Capretta: Maven Can’t Fix Health Care

The Strategic Flaw that Maven Can’t Fix:

Job-based health care suffers from a collective action problem. Employers offer insurance to their workers as part of their compensation packages. Firms want to attract good employees, and so they have an incentive to offer high-quality health benefits. Federal tax law encourages generosity by exempting employer-paid premiums from workers’ payroll and income tax obligations. Because cash wages are fully taxable, compensation has shifted over time toward health care, with employers offering ever-more generous plans.

Expansive employer coverage contributes to system-wide cost escalation. Hospitals and physician groups organize their operations in part to appeal to workers covered by generous job-based insurance. When that coverage lacks meaningful cost discipline, the entire system becomes more expensive.