Have you ever wondered why health insurance is purchased by the employer? Our car insurance or homeowner’s insurance isn’t provided by employers. Employer-provided health insurance often traps people in jobs they don’t want, because if they leave the job they are not allowed to take their coverage with them.
The reason we purchase health insurance through employers is that it is much cheaper for the employer to pay for it than the individual, since the employer gets a tax deduction on the purchase of health insurance. If an individual purchases health insurance, they are still paying taxes on that money.
This obviously can make a huge difference in how expensive the coverage is to buy.
Let’s look at how this came to be. During World War II, there were price and wage freezes were put in place. Since employers could not legally use higher wages to attract better employees, they found a loophole and started offering benefits, such as health insurance, that were tax-free.
Unfortunately, most people today have several different jobs and even different careers, throughout their lifetime. This means that their employer-sponsored health insurance is always temporary coverage, going away whenever they leave that employer.
One important fix to the system is to make sure health insurance has the same tax implications, whether it is purchased by an individual or an employer. More individuals would be able to afford coverage, and more people would have permanent coverage that would not be affected by changes in employment.