There are two key tax code reasons why we have an employer-driven health benefits structure.
First, the expenses for healthcare coverage are tax deductible to the employer. Second, the healthcare benefits are not considered income (i.e., not taxable) to the employee. As a result of this double whammy, it makes little economic sense for an employee to opt out of health insurance benefits at work, even if the employer was able to pay the employee cash in an amount equal to the cost of the health benefits, as that cash would be taxable.
Partially as a result of the current structure, the government (encouraged by lobbyists) has in effect limited the amount that even the sickest employees risk paying out of pocket, which has made them ignorant or indifferent consumers in the healthcare marketplace, even under so-called high deductible plans. I personally struggled with an autoimmune disease for 25+ years, and every year I blew through my maximum out-of-pocket expense cap in the first calendar quarter. Knowing that would be the case, I would try every test, procedure, drug, or other doctor recommendation with no regard to cost. The “sick-care” system was happy to oblige, and my “insurance” often spent tens of thousands of dollars annually on my care, which cost was spread among the healthier insured population of my employer and drove ever-increasing premiums to my employer. Subsequently, I regained my health through some relatively simple lifestyle changes, and I now see the doctor rarely, and typically just pay out-of-pocket for the tests and scans that I believe support my health, knowing that I’m unlikely to ever hit my personal deductibles. Nevertheless, my employer still pays a large premium for my health coverage based on my age rather than my health, which premium now goes to cover those still on the healthcare hamster wheel.
But let’s say that instead of, or in addition to paying for my premiums, my employer was permitted to put a large amount in some sort of Healthcare Savings Account (HSA), maybe providing only typical insurance for the most catastrophic health events costing more than, say, $25k. The premium savings would be significant. (Note that HSA deposits currently are capped at $3850 for an individual, approximately the employee out-of-pocket expenses under a company health plan, perfectly discouraging people from finding the best healthcare for themselves.) This payment to me would be deductible to my employer and not taxable to me, provided I used it for HSA permitted healthcare expenses. If I had HSA dollars left over, I could withdraw them when I reach a certain age, which is the current rule for HSAs and not unlike an IRA or 401(k).
Under this system, more people would be paying their own healthcare expenses, and the US would develop a more competitive and transparent healthcare marketplace, particularly for routine “maintenance” tests and procedures, which would drive down costs. Furthermore, knowing that they ultimately get to keep their dollars if they stay healthy, people would be more likely to make healthy decisions and spend their tax-free dollars on healthy foods, gym memberships, etc. that have demonstrated a healthy ROI, for health and wallet.
To use an imperfect metaphor, if you decide not to get regular oil changes, or put air in your car tires and change them occasionally, your car will stop running or lead to an accident. If you do get in a serious accident, then you would have coverage for this “catastrophe.” Yet the average person goes years without making any sort of insurance claim. Why don’t you buy insurance against the need to get new tires, and then let the tire companies and the insurance companies decide when you need new tires and adjust our premiums accordingly? That’s by analogy what we do in the current healthcare system, which is nonsensical, and the decision-makers from Federal agencies to hospital systems, pharma, med-tech, medical associations, etc. have been growing exponentially while we get sicker and, as taxpayers and employees, pay the bill.