The End of Employer-Provided Health Care

The Greek philosopher Heraclitus (dates obscure) insisted that war is the father of all things. If we are indeed in a “war” against the corona virus, then many things will change. The most important will be the end of employer-provided health insurance.

People who have insisted that they like their employer-provided health insurance may now be excused for changing their mind. My earlier observation about restaurants replacing people with iPads is symptomatic.

There is an enormous “employment tax” that falls on firms. They must contribute to our social security (6.2% of our pay) up to a certain maximum, they must pay a Medicare tax of 1.45%, plus various local (state, city, county, and school district) taxes. Our cobbled-together system of public finances is an enormous economic dis-incentive to hire labor. No wonder firms do not wish to pay for health insurance—there is already an incentive away from hiring labor and favoring machines. And then firms are criticized for their failure to provide their workers with health insurance. They should not have to do that—it is not their function nor is it their purpose. Their function is to provide goods and services, and employment. Why are they in the middle of our health care?

Employer-provided health insurance was an “accidental” trade-off following World War II when large employers—notably the auto industry—figured it would be better to offer some form of “benefits” to their workers rather than to give in to wage demands. Higher wages would get built into the base salary structure of the firm, while health-care premiums might be more easily negotiated with insurance companies—and perhaps might be cost-shared with the government.

So workers gave up a wage increment in exchange for fringe benefits. That is why we see unionized workers resisting the move to a single-payer (“Medicare-for-all” system). They figure they have lost life-time earnings and will not make that up with a shift to a different system.

Indeed, they are afraid their taxes might go up a little to help finance the new system. They cannot be sure that the new savings will be realized for them. But unions are now such a small fraction of the US work force that they can be ignored as a political force (now just 6% of workers in the private sector versus about 30% in the public sector).

Many non-union workers also get insurance through their employer, but that is now seen to be a precarious situation.

More importantly, the current crisis now highlights the financial flaws—and the perverse incentive properties—of our jerry-rigged health-care system.

When this crisis settles down, a single-payer health care system is a sure bet. It will remove the current economic disincentive against hiring labor—and that will be good. It will also eliminate the enormous dead-weight loss of administrative costs that now bloat the insurance industry (said to be in the range of 20-25% of premiums). It will also allow the government to negotiate drug prices, it will dampen the perverse incentives inherent in the current “fee-for-service” pricing that induces excessive “services,” and it will help hospitals that are now required to accommodate patients but then are stuck with the inability to collect for services rendered.

Hospitals bear an incredible administrative (cost) burden simply trying to collect payments from

individuals who will never be able to pay. Emergency departments have become primary care providers. All of the terrible cross-subsidization will be gradually eliminated.

Dr. Daniel Bromley can be contact at

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