NCPA - National Center for Policy Analysis


September 6, 2007

The number of Americans without health insurance undoubtedly deserves the attention it is getting.  But the greater problem may be the plight of middle- and lower-income workers who have health coverage but pay dearly for it, say Clark Havighurst and Barak Richman, professors at Duke Law School.

In fact, many Americans would probably drop their health coverage if they knew how much it really costs them.  But they don't know, because of the way the tax system treats health benefits:

  • Under the current system, employers are the principal purchasers of health insurance and workers seldom know how much their employers pay.
  • They also don't realize what economists have repeatedly concluded: Employer outlays for health insurance translate directly into less take-home pay for employees.

As a result:

  • The tax system has induced workers to believe that someone else was paying the bills for their care; meanwhile, they have pushed for better health benefits regardless of cost.
  • Weak consumer cost-consciousness has left the United States with private insurance that functions as a reverse Robin Hood scheme, taking from middle-income Americans to support a health system that benefits many elite interests.

A good way to prepare the public for needed health reforms would be to expose consumers to the true cost of health insurance.  President George W. Bush's pending proposal to tax the value of employees' health benefits as income, while also providing a compensating standard deduction or tax credit, would serve the useful purpose of stimulating market and political demand for low-cost alternatives, including coverage that stops short of paying for everything seemingly mandated by professional (that is, noneconomic) standards, say Havighurst and Richman.

Source: Clark Havighurst and Barak Richman, "Who Pays for Health Insurance?" Wall Street Journal, September 6, 2007.

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