Jacob Sullum

You may be wondering how President Bush's health insurance plan would affect you, the taxpayer. The answer depends on whether you have medical coverage, where you get it and how much it costs.

My family, for example, gets health insurance through my wife's employer, and it costs -- actually, I have no idea what it costs. That's one of the problems Bush wants to address by eliminating the tax code's bias in favor of employer-provided medical coverage, which distorts the insurance market, promotes insecurity and raises health care costs.

This bias was created more or less by accident. During World War II, businesses competing to attract scarce workers got around wage and price controls by offering health insurance instead of higher pay. In 1943 the Internal Revenue Service decided not to count this increasingly popular fringe benefit as taxable income, a policy codified by Congress in 1954.

In effect, notes John Goodman, president of the National Center for Policy Analysis, someone in the 25 percent income tax bracket may receive a subsidy of close to 50 percent for employer-provided medical coverage, once you consider state income taxes and the 15.3 percent payroll tax that funds Social Security and Medicare. If he buys insurance on his own, he typically gets no tax break at all.

The upshot is that most Americans get medical coverage through their employers, which is a strange situation when you think about it. People do not, as a rule, expect their employers to pay for their car insurance, their life insurance or their homeowner's insurance. Why should employers pay for their health insurance?

In a system based on employer-provided insurance, people lose their medical coverage when they lose their jobs, a problem that becomes increasingly serious as they get older and sicker. At the same time, the seemingly free coverage makes health care more expensive for everyone.

Not only are you unlikely to know or care how much your employer spends on health insurance, but the coverage may be more generous than you would choose on your own, which means you are unlikely to know or care how much particular services cost. If you were using your own money to buy insurance, you might opt for a cheaper policy with a higher deductible, in which case you would be more conscious of things like the fee for an office visit or the difference in price between name-brand and generic drugs. Indifference to such considerations contributes to escalating health care costs.

Jacob Sullum

Jacob Sullum is a senior editor at Reason magazine and a contributing columnist on Townhall.com.
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