Have you ever questioned why we receive our health insurance from our employment in the United States but not our home or auto insurance? The solution is a tax exemption for health benefits under the New Deal of 1943.

As a proponent of limited government, I typically support initiatives that lower taxes. However, this tax advantage has severely damaged American healthcare. Perhaps no single policy change is more crucial than ending that tax incentive as Congress works to "repeal and replace" the Affordable Care Act (ACA, or "Obamacare").

Your business can give you what amounts to extra money without paying the higher Social Security and Medicare taxes it would otherwise pay if you received a larger paycheck because the health insurance premiums employers pay on behalf of their employees are tax free. Additionally, employer-provided health insurance exempts you, the employee, from income taxes, Social Security taxes, and Medicare taxes. This saves you money overall.

Doesn't it sound innocent? Even the sound is fantastic!

But it isn't because taxing people differently based solely on whether they or their employers pay for their health insurance skews people's incentives and negatively affects the market for health insurance in a number of ways. The effect we'll talk about here is that it results in sick people losing their health insurance.

This page provides a brief history of this tax break's origins and discusses how it, unfortunately, causes people to lose their health insurance at precisely the wrong time.Medical Coding Services

Including broad employer-provided health insurance and wage controls This tax exemption was a product of a prior government intervention, just like so many others.

The initial government action that started the entire regrettable process was the implementation of wage and price controls during World War II. Government restrictions on the salaries businesses could provide employees were part of the New Deal.

These wage limitations led to shortages, as do any legally mandated price ceilings. At the wages they were permitted to pay, businesses were unable to find as many qualified workers as they need.

Therefore, some businesses were able to recruit the staff they needed by providing perks in addition to wages. Health insurance was one of these extras.

The issue therefore became whether or not the health insurance premiums that companies paid for their workers, which were undoubtedly a part of their overall pay, would be regarded as income for tax reasons by those workers. The IRS decided that they would not in 1943.Dental Billing Company

After that fatal decision, employees' employer-provided insurance was less expensive than their own insurance.

A straightforward illustration demonstrates why: Let's say your employer is ready to pay $1,200 per month for your services, your income tax rate is 20%, and you desire a health insurance plan that costs $200 per month. If you receive your entire $1,200 monthly salary in cash from your employer, you will first have to pay $240 in taxes on it before using your $960 post-tax income to pay for your health insurance. You would then have a $200 health insurance policy and $760 in cash each month.

However, you only pay $200 in taxes if your company pays you $1,000 in cash in addition to a $200 payment for your health insurance. The $200 health insurance policy and $800 in cash are what are left over each month as opposed to just $760.

Due to the differing tax treatment that persisted even after the New Deal wage restrictions were lifted, companies continued to provide health insurance, employees continued to accept it, and employer-provided health insurance spread widely. We ask, "What are the health benefits?" while choosing a new job as if it were commonplace for businesses to provide health insurance.

But without the tax break, it wouldn't make sense for our employers to pay for either our health insurance or our house or auto insurance.

Employers do not have specialised understanding of health insurance, and therefore are unable to provide us with as many options as we could in a market that is free from market distortions. However, here we are. Like most individuals, I get my health insurance via my job because doing so is far less expensive than doing so on my own. However, as we'll see in a moment, it's riskier in a significant sense.

Why really ill patients are no longer covered by employer-provided health insurance Unfortunately, having so much health insurance given by companies has a terrible unintended consequence.

People lose the health insurance that comes with their jobs when they become ill and remain that way long enough to force them to quit working. The irony makes me hurt. To cover us in case we become really ill, health insurance is mostly purchased. However, if we do become seriously ill, we lose our insurance. It's absurd.

The decision of our government to not tax pay in the form of health insurance premiums is ultimately to blame for this madness. People would pay for health insurance individually, just like they do for home and auto insurance, if that foolish policy didn't exist. And the majority would undoubtedly select "guaranteed renewable" policies, which state that even if the insured person becomes ill, the insurer will not terminate the policy as long as the insured continues to pay the premiums.

In other words, the issue of people losing their insurance when they become seriously ill (or are fired, change jobs, or for a variety of other reasons relating to their employment) is brought on by the particular tax treatment of employer-provided health insurance. Congress must put an end to this. Employer-paid premiums may no longer be free from taxes, but individual premium payments must still be treated equally.

ReadMore: MedsIT Nexus

People would quit purchasing health insurance through their companies and start purchasing it on their own, just like they do with their house and auto insurance, if Congress were to do that. They would purchase assured renewable insurance. Additionally, people would no longer lose their health insurance when they fall ill.