I live in an area with many farmers. Since corporate farming is illegal in ND, every farmer is, in effect, a small business owner.
I was asking one of my farmer friends, “hey, what do farmers in our part of the country do about health insurance?”
His answer was interesting.
Basically, he said that if you are a farmer with children at home, your wife gets a full-time job somewhere, so that she can get employer-provided health benefits that cover the whole family.
I’ve known many people over the years that have stayed in jobs they didn’t like because those jobs offered full time employment, and therefore, employment-linked health care coverage.
This is an economic distortion that works against free market principles. In a free market, you want frequent and easy movement of labor, so that employers meaningfully compete to attract and retain talent. If a company underpays, or creates a lousy work environment, employees should be able to meaningfully quit and go work for someone else who will treat them better. Meaningful choice in who employers hire, and meaningful choice of who employees can work for, are both required for the invisible hand to push both employees and employers into better versions of themselves.
But employer-linked health insurance is an impediment to all of that. It makes it a bit harder for employees to walk away from a bad job. And employers know it.
Additionally, large companies are better able to deal with the costs of employer-linked health insurance, and so you also have a market distortion that advantages large companies over smaller ones. For instance, my company “self-insures”, that is, all of the money used to fund health care for employees actually comes from the company itself. Small businesses simply cannot afford to operate that way, and, by nature of being a smaller business, they have less bargaining power with the insurance companies they need to buy insurance from if they are going to provide it to their employees. (The ACA penalizes them if they don’t to do this, by the way.)
Now, while economic inefficiency in the labor market is unfortunate, and, people being stuck in jobs they don’t like is also a bummer, a much more concerning issue for me goes back to what my farmer friend told me: the need to get employment-linked healthcare is taking stay-at-home moms off of the farm, and out of their homes.
I’m a big advocate of stay-at-home motherhood, and so any dynamic in society that makes that more difficult is something that bothers me.
I’ve heard from a few farming families in ND, and they all told me the same thing: it’s very common for farming wives in our state to get full-time, off-farm jobs, so that they can provide health insurance for the family.
If we are going to continue to have farm families that thrive, then mom and dad need to be able to stay on the farm. If we are going to continue to have strong families in vibrant rural communities – communities with futures, then at least one of mom or dad has to be able to stay in that small community, instead of commuting to a far-off metropolis every day.
Our national health care policies undermine all of that.
How did we get into this situation?
The short version is: during the WW2 effort, the federal government tried to mess with the labor market by placing wage controls on companies. Companies needed workers to fulfill contracts for the war effort, and to keep the lights on back here in America. But wage controls mean that companies couldn’t compete on wages, meaning that companies had to find other ways to attract labor.
This was the beginning of employment-linked benefits, and employer-provided health insurance was one of them. Since companies couldn’t pay a higher wage, they offered side benefits to attract and retain workers instead.
As time went on, an increasing number of Americans were moving to urban areas and working for somebody else’s company, and congress decided to make these tax-advantaged situations, both for employers and employees. Having a corporate job became, in effect, an advantaged arrangement in American life.
This is good for big companies, who never saw a tax break they didn’t like, but also because of the labor capture and retention that it helps with.
That’s an abbreviated version of our national health care history.
So why, today, is employer-linked health care a better deal for employees? How is it so much cheaper?
Here is an article from Forbes that discusses the issue.
The short version is this:
- employer-linked health plans are partially paid for by your employer
- the portion of an employer linked health plan that you pay for comes out of your pre-tax dollars. This means you’re getting a 10-30% discount, depending on what tax bracket you are in
Those are some of the built-in advantages employer-provided health insurance has. But there’s more, once you look at the alternatives.
The ACA (Obamacare) created health exchanges. I think these are actually a good idea, inasmuch as they represent more information for customers, and are health insurance options that have nothing to do with employment. In fact, I’ve visited healthcare.gov several times to see what Obamacare policies would cost me. I recommend doing this some time – go to healthcare.gov, and then put in your family info, and then put in your salary, and see what ObamaCare plans would cost you.
The answer for me has always been: way, way, too much.
Now, one interesting thing you can do on the healthcare.gov website is to replace your real salary with some other salary. What I found is that if I put in a salary much lower than my real one, the picture changes dramatically. Because I am married with 4 children, if I put in a salary of say, $60k per year, I become eligible for almost $1000/month in some kind of tax subsidy or similar federal benefit that allegedly offsets the premiums on any ACA exchange policy I might choose. I didn’t quite understand if this was a direct cash payment, or just some kind of tax credit at tax time.
In the healthcare.gov tool, the financial benefit manifests itself as reducing the monthly premium by that amount – nearly $1000 per month.
For the cheapest policy on healthcare.gov in my zip code, this benefit reduces my hypothetical monthly premium to zero, although on that specific policy, the per-visit costs and the annual maximum expenditure were both pretty high. The idea that I could be making $60k and get an ACA policy for zero dollars per month is pretty interesting.
Who’s paying for that?
Well, everyone who makes more than that figure, or, who has a smaller family.
The cost of non-employment linked policies, including ACA exchange policies, has gone up every year since the ACA’s passage. If you’ve read this far, you may think that I am getting ready to tell you how much I like the ACA. On the contrary, I am not. I’ll set aside my opinions on what government health policy should be, or if there should even be a federal health policy at all, and simply evaluate the ACA against its stated goals.
We can say unequivocally that the ACA has failed, as the ACA has not contained the rising costs of health insurance.
So now let’s finally talk about the latest Republican plan. It has some of the main features of the ACA that make it hard for any ACA-like plain to control the costs of health insurance. Specifically, the Republican plan retains the prohibition on lifetime coverage limits. This means insurers have risk which is very difficult to quantify. It retains the ACA prohibition on denying coverage to existing conditions. This means that there is a huge incentive for very expensive patients to get ACA compliant policies.
You can see a short comparison here.
I guess one good point of the Republican proposal is that it retains the ObamaCare health exchanges.
In fact, it’s not very different from ObamaCare at all. The new plan just plays with the funding formula a bit, and re-arranges the furniture somewhat regarding who is subsidizing who.
Critically, it does nothing at all about the financial advantage that comes from having employment-linked health insurance.
If the Republicans actually want to get me excited about health care changes, they will completely eliminate the cost advantages of employment-linked health insurance. Doing that would increase labor portability, and it would create the opportunity to move some 2nd working parents, like farming wives, out of W2 employment, and put them back on the farm with their families. It will be a great benefit for small businesses, and a boost for people who want to start their own businesses.
Supporting family life and small businesses have traditionally been Republican priorities, yet, it’s not clear to me that their health proposal actually does anything for either of these goals.
Fundamentally, as long as the structure of the tax code gives a huge preference to the situation where both parents are working for someone else’s large companies, there will be detrimental effects on labor portability, small business ownership, and most importantly, family life.