Why You Probably Can't Fire Your Health Insurance Provider

When Mitt Romney said yesterday that he likes "being able to fire people who provide services to me," he was talking primarily about health insurers. But there's a reason many people can't easily "fire" their health insurer: Their health insurance is attached to their job. About 45 percent of Americans get health insurance through their workplace, and they don't have many choices to pick from. Now, some employers offer a limited choice of plans and options, but even in those cases it's far from a wide-open marketplace. For the most part, employees are stuck with the health insurance their employer offers.

The reason is that unlike wages, employee health benefits aren't taxed, and they haven't been since World War II. It's essentially a subsidy on employer-purchased health insurance. That means that employers have an incentive to beef up benefits, which helps explain the long-term rise in health spending. It means that employees take what's offered rather than shop for their own insurance on the open market. And in an economy with a lot of job switching, it means that people don't stay with their health insurance plans for a lifetime.

The tax exclusion for employer sponsored benefits has shaped the American health care market for decades, locking people into job-based insurance, decimating the individual health insurance market, and making it difficult for people to pick a health insurance plan early in life and then stick with it. Romney frequently talks about wanting to make health insurance work more like a market, but neither he nor any of the other Republicans have proposed getting rid of the tax exclusion for employer-provided benefits. (Democratic Sen. Ron Wyden, who recently teamed with GOP Rep. Paul Ryan on a joint Medicare reform plan, proposed shifting away from employer-sponsored health insurance as part of The Healthy Americans Act in 2008.) There are obvious political reasons for avoiding the topic: Along with the home mortgage deduction, the tax break for job-based health insurance is among the most popular tax breaks. But it's responsible for a big part of the mess the American health care market is in, and yet no one really wants to touch it.