Speeding Transition Away From Employer-Based Health Care Is a Good Idea

Senator Ron Johnson and former CBO Director Douglas Holtz-Eakin have a Washington Post op-ed that builds on a discredited McKinsey study claiming that some huge share of American employers are planning to take advantage of the Affordable Care Act to reduce their labor costs and improve their workers’ access to health care. I’m reliably informed that this isn’t actually the case, and the opportunity to improve the business climate and workers’ health care outcomes isn’t nearly as available as Johnson/DHE say. But it’s worth taking note of their scare story to recognize how un-terrifying this is:

The other of us, as a former businessman, knows what it’s like to purchase coverage for employees. There are many employers who would happily get out of the practice of providing health insurance, if they could do it without hurting their workers. Obamacare will encourage them to do so. In the current system, most employers are highly reluctant to drop health coverage for employees because they don’t want their workers to be financially exposed. But under Obamacare, instead of paying $15,000 for family coverage, an employer can choose to pay a $2,000 fine, pay more in cash wages, make his employees eligible for a huge government subsidy and come out ahead. Confident that their employees are also gaining, millions of employers will follow this logic.

The reason we’re supposed to find this scary is that it means the cost of the Affordable Care Act will go up since there will be more ACA tax credits to buy insurance on the exchanges. That’s true, but it ignores the fact that employer-provided health insurance benefits are already subsidized because they’re not taxed as income. We’d be replacing one form of subsidized insurance for another form of subsidized insurance. The real difference here isn’t in the availability of subsidies, it’s just in the form of the insurance options available to people. Health insurance exchanges will offer a larger overall risk pool that will be better able to perform the basic insurance function. They’ll also expand the range of options available to people. In an exchange, an insurance company needs to sell insurance to you. Right now, an insurance company needs to sell insurance to your employer’s HR director.

Pulling out, this is to me an example of the kind of phoniness of a lot of the debate over the ACA. Back when Holtz-Eakin was running policy for John McCain’s campaign, their proposal for health care reform was to rescind the tax subsidy for employer-provided health insurance and replace it with a tax credit that would go to directly to workers. In other words, to implement exactly the kind of shift in health care financing that they’re now warning against. The difference is that the McCain plan would have dumped people into an unworkable un-regulated market for individual purchase of health insurance while the ACA will create a workable risk pool. Now that’s not to say that DHE has no real objections to the way the ACA pulls this off. He probably thinks the subsidies are too generous, and that the revenue base for the ACA is too progressive. Conservatives generally prefer stingier programs and dislike progressive taxation. But it would be much healthier to just have that debate, which is a kind of banal quantitative left vs right argument. Instead, we seem stuck in this dialogue of fake objections and weird scare stories.