“Free” Health Care Benefits Are Not Free

Democrats are backing away from their health care proposals after pushback from unions. If you ever needed a good example of the principal-agent problem in our health care system, this is it:

One speaker at a labor town hall in Davenport, Iowa, on Monday told Mr. Sanders that he was concerned about losing the coverage he received as a United Automobile Workers member. “You want to put us on a socialized health care and get taxed more for it while we get it for free, basically, from our employers,” the man said.

No, no, no. As an employee, you’re not getting your health care “for free.” If your employer is covering the cost of your health care, that means they have less money to pay you and your colleagues. It’s true that there are tax implications to consider, because we have decided not to tax $1 of in-kind health care contributions the same as we do $1 of income. But there’s no magic here, the money has to come from somewhere.

Worse, if your employer is “paying” for all of your health care expenses, that doesn’t give you much of an incentive to control costs. The health care industry is all too willing to suggest more (and more expensive) products and services. Meanwhile, employers have less and less money to pay in base salaries. Employees may experience this system as “free,” but it’s certainly costing them in the end.

–Guest post by Chad Aldeman