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If health insurance is an employer-based system…

Merrill Goozner thinks President Obama won’t spend much time on health care financing issues in his address tonight. “That’s unfortunate,” Goozner writes. “Creating a sustainable financing mechanism for health insurance — whether delivered through the public or private sectors — has to be addressed. The current system — an optional ax levied at the employer’s discretion — is the reason why we have nearly 50 million Americans without coverage.”

Merrill Goozner is an award-winning journalist and author of “The $800 Million Pill: The Truth Behind the Cost of New Drugs” who writes regularly at

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Why do so many employers find it expedient to ignore their responsibility to their employees?

The reform debate in Washington rarely asks that question because it brings up too many uncomfortable issues. Over the past three decades, many if not most of the new jobs created by the “Great American Jobs Machine” (in free-fall lately) have been low-paying, low-skilled service jobs filled by workers who, if they demand higher wages or benefits, can be easily replaced, especially at times of high unemployment like now.

Health care as a job-based benefit only exists because large firms embraced it during World War II to get around wage controls. They needed some incentive to hold onto their most highly-skilled workers in the tightest labor market our nation has ever known. Unemployment during WWII was down around 2 percent.

Today, there’s no incentive for firms that rely on low-wage, semi-skilled workers to do that. Many of those businesses are small businesses: fast-food franchisees; mom-and-pop retailers; small manufacturers; providers of local services. Some are large corporations like big-box retailers and restaurant chains. And even when these employers provide coverage, it is often bare-bones and inadequate, leaving individual workers paying a substantial portion of their premiums as well as high co-pays and deductibles.

A new survey from the Commonwealth Fund this morning catalogs the extent of the problem: Only 25 percent of employees in small business get health coverage through their employer, leaving 52 percent of all such workers either uninsured or underinsured during the year (some without employer-provided insurance get coverage either through their spouses or in the individual market). What was equally shocking from the survey was the finding that 26 percent of workers for large employers also do not have health insurance coverage.

An accompanying issue brief recounts the well-known reasons for this labor marketplace failure: small employers pay 18 percent more for the same coverage as large firms, driven in part by higher underwriting costs and broker fees but also by risk-adjustments that penalize stand-alone small employers that have older and sicker workforces.

The brief goes on to remind small business owners how they would benefit from reform by gaining access to lower cost insurance through the exchanges that the reform bills would set up. But let’s not forget that this is an indirect and inefficient solution to the larger and long-term problem for this society: how do we convert low-wage work into the kind of jobs that can sustain a decent lower middle-class lifestyle that includes health insurance?

In the 1930s and 40s, it was the self-organization of workers into unions (with encouragement from the government) that filled that role. Unions limited ruinous labor market competition and established floors for wages and benefits that laid the groundwork for a postwar boom driven by consumer spending. There’s no evidence of such self-organization today.

That means government has to step in if the nation is going to provide health insurance as a universal job benefit. It already does it for the old (Medicare) and the very poor (Medicaid).

Congress and the president have assumed throughout the health care debate that the only way to finance universal health care insurance is through general fund revenue raised from taxpayers coupled with a universal requirement that everyone buy insurance. To pay for it, part of the tax mix will come from “penalties” levied on firms that don’t provide insurance.’

But if the U.S. is going to stick with a jobs-based insurance system, doesn’t it make more sense to levy a general tax like the Social Security or Medicare payroll tax on all wages and income to finance health care? How to change the health care tax system while still allowing employers to provide insurance directly either through self-insurance or buying it in the private marketplace is a much longer discussion that I can go into here, but it is easily doable.

President Obama probably will not spend much time addressing health care financing issues in his address tonight. That’s unfortunate. Creating a sustainable financing mechanism for health insurance — whether delivered through the public or private sectors — has to be addressed. The current system — an optional ax levied at the employer’s discretion — is the reason why we have nearly 50 million Americans without coverage.

The absence of public debate on financing issues is one of the lost opportunities of this year’s health care reform debate.

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