NCPA - National Center for Policy Analysis

The End Of Employer- Provided Health Care?

March 3, 2000

The U.S. health care system is structured around employment-based health insurance, which became popular because of the tax treatment of health insurance premiums paid for by the employer: the employer-paid premiums are not included in employees' taxable income, while the employer may deduct the cost as a business expense.

Economists say this tax treatment leads to overconsumption of health insurance and health care services. In a recent book, "Health Care 2020: The Coming Collapse of Employer-provided Health Care," William Styring III and Donald K. Jonas predict the exclusion of health insurance premiums from taxable income is likely to be eliminated due to an "unlikely coalition" of the left and right. This coalition will include:

  • Businesses looking for ways to get out from under the high cost of their employees' health insurance.
  • Liberals, because the tax treatment of insurance premiums is highly regressive, with the wealthy benefiting more than the poor.
  • And conservatives who would like to institute a flatter tax system devoid of the myriad of loopholes and deductions.

This, in turn, will drive other changes.

  • Medical Savings Accounts will become prevalent as a cost sharing mechanism.
  • More children will be uninsured as their parents lose employment-based insurance.
  • There will be pressure for innovative, cheaper forms of care -- such as home care.
  • And highly advanced medical treatment will be rationed to aging boomers.

The impact of aging Baby Boomers on health care will be enormous, say Styring and Jonas: many Boomers will retire later; Social Security will be unable to maintain current levels of generosity; Medicaid and Medicare will be scaled back; and social tensions between the generations are inevitable.

Source: William Styring III and Donald K. Jonas, "Health Care 2020: The Coming Collapse of Employer-provided Health Care" (Hudson Institute: Indianapolis, Indiana, 1999).


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