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  • Writer's pictureOren Levin-Waldman

Reforming Healthcare Requires Severing Insurance from Employment

The policy of the day appears to be Medicare for All, which is really nothing different than a single-payer system. We need a single-payer system, the argument goes, because 1) not everybody has adequate coverage and 2) it is immoral that people who get sick should go bankrupt due to high medical expenses. The subtext, of course, is that nobody should be allowed to derive huge profits from the tragedies that befall others.

From the moral side of things, we all live in a national community and as such we have an obligation to take care of the least fortunate members of society. Arguably, the case for a single-payer system should neither be a matter for either the left or the right because it is distributive by definition. And yet, what is most peculiar is that when the left argues for Medicare for All, they say absolutely nothing about the labor market.

Alright, Bernie Sanders’s language of nationalization of the insurance industry can be likened to a page from the Bolshevik nationalization of all industry and confiscation of private property. But at least that was based on the premise of the proletariat rising up against the bourgeoises. And yet, they would only rise up because of their oppression in the labor market, i.e. capitalists were exploiting their workers by paying wages insufficient to support themselves.

Why, then, aren’t those who profess to speak for the common working person not making the argument for such policies based on the labor market? When middle class workers get insurance through their employers, a moral argument for leveling the current healthcare regime in favor of a new system really isn’t going to go too far. The average worker who likes his or her plan will give it up for a new government plan because it is the moral thing to do?

Have our politicians forgotten that the philosophy underpining both our economic and political institutions is that of self-interest? There are better arguments for a single-payer system that can be found in the labor market, which, of course, are based on self-interest.

First of all, one’s compensation includes money wages and benefits. The more costly health insurance is to employers, the less workers will receive in actual money wages. That is, rising healthcare costs effectively suppresses wages and may be one source of stagnant middle class wages over the last few decades. Were health insurance to be separated from employment, workers could demand higher wages.

Second of all, workers who obtain their insurance through their employers are effectively locked into their jobs for fear that they will lose their insurance. This is known as job lock and may constitute a form of employer exploitation of workers that few talk about. Were health insurance to be separated from employment, workers would be free to leave jobs for better ones paying more. Of course, employers like the current healthcare regime despite rising costs because they can continue to exert control over their workers.

The left has historically argued against free markets because they violate the rights of workers. But on these issues of job lock and suppressed wages, they are mysteriously silent. Of course, the right, which talks about individual freedom and consumer choice, should be equally bothered by health insurance connected to employment.

When insurance is purchased by businesses rather than individual policyholders, there is less competition in the market place, which only results in prices rising. And yet, because of the current regime based on third-party payments, patients are not even regarded as consumers to whom there needs to be accountability.

The typical patient goes to the doctor and pays a co-pay. The bulk of the cost is paid by the insurance. Because physicians are dependent on reimbursements from insurance companies, which are often a fraction of what was billed, they need to see more patients. As a result, they have less time to spend with their patients. Of course, if patients were paying the full cost of visits, physicians would need to be more attentive to their patients. The same is true with drugs when pharmacies no longer have to view customers as traditional consumers because most insurance plans now pay for prescription drugs. In other words, third-party payment schemes distort the market place.

Now the left will retort that the typical worker cannot afford these costs. Well, insurance costs could decrease if they weren’t all based on managed care, which really defies all assumptions underpinning insurance. Because the Affordable Care Act mandated that all insurance plans must contain a minimum threshold of services, the result was rising healthcare costs.

Now the right will retort that government insurance will only lead to less consumer choice and rationing. But healthcare is already rationed by the current regime that decides behind closed doors what it will pay for and what it will not. Remember, there is no competition in the current system.

There are two alternative solutions to the problem. The first is to have a single payer system and the second is to have individuals purchase their own policies. Both would sever insurance from employment. Individuals purchasing their own policies could result in lower premiums as insurance companies compete for purchasers. Both alternatives would result in ending job lock and might result in money wages increasing. If the left wants to talk about the rights of workers and the need to end exploitation, then talk about those things. And if the right wants to talk about individual liberty, then by all means talk about the liberty of individual workers.

One conclusion that might be drawn from the way the debate over healthcare has been framed is that nobody really cares about workers. The left talks about worker rights but fails to mention how the current regime denies those rights. And the right talks about individual liberty but ignores how the current regime restricts liberty.

The obvious conclusion, however, is that like most policy issues, healthcare is complex and there are no easy fixes. It is certainly too complex for traditional political campaigns. The place to begin, however, is to remove health insurance from the typical employment contract and begin with policies that can improve workers’ position in the labor market.

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