Americans Ignore the True Costs of Health Insurance

In the health insurance debate nobody seems to talk about the role of the American paycheck. The Republican party should push for health insurance "cafeteria plans," where individuals can take their hidden paycheck costs in paid insurance premiums or in ordinary taxable cash.

One thing I'm consistently surprised by in the health insurance debate is that nobody seems to talk about the role of the American paycheck.

As the Wall Street Journal pointed out this morning, 9 out of 10 people under 65 have group health insurance through their employer.  The main distortion that group insurance creates is not directly related to taxes, though.  No, it's the premium split; the whole idea that "you" pay some percentage of the premium, and "the company" pays the rest.  So if an average family group policy costs around $460 biweekly, and there's a 25% split, only $116 of the total cost is "paid for by the employee", and that's what people experience.

This is all an obvious fiction.  In reality, the company pays for 100% of your salary and your benefits, and they make hiring and pay decisions based on total compensation.  It's just that some compensation shows up on a paycheck, and some doesn't.

Since the last attempt to control the cost of health insurance premiums, the HMO concept, flamed out in a flurry of complaints and lawsuits ten years ago, average total compensation has consistently risen, and paychecks have flatlined.  This is a problem.  But what if premiums held steady, and cash compensation rose instead?  Would we all be richer? Not necessarily.  Not if health care costs, particularly for the chronically ill, just shift from the hidden paycheck of company-paid premiums to the unhidden paycheck of out of pocket costs.

Is there a way around this? Well, yes.  Many companies offer "cafeteria plans," where you can take your hidden paycheck costs in paid insurance premiums or in ordinary taxable cash.  Many companies offer flexible spending accounts as well, so the chronically ill can get the same generous tax deductions on their out of pocket costs that they do on their insurance premiums (although, unlike health savings accounts, they have to spend the money by the end of the year or they lose it).  Put those two rather popular concepts together, and you have some pretty powerful ways to connect people to the true costs of the insurance they know and love without raising taxes on the sick.  Perhaps we can even get cash compensation moving upwards again.

So, is there any reason that Republicans can't at least talk up cafeteria plan incentives, or even mandates?