Sunday, January 22, 2006

Employee Health Benefits - A Driving Social Force?

As health care costs continue to rise, the benefit of employer-provided healthcare becomes increasingly important to American workers. The current tax structure grants a favored status for these benefits. They are fully deductible to the employer, and excludable to the employee. Thus, there is significant leakage (if you will not mind this metaphor) in the tax base associated with these benefits.

To the extent that an employee wants to purchase this benefit for himself, then the employer is better off providing it on a tax-favored basis, instead of making the employee pay for it with after-tax dollars (as in the case of other healthcare-related consumption). Out-of-pocket costs, such as deductibles and copays, can also be covered with pretax dollars by employees who have access to flexible spending accounts.

Family coverage has also been provided through employers, as children and stay-at-home spouses obtain their health benefits primarily through the parent who is working. Thus, access to health benefits may, in some cases, be even more valuable than the earnings associated with the working spouse.

All of this works fine when the system is based on traditional families who stay together. But that ideal has been disintegrating. As men and women choose not to marry, but still have children, then you have the question of who is entitled to benefits. You also have the further social pressures associated with same-sex couples, who want these benefits, too.

Drudge linked to a story today from the Gainesville, FL paper dealing with the benefits at the University of Florida, which required the employee to submit an affidavit that the "domestic partner" was engaged in a "nonplatonic" relationship with them. As long as marriage was taken seriously as the standard for benefits eligibility, such a question would be foolish. But apparently the U.FL people wanted to separate out the platonic roommate without benefits as somehow less deserving than others. You can make your own conclusions on this, but it illustrates what happens when social structures change. Ultimately, employers will bear more costs, as illustrated in Ernie's previous commentary about Wal-Mart.

This raises an interesting question: to what extent is the structure of employee benefits becoming a driving force behind the movements to change traditional concepts of marriage? Of course, there are other legal aspects of marriage (such as inheritance) that might also influence relationships, but for the most part these can be contracted for (e.g., through a will or trust instrument, or through property arrangements) apart from the default rules imposed by law. Moreover, they are contingent on future events, whereas accessibility of benefits involves a significant present impact.

I think this situation shows how government policies influence lots of social arrangements in ways that are not always apparent to us. Employers are going to be footing the bill for more healthcare costs as these efforts to expand access to health care benefits continue to put pressure on traditional definitions and assumptions.

Ironically, those who want to expand benefits may find it difficult to avoid government or employer intrusion into one's personal life. This is likely to play into another force: the idea that a government-provided benefit to every individual, apart from employment, would ultimately yield more freedom (in this narrow dimension). It may also put less pressure on the debate over the role of marriage. However, the experiences of the Canadian system should give one pause in embracing this alternative.

Unfortunately, another option - making health care a personal choice for every family that is paid for outside of an employer-relationship - seems difficult to envison in a culture that is not used to that degree of adult responsibility.


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