After last week's failed attempt at Obamacare repeal, Republicans are starting the new week playing the blame game. President Trump and House Speaker Paul Ryan, R-Wis., blame the House Freedom Caucus, a bloc of conservative Republicans who largely refused to vote for the bill, for their lack of party loyalty. Caucus member Rep. Jim Jordan, R-Ohio, has deflected the blame, calling on House GOP leadership to work more diligently to deliver a more conservative bill that will gain sweeping support.
To paraphrase Trump, who knew that healthcare could be so complicated?
Unfortunately for Republican politicians, conservative policy wonks have been warning about healthcare reform's complexity for years. The inconvenient truth is that there's no easy solution to facilitating a more affordable market, particularly with insurance. That's because the current system is based on a major perverse tax incentive that was seeded during World War II and has grown into the Frankenstein system we see today.
I present to you the story of the original sin of health insurance.
With millions of American men off to war during World War II, factories needed an incentive to lure new employees and keep the conveyer belts running. As such, they started offering ever more generous benefits packages, popularizing the idea of employer-based health insurance.
Then, a major decision came from the IRS in 1943, exempting employee withholdings paid towards employer-based insurance from payroll taxes. This created an even greater incentive than the war for employees to offer generous health packages that has lasted to this very day. By contrast, individual health insurance plans were not tax exempt, causing workers to expect their employers to provide health coverage.
Forbes' Avik Roy broke down how the nudge works by example in a 2010 National Affairs article:
For example, a worker who pays federal and state income taxes at a combined rate of 30 percent will receive $7,000 for every $10,000 his employer provides in gross salary. But the same employee will receive $10,000 in benefits for every $10,000 his employer spends on health insurance — a 43 percent improvement.
As a result, the percentage of Americans covered by employer-based insurance jumped from 9 percent in 1940 to 63 percent in 1953. Fast forward to today, it is now a social norm seemingly engraved in stone, and physically engraved in Obamacare for large companies through the employer mandate.
We now have a system where healthcare prices are negotiated between third-parties (hospital and insurance companies) and paid for by fourth-parties (employers). This opacity and bureaucracy has caused premiums to skyrocket, and unfortunately there's no easy fix.
Repealing the employer tax credit would doubtlessly cause major protest from employers, insurance companies, and hospitals alike — the Three Horsemen of the Healthcare Apocalypse, to keep the Biblical metaphor alive. Yet, until Republicans roll up their sleeves and address the original sin of health insurance in one form or another, it's unlikely that things will get much better anytime soon.
Casey Given (@CaseyJGiven) is a contributor to the Washington Examiner's Beltway Confidential blog. He is the executive director of Young Voices.
If you would like to write an op-ed for the Washington Examiner, please read our guidelines on submissions here.