The Real Health Care Radicals

By Ramesh Ponnuru

Most Americans of working age get their health insurance through their employers. The Democrats running for President want to keep it that way. The Republicans don't.

If you listen to what each party says about the other, you would get a very different impression. To hear the Democrats tell it, the Republicans are happy with the health-care system we have: all they do is stand in the way of Democratic improvements.

But the truth is that it's the Republicans who make more radical proposals. They want to make a break with more than six decades of government policy. During World War II, employers started giving workers health benefits to get around wartime wage controls. Since then, the government has continued to give a tax break for employer-provided health insurance; it isn't taxed, the way wages are.

That's how we ended up with the health-insurance system we have now, based on employers. You get a tax break if you get your insurance through your job. If you get a raise and use it to buy your own insurance instead, you have to pay taxes on that money. (Ditto if you use your raise to pay doctors directly.) Almost everyone takes the tax break. The market for insurance bought by individuals is, as a result, small and stunted, which is all the more reason to stay in the employer system.

Republicans used to consider health care a Democratic issue--not something they needed to do anything or even think much about. But in recent years, most Republicans have come to believe that our health-care system is dysfunctional because it is employer-based and that this dysfunction has to be attacked at the root.

In this view, everything people dislike about our system results from the tax break for employer coverage. It makes costs rise, since people are less careful when they're not paying out of pocket. It means people often lose their insurance when they switch jobs. And it keeps a lot of people--those who don't have employers who provide coverage--from having much access to health insurance.

In his State of the Union Address this year, President Bush proposed letting people who buy insurance for themselves qualify for the break too. The Congressional Budget Office estimates that his plan would help 7 million people who don't have insurance get it. But its main point is to offer individuals more control over their health care--to make it possible, for example, for them to keep their policies when they switch jobs.

Free-market health-care experts note that most types of insurance--think of homeowners' insurance--cover major expenses that have a low likelihood of happening to any individual rather than routine and predictable expenses. Thanks to the existing tax break, health premiums have become a way of prepaying for medical care. Under Bush's plan, a lot of people would buy cheap insurance policies that cover emergencies while paying for routine care out of pocket. Cost-conscious consumers could drive down the price of health care.

Rudolph Giuliani has adopted elements of Bush's plan as his own. Mitt Romney and John McCain also have plans that would reduce the tax code's favoritism toward employer-based care.

Liberal health experts worry that these plans would cause the employer-based system to unravel. But it's already unraveling. As health costs increase, companies are cutting back on their coverage or dropping it altogether. The Democratic solution to the problem is to find new ways to bolster the employer-based system and fill in its gaps.

The federal government long ago got into the business of insuring two groups that the job-based system excludes: Medicare covers retirees, and Medicaid covers the jobless and indigent. These programs have been expanding. The Democratic plans would expand the federal backstop still more to achieve universal coverage. So both parties would shift responsibility for health care away from business. The main difference is whether government or individuals would get control of the money business now spends on health care.

The Democrats have hardly noticed the turn in Republican thinking on health care, in part because the Republicans seem so weak right now. But the Democrats have already started to emphasize how incremental and unthreatening their plans are. In the months to come, look for them to start accusing Republicans of being radicals who want to end health insurance as we know it. The accusation will be true.

Ponnuru is a senior editor at the National Review