After spending yesterday attacking Obamacare, today I want to offer some better ideas for reforming healthcare. A comprehensive plan would take a while to describe, and I am not qualified to create one, but today I want to focus on the effect that tax credits have on how Americans get their health insurance.
One of the big problems with American health insurance is that it is often connected to your job, so if you lose your job, you lose your health insurance because the insurance was being provided to you as a benefit by your employer. The reason the employer buys the insurance is because back in the old days of FDR the government decided that wanted to give companies an incentive to provide employees with health insurance so they created a tax credit for companies to buy their employees’ insurance with. This means that if a company provides an employee with $1 in health insurance, they do not pay taxes in the $1. But if an employee were to get $1 in salary, he would then have to pay income tax on it. The point here is that employers are incentivized to buy health insurance for their employees because they get a special tax break for doing so. This policy made sense when it was instituted because during those days it was common for someone to get out of high school and go to work at the local factory for the rest of his life. But today workers are much more mobile and change jobs frequently.
The big issue with this system is that if an individual were to buy his own health insurance, he does not get a tax credit for doing so and has to pay for it with the money he has left after he pays income taxes. Because of this discrepancy most Americans get their insurance from their employer because thats what the tax incentives encourage.
Now the proper way to fix this issue is to give individuals the same tax preferences that businesses have in buying insurance. Let individuals buy health insurance with pre-tax income so that it is much more affordable for them. Also, because the policy is not tied to their employer, they can keep the same policy as they switch or lose jobs.