Federal Policy Changes Needed for Employer-Based Health Insurance

To remedy these problems, the following changes are needed. (1) Health insurance benefits should be made personal and portable. (2) Health insurance premiums should be included in the gross wages of employees, with tax credits for those premiums allowed on individual tax returns. (3) The size of the tax credit should vary inversely with employee income - so that the most help is given to those with the lowest incomes. (4) The tax credit should be limited to encourage the purchase of a no-frills, catastrophic policy - and those who purchase more generous coverage should do so with aftertax dollars. (5) Individual employees should have the opportunity to choose between lower wages and more health insurance coverage (and vice versa). (6) Individual employees should be free to choose among all health insurance policies sold in the marketplace.

These recommendations would have several advantages:

• Rising health care costs would cease to be a problem for employers - health insurance premiums would be a direct substitute for wages.
• Employees could choose lower-cost policies and higher take-home pay.
• Employees could select policies tailored to their individual and family needs.
• Employees could retain the tax advantages of the current system but avoid the waste inherent in collectivized benefits.
• Employees could continue coverage at actuarially fair prices if they quit work or switched jobs.
• Those employees with the lowest incomes would get the most help from government through the tax law.

Sources: Task Force Report, "An Agenda for Solving America’s Health Care Crisis," National Center for Policy Analysis, NCPA Policy Report No. 151, May 1990; and Stuart M. Butler and Edmund F. Haislmaier, A National Health System for America (Washington, DC: Heritage Foundation, 1989), ch. 3.