After I wrote my earlier post on health insurance, I made a similar blog comment over at Reason last week and immediately got into a brief debate with some jackanape hell bent on calling me a hypocrite for relying on my wife’s employer-provided insurance rather than putting my money where my mouth is and buying my own coverage.

So let me clarify my position:

Under the system we have today, the best option for my family is to use my wife’s employer sponsored plan. She works for a large company and, thanks to the way the tax code is set up, it’s cheaper and easier for us to use her plan. I fully admit that I am benefiting from the system we have today.

But that doesn’t mean that I think that the system is the best possible one, nor does it mean that I am a hypocrite who isn’t allowed to have any opinion on the system itself.

(And, for what it’s worth, shouting “HYPOCRITE!” isn’t an argument, its a form of  ad-hominem attack that one falls back on when he can’t argue facts. Loser.)

More detail? OK.

The system we have today, at least from a tax perspective, is geared towards employer provided plans. It’s a relic of World War II wage controls where companies had to offer really good perks to compete for employees since they were prohibited by the federal government from competing on wages. Somewhere along the way the IRS began to allow those health insurance premiums to be deducted as a business expense and the practice continues to this day.

(I am ignoring the whole issue with the meaning of the term “insurance” here, which, along with access, is the other prong of the health care reform issue: rising costs. When I say “insurance” here, I mean a payment plan for health care services, but not necessarily true insurance, which is a provision for the risk of a future liability, which generally is not the same what most people have as “insurance” today.)

As most people probably know, when you have health insurance through your employer, your employer doesn’t usually provide it for “free”, he typically considers all, or at least a portion, of the premium to be a deduction from your net pay. Employees can then usually choose the level of coverage they want – or no coverage at all – and receive a proportionally higher or lower net paycheck based on that choice. Nonetheless, regardless of how employers classify those premiums relative to an employee’s pay, since the employer is ultimately the one writing the check to the insurance company, the IRS considers the employer to be the one who is actually paying for the policy and therefore allows the employer to take the tax deduction.

This only works for plans “paid” for by employers – individuals do not get a similar deduction from their personal taxes. If you were to decline your employer’s coverage and maximize your net pay relative to the insurance coverage, you still couldn’t just go buy an equivalent health insurance plan of your own and see a commensurate reduction in your personal income taxes for the cost of that policy. The employer is buying the policy with before-tax dollars and you’re buying the policy with after-tax dollars, so, in a sense the employer is getting a discount on the policy that you don’t, and you’re not going to come out equal on April 16th.

So, when my wife’s employer deducts our family’s insurance policy from her paycheck the amount of that deduction is MUCH smaller than it would ultimately cost us – in premium payments and taxes paid – to buy an equivalent policy, not to mention the added savings we get because she works for such a large Fortune 50 company with so many employees in the potential insurance risk pool (compared to my company, which has one employee, me, which is why we our on her plan to begin with).

Now get this point straight first: this is just the way that our system is set up and, under that system, it’s cheaper for us to get our coverage through her employer, so that’s what we do.

And it’s that way for all employees all over the country – it’s almost always cheaper for employers to pay for those policies than it is for individuals. There is no fundamental reason for this to be so, except for a political decision made fifty or so years ago to allow that tax deduction to be allowable only for employers, which was, in essence, part of a larger political decision to express a preference for as many citizens as possible to be reliant on large companies and less independent than they otherwise would be. There is a tremendous ineffiency in the labor market because of this, because many many people are reluctant to change employers or strike out on their own because of the change, or loss, it would incur to their health benefits. This doesn’t have to be so, it’s only because of a deliberate political decision to make it that way that we have the system we have today.

It is also important to note that companies are not required in any way to offer this coverage, most do so out of their own benevolence towards employees (even if employees “pay” for the entire premium through a paycheck deduction, there are still administrative costs and efforts to the company that are associated with offering health plans), and because modern workers today expect to be offered a health plan in conjunction with employment. But there is no legal requirement that employers offer coverage and there shouldn’t be. Running a business is hard work, containing and controlling expenses is difficult, and there is still a nominal level of autonomy and independence in our economy today that should still be respected. Mandates on businesses make business harder to run and operate and encouraging business creation and growth should be a goal of the government as part of its obvious role in growing the economy.

When President Obama was making his final remarks last week, he spoke of employer insurance almost as a right to be asserted by the employee, and insinuated that employers who don’t pay for insurance for their employees are doing wrong by the employees and should be criticized for contributing to what he sees as too high a percentage of Americans without health insurance. In a sense, the tone was one of wanting to force employers to offer coverage and not one of trying to enable more individuals to take care of their own needs. There was an unspoken assumption that employer-based coverage is always the best way.

This assumption may or may not be correct, but I think it’s fairly clear that the system we have today, where employer-based coverage is financially privileged via tax incentives and therefore is the dominating paradigm, has caused serious inefficiencies both in the growth of the economy and in the labor market. And if that’s the case, then it should follow that we should be looking for ways to minimize those inefficiencies, and one way of doing so would be to make it easier and cheaper for individuals to acquire and pay for their own insurance if they so choose. Under the system we have today, it is usually cheaper and easier for employees to be covered by employer plans, but that doesn’t mean that the system itself is the best choice.

And this gets to my ultimate point: President Obama apparently has made the decision that employer-based insurance – or government provided insurance – is the only acceptable system for our health care needs. There is no mention of individual responsibility or enabling individuals to provide for their own care. My preference – and the preference of anyone who believes in liberty and free markets – is for a system where employees are not afraid to move from job to job and where employers are free to run their businesses as they see fit. If employers are benevolent and generous enough to provide coverage to their employees, then that’s good, but their employees’ health is ultimately not their responsibility and they should not be forced to offer coverage or be bullied by the government when they don’t. This is not to say that I don’t agree that people’s lack of access to care is not problem, only that I think people should be allowed and enabled to provide for themselves if they so choose and not be punished for it by the tax code or by an overbearing federal government.

It’s clear that President Obama disagrees and thinks that the only way to expand coverage is to expand the reach of large organizations, whether through employers, or, as he has said before, through government, with no mention at all about individuals. I can only assume that this is for political reasons, best described as a pursuit of the “Dependency Agenda” that George Will often talks about. This worries me and is a major substantive part of the debate we are having today about health care reform. I do not believe the current system is as efficient as it could be and I prefer a completely different system.

Whether or not my family takes advantage of the system we have today is utterly irrelevant.