Health care expense tops the list of executive concerns in survey after survey, year after year. And it’s no wonder — just during the past decade, according to the California Healthcare Foundation, health spending per capita increased by nearly 75 percent.
But we can arrest and reverse this omnivorous trend. America will stop overpaying for health care when employers stop making payments to health insurers.
Think about it: American workers buy every imaginable good and service without the involvement of their employers — except one. The only major employee purchase brokered by the employer is the purchase of health insurance. Not coincidentally, health insurance is the only type of insurance for which costs are rising out of control.
There’s a simple prescription for arresting health care costs and gradually reducing them, without raising taxes or reducing tax revenues: change the tax code to allow Americans to deduct the entire amount they pay for health care and health care insurance from their taxable income.
Consider payment options
Years ago, my company, like many other employers, began offering our employees the option to either continue in our company’s health insurance plan or to take as extra salary the amount of the premium we were paying to cover them. The option made it plain that when employees used company-purchased health insurance, they did so using their own money.
Everyone appreciated having the choice; many took the extra cash. Indeed, it has been my experience that many employees are better positioned to buy their own health insurance than are the companies for which they work. Employees know their own needs and those of their family, and having control over potential savings gives them an effective incentive to shop carefully.
Why isn’t this already standard practice? The culprit is the tax code. Health insurance is the only item of significant value that Congress has decided may be provided to an employee tax-free. And therein begins the problem.
Assume an employer spends $6,000 a year to buy health insurance for an employee. If the employer gave the employee $6,000 to buy his or her own health insurance, they would be taxed on the income, conceivably leaving them with less than $4,000 to spend on care. In other words, the tax code has created a situation in which employees have a very sound reason to want their employer to act as their agent in the purchase of health insurance.
Disincentive comes into view
But in handing the responsibility to their employer, employees lose their opportunity and incentive to shop for their best insurance option. Instead of having 100 million employees in a highly competitive market for health insurance, as we do daily for every other kind of insurance, we have a much smaller number of employers who are forced by practical considerations to buy expensive, one-size-fits-all plans in a much less competitive market.
To be clear, I am not advocating that employers not be allowed to buy the health insurance for their employees. I’m suggesting we remove the huge tax-code-created disincentive for employees to buy their own. Without that disincentive, more employers could give their employees the option to either stay in the company plan or take cash — and more employees would opt for the latter, becoming comparison shoppers rather than passive participants in the health insurance marketplace.
When millions of Americans start shopping for their own health insurance, we’ll see more and more creative options being offered at lower prices. And American businesses will retire rising health care costs from the current No. 1 position on the list of business worries.
Jerry McLaughlin is CEO of Branders.com, the world’s largest and lowest-priced online promotional products company. He can be reached at [email protected].
