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Americans are making a big mistake about health care

If you want to understand the politics of health care in the United States, you really need to understand this finding from a recent Economist/YouGov poll that shows why it's so difficult for wonky ideas — of either a left-wing or right-wing slant — to gain much toehold with the American people.

(Joss Fong/Vox)

The way people in the policy community see it, this is totally backwards. Almost everyone who has health insurance in the United States gets help from the government to afford it. For the elderly, that's Medicare. For the disabled and the poor, that's Medicaid. For full-time workers it's the tax subsidy for employer-provided health insurance.

Some of what you see in this poll is a simple misunderstanding — older Americans either don't know what Medicare is or mistakenly believe they have "paid for" their benefits with earlier taxes.

But Americans who get insurance from their jobs are also benefitting from a massive government program. A program whose existence is hidden from sight but is nonetheless quite real and substantial.

How job-based health insurance is subsidized

The way this works is that when your boss pays you money, you have to pay income taxes on it. When your boss pays you in health insurance, you do not have to pay income taxes on it. That makes it efficient for bosses to pay employees, in part, by buying health insurance for them.

But — importantly — this health insurance is regulated.

The boss can't buy insurance just for the younger and healthier employees, he can't charge women more for it than men, and he has to offer it to all new hires regardless of their health history. This is the foundation of the American health care system. The regulations mean that job-based insurance is available to workers who have substantial health care needs and would be uninsurable on a free market. And the tax subsidy is sufficiently generous that participating in the system makes sense even for workers with lesser health care needs.

The subsidy here is subtle — part of what Suzanne Mettler calls the Submerged State — but without it health insurance as we know it simply wouldn't exist.

A target for reform

This system works great for people who work for big companies because big companies provide large risk pools. It does not work well for the self-employed, for small businesses, for contractors, for part-time workers, for people who get laid off, or for entrepreneurs because an individual or a small group can't spread the cost of caring for an individual sick person across a large group of mostly healthy people.

One of the few things that policy experts of all kinds can agree on is that it's arbitrary and unfair to provide this subsidy to employees of large companies while other workers go unsubsidized and uncovered.

The Affordable Care Act seeks to address this unfairness by creating a parallel system of subsidies from people who don't get job-based care while paring back the tax subsidy for the most expensive job-based plans.

Most conservative plans — from the one John McCain ran on in 2008 to the one Richard Burr, Orrin Hatch, and Fred Upton are pushing in the current congress — level the playing field by eliminating (in McCain's case) or curtailing (in the current bill's case) the subsidy for job-based plans. Avik Roy, a leading conservative health wonk, calls this subsidy the "original sin" of American health care policy.

But as far as the public is concerned, liberals and conservatives might as well be arguing about what to do with the Loch Ness Monster. A huge share of the American health policy debate is a debate about what to do about a subsidy that the public doesn't realize exists.

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