, have some light at the end of the table with respect to severing the link between health insurance and employment. Employers will actually have the option of getting out of the business of being health insurance purchasing agents if they want to. Under the status quo, most employers -- if they want to attract and retain workers -- don't have a choice in the matter.

Posted by: Jasper99 | July 2, 2009 5:38 PM | Report abuse

I was part of an overflow crowd at a health care forum hosted by Congressman Keith Ellison in Minneapolis last night. Ellison reminded us of the long term perspective that you propose by noting that there were civil rights acts passed in congress in 1957 and 1960 before the milestone 1964 act (that happens to have been signed by LBJ on this day 45 years ago). But the congressman is also clear that without a public option, reform is doomed to failure and as a member of the congressional Progressive Caucus has vowed to vote against any plan that does not include a strong public option.
The consequences of failure here seem very dark indeed: an ongoing budget crisis that stirs reaction and enables Republicans to further strip away an increasingly essential safety net.
Don't give up the fight.

Posted by: ljfamily | July 2, 2009 6:10 PM | Report abuse

The employer mandate as the key issue for reform. So we are planning, I guess, to mandate that employers provide insurance.

So that when people get laid off, as they are getting laid off by extremely large numbers in recent months, they will have no health insurance.

And small businesses will be literally bankrupted by a mandate to provide insurance, particularly if anyone on the staff has a pre-existing condition.

Or they will never be able to attract talent because the talent will go where the health insurance is - to the large employers.

And the cost issues that come from having the insurance companies pay for treatment (opaque pricing, lack of transparency, billing with no regard for "other people's money" etc. and so on) will continue unabated.

And the "business as usual" practices seen in insurance companies - dumping patients when they're sick, jacking up the rates when they develop a chronic condition - will remain "business as usual" in this brave new world of our reformed health care.

This really is not much of a reform, at least the stuff that's being bandied about right now.

In fact it seems to lock in and support the very worst of what we already have.

Posted by: anne3 | July 2, 2009 6:18 PM | Report abuse

Let me ask everyone a question: Do you consider price and discount when buying Tylenol and Pepcid? I answer in the affirmative.

Here's another question: Do you consider price when considering brain surgery? I answer in the negative.

Therefore, I suggest splitting health care costs into two categories:
1) Medical goods that a consumer could price and shop accordingly on.
2) Medical goods that a consumer cannot price and shop accordingly on.

Once you do this, you can split up medical costs into:
1) Costs subject to a deductible.
2) Catastrophic Costs.

And, further, you can say the following:
For 1) You don't want third party payers, since you want the consumers to shop for the best price.
For 2) You can have a third party payer. In fact, you can have one: the Federal Government.

Now, here's Milton Friedman's plan:

"A more radical reform would, first, end both Medicare and Medicaid, at least for new entrants, and replace them by providing every family in the United States with catastrophic insurance (i.e., a major medical policy with a high deductible). Second, it would end tax exemption of employer-provided medical care. And, third, it would remove the restrictive regulations that are now imposed on medical insurance—hard to justify with universal catastrophic insurance.

This reform would solve the problem of the currently medically uninsured, eliminate most of the bureaucratic structure, free medical practitioners from an increasingly heavy burden of paperwork and regulation, and lead many employers and employees to convert employer-provided medical care into a higher cash wage. The taxpayer would save money because total government costs would plummet. The family would be relieved of one of its major concerns—the possibility of being impoverished by a major medical catastrophe—and most could readily finance the remaining medical costs. Families would once again have an incentive to monitor the providers of medical care and to establish the kind of personal relations with them that were once customary. The demonstrated efficiency of private enterprise would have a chance to improve the quality and lower the cost of medical care. The first question asked of a patient entering a hospital might once again become "What’s wrong?" not "What’s your insurance?"
I would add a Democratic Party addition to this plan: You could relate the deductible to income.

That's my plan. Everyone covered.

I would add the following: I've no idea what the correct amount of money that we should spend on health care should be. That's why I would like some portion of our medical bills to be subject to our own choice.

Posted by: DonthelibertarianDemocrat | July 2, 2009 11:36 PM | Report abuse

It must have been clear since 2007 that the 2009 version of health care reform would preserve employer based health insurance. You could imagine a candidate (say John McCain) proposing to blow up employer based insurance and replace it with something else.
He might even promise as McCain did not to work really really hard at figuring out what else before blowing up the system. That candidate would lose the election and I might say for good reason.

The fact that these benefits are being maintained is a straight up function of a preference shown in a national election. Each Democrat decided that pieces of the existing system needed to be preserved.
I'm not sure why it's shocking to discover in 2009 that this is route we are going. I'm also not sure it's a result of a 60 vote requirements in the Senate or corrupt lobbies in the house as much as a result of the reality of retail politics in the primary.

If, however, in a few years Walmart wants to allow it's employees to buy into the exchange using a tax-free stipend, Walmart will get this and we'll start transitioning. But there must be a there there first. I'm going to take away your health insurance and let you chose from a number of good plans tests better than I'm going to take away your health insurance and replace it with viewgraphs explaining how a health insurance exchange might work if all goes wall.

Posted by: windshouter | July 3, 2009 12:24 AM | Report abuse

"This reform would solve the problem of the currently medically uninsured, eliminate most of the bureaucratic structure, free medical practitioners from an increasingly heavy burden of paperwork and regulation, and lead many employers and employees to convert employer-provided medical care into a higher cash wage."

And at a stroke, American healthcare would be operated on the same model as that of a third world country. Catastrophic coverage means higher barriers to entry, which means people avoiding the doctor when it's easiest and cheapest to diagnose and treat. It also plays into the hands of the huge success story of American "medicine" -- the quack business.

Posted by: pseudonymousinnc | July 5, 2009 7:17 PM | Report abuse

This isn't to say that I'm opposed to your distinction between "consumer" and "non-consumer" healthcare costs, because it's an accurate one, but there needs to be something in place to encourage early, timely care, even if there are false positives, otherwise you get a culture of self-medication -- say, a bottle of indigestion pills a week for what turns out to be a peptic ulcer.

Posted by: pseudonymousinnc | July 5, 2009 7:29 PM | Report abuse

I'm a small employer (20 employees) who provides 100 percent health care policies to all employees who work 20 hours or more per week. I cannot afford to cover their families, but make the group insurance rates available to them and deduct from their salaries.

Because of this, I can't afford to give raises, and I have to spend administrative time on choosing health care brokers, plans, paying the monthly bills, sending in reports, allowing audits, etc. I could probably spend close to the same amount of money on a tax, cover all employees and their families as well, and free up my time. I might be able to return that in the form of raises.

I hesitate to let anyone go, no matter what, because they will lose their healthcare, and many need it badly. I want to have healthcare completely divorced from employment, and will be glad to pay the taxes necessary to make that happen.

Sharon Toji

Posted by: SharonToji | July 6, 2009 1:27 PM | Report abuse

I completely forgot to mention something that I think most employers don't realize. If we had a "single payer" plan, I could cancel or greatly reduce my workers' comp policy and pay less for my liability and auto insurance, which currently has to cover medical costs for anyone that we would injure. Imagine in the reduction in automobile accident related insurance claims if people could take their whiplash to the doctor without going through someone's insurance.

Posted by: SharonToji | July 6, 2009 1:30 PM | Report abuse

Right Sharon! Something like Medicare for All is a no brainer. Unfortunately many of its opponents are to paraphrase Pooh, "Men and women of little brain." The rest are the health care insurance executives who are laughing on the way to the bank.

Posted by: lensch | July 6, 2009 4:23 PM | Report abuse

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