May 29, 2015

Dr. Jones: Nearly half of Americans get their health care insurance through their employer, but is that the best way to do it? I am Dr. Kyle Bradford Jones from the Department of Family and Preventive Medicine from the University of Utah. We are going to talk about this, coming up next on The Scope.

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Dr. Jones: So about 40% of people get their health insurance through their employer. It seems like a convenient way for individuals. From a national perspective, this may not actually be a good thing. The main reason that this may not be a good thing economically for the country is that there is a huge tax break that comes along with employer-sponsored insurance. This is kind of an accident of history where $260 billion a year are tax breaks to different businesses in order to provide employer-sponsored health insurance.

That means that is the third largest federal government health expenditure behind Medicare and behind Medicaid. And it's the largest tax break in the tax code. Now that sounds like it might be a good thing for business because they are getting basically subsidized to pay for the insurance, but that is not exactly how it works. This actually puts the burden of the increase in health costs on businesses, which is causing lots of problems with our economy.

Obviously, businesses are having trouble paying for it. That means that they're having lower wages for their employees so we're not getting paid as much. Sometimes, this leads to loss of jobs overseas. Many businesses have said, "Healthcare costs are just too expensive here. We need to take the jobs elsewhere." But it also leads to job lock for individuals, which mean you will leave your job for another job, which may be a better scenario for you because you're trying to keep your insurance.

And also, from the federal government's perspective, this is a decrease in tax revenue. One other way that this is bad is that it actually leads more generous and unnecessary insurance coverage. With people being immune to the costs because of insurances paying for it, this actually leads to an increase in our health care costs. Jonathan Gruber, who is an economist from MIT, said that there is actually zero economic rationale for this system.

So what is going on to change this? It's actually decreasing on its own. In the year 2000, 70% of the nation's citizens were receiving their health insurance through their employer. It's now 48%, and that is kind of going down simply because of the elevated cost of healthcare. Now, many politicians have kind of said, behind closed doors, that they want to get rid of this. They don't like it, but it's politically unpopular because half the nation's citizens would then be disrupted with their health insurance coverage. And so it's not something that they want to push too hard for that reason.

Some employers are going to what is called a defined contribution. They give a specific amount to the employee to buy insurance on the individual market. Now with the insurance exchanges, through the Affordable Care Act or Obamacare, that means that the businesses still contribute to healthcare coverage, but they're not responsible for the increase in costs as they have been. And this is actually a good thing because, in general, it helps decrease healthcare costs. As more people get on the exchanges, it actually pools risk more, which is the purpose of insurance. And from the federal government's perspective, it's allowing more revenue so they cover subsidies for those who need it in order to buy health insurance.

It also leads to increased wages because employers are not saddled with all these increased costs. Now, many policy experts are saying that this may have been the actual purpose of the Affordable Care Act, the way it was set up. You set up the insurance exchanges, you make sure they're working well and then you can transition people over to that. From employer-sponsored insurance, as well as from things like Medicaid. Certainly employer-sponsored insurance certainly won't go away, but changing the tax break will make a big difference for both employers and individuals on a global basis.

So healthcare is very expensive for many reasons and this is a big one with providing this tax break for employer-sponsored insurance. Now, if we switch away from that, it will be a short-term struggle, but long-term it will be a big gain for everyone.

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