Saturday, April 08, 2017

Tax Healthcare Benefits as Wages

Steve Sailer linked to this article today, ‘How dare you work on whites’: Professors under fire for research on white mortality. The commentary writes itself. There was a comment on healthcare though:
There’s one other policy recommendation that I’ve been pushing. We’re spending about three trillion dollars a year on health care. And our life expectancy is going down. Whereas all these other countries are spending way less, and their life expectancy is going up. For me the implication is if we implemented single payer, we’d get rid of a lot of these costs. Not without screaming and yelling, of course, and not without goring a lot of oxen.

But the crucial thing is recognizing the extent to which these rising health care costs are responsible, at least in part, for the stagnant wages for people without a college degrees. If they’ve got an employer and they’ve got health care, their wages are getting pushed down by the employer paying for that health care. People don’t even realize this. They think it’s for free.

I’m not a left-wing nut pushing for single-payer! It’s not because I like socialized medicine. It’s just because I think this is eating capitalism alive, and if we want a healthy capitalist society in America, we’ve got to get rid of this monster.
The other solution is to tax health benefits as wages and adjust tax rates to make it neutral. Then let employees opt to take the cash and purchase healthcare separately in a marketplace. Obamacare was a big step in this direction and provides a framework for creating a consumer-centric, rather than employer-centric model.

Right now, employee wages are forced into health benefits. Companies don't offer jobs at $20 an hour or $15 an hour plus benefits in part because it is tax inefficient. But if employees are told you can earn $20 an hour cash, or $20 an hour with $15 cash and $5 in health benefits, at least some will choose all cash. Imagine a married couple. Husband earns $70k and gets roughly $10k in health benefits. Wife earns $50k with a gold plated healthcare plan costing closer to $20k. Today, the couple chooses the wife's plan. But imagine instead the husband's salary is $75k without benefits and the wife gets $60k with no benefits. Family income is $130k with the husband's plan, or $125 with the wife's plan. Healthcare spending will fall as people begin to consider the actual cost of their health insurance decisions. The failure of Obamacare is largely centered on its restrictions and regulations that force people to buy high-priced plans. There is no low cost option under Obamacare unless you are poor or qualify for the tax incentives.

The only way to cut healthcare spending is to cut healthcare spending, and give people incentives to spend less on health insurance. Single-payer is a solution, but the better one is to tax healthcare benefits. At the very least, if a lot of people opt for no insurance and costs are a problem, a small expansion of Medicaid would likely be enough. Since people have higher wages, they'd still come out ahead, but without the problem of shitty healthcare in a totalitarian single-payer system. The single-player plan (public option) can be sold as a separate insurance product so that it isn't financed by taxes, but is paid for directly by the consumers.

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