Transitioning from Employer-Based Health Care

Uwe Reinhardt has a very useful essay on the politically fraught question of the employer-based health care system. This system doesn’t really work, since it makes it basically impossible to extend coverage to everyone and was put together for no good reason. But it works well enough for the people who currently participate in it. And that’s most people (me, for example) so you don’t want to rock the boat too much.

Instead:

The objective of current health reform efforts should not be to abolish the employment-based system to which so many Americans feel attached, brittle and expensive as that system may be. Instead, the aim should be to develop a robust, parallel system of fully portable insurance that individuals or families can purchase on their own, in a properly regulated and organized market, with public subsidies where deemed necessary. As my earlier posts to this blog sought to explain, this can be done in a variety of ways.

The success or failure of the current efforts by President Obama and Congress to reform the American health system can be gauged by the degree to which that goal has been accomplished a year from now. If success in this regard serves to shrink the traditional employment-based insurance system, so be it.

This is important to think about when people are talking about the “costs” of different reform proposals. That term can accurately be applied to the budgetary price of some set of reforms. And that is, of course, an important consideration. But what’s more important is the economic cost of whatever we’re considering. Sometimes there are economically costly undertakings that are nevertheless worth doing for humanitarian or social justice reasons. But there are also social programs that, irrespective of budgetary price, have low-or-negative costs in a global sense.

In the context of this discussion, for example, establishing a viable alternative to the employer based system would, even if relatively few people take it up in practice in the short-term, reduce a significant source of labor market rigidities. People with pre-existing conditions would have vastly more opportunity to risk a few months of unemployment for the sake of pursuing some kind of valuable opportunity. And small businesses wouldn’t face the kind of labor market disadvantages they currently have to deal with.