Some Democrats aren’t jumping to endorse Medicare-for-All. In the most recent primary debate on September 12, Joe Biden, Amy Klobuchar, Beto O’Rourke, and Pete Buttigieg all criticized Medicare-for-All for effectively eliminating private insurance plans, particularly employer-based ones. Republicans, such as Paul Ryan, have also attacked Medicare-for-All along these lines. That makes sense, because over 156 million Americans receive health insurance through their work.

Conservatives and moderate Democrats rightly argue that Medicare-for-All is flawed. And there are good political reasons to highlight how the policy will force change on those 156 million Americans, whether they want it or not.

But from a public policy perspective, critics are wrong to focus on how Medicare-for-All threatens the system of employer-sponsored health insurance. The employer-based model is propped up by government subsidies, contributes to America’s exploding healthcare costs, and slows down economic growth. It’s bad too.

How Did We Get Here?

To understand why almost half of Americans get their health insurance from their work, one must look back to World War II. Domestic companies experienced labor shortages, as millions of men left for war. In response, companies began to bid up wages, and, amid misdirected fears of inflation, the government imposed wage controls. Employers could, however, provide more non-cash benefits, such as health insurance. As a result, employer-sponsored insurance grew rapidly. In 1954, the IRS strengthened the link between work and health insurance by exempting it from taxation.

In 2018, the tax exclusion for employer-sponsored health insurance cost the government roughly $280 billion in income and payroll tax revenue, according to the nonpartisan Tax Policy Center. In other words, the employer-based health insurance system was born of price controls and is supported by a large tax subsidy. It’s hardly a market-driven policy, and it has made the U.S. healthcare system’s cost problem worse.

As a recent white paper from the Mercatus Center observed, the tax exclusion for employer-sponsored insurance means that employees tend to prefer much more expensive health insurance than they would without the subsidy, helping drive extraneous and inefficient health spending. That inefficient spending — along with information asymmetries that lead most patients to go along with whatever their doctors and insurance companies recommend — have caused costs to rise for Americans with employer-based insurance at a faster rate than costs in Medicare and Medicaid.

Rising healthcare costs are crucial to understanding slow wage growth for the middle class. When middle-class Americans face higher healthcare costs, the real value of income declines. Total compensation for workers has continued to rise over the past several decades, even as income growth has been slow. One partial explanation for this phenomenon is that the growth in compensation has mostly gone to paying for more expensive healthcare.

A Drag on the Economy

Linking insurance to work not only hurts the healthcare industry ⁠ — the employer-based system also helps stymie entrepreneurship.

Business dynamism, or the rate of new firm formation, has declined in the United States in recent decades. Linking health insurance to employment makes workers less likely to switch jobs — a problem sometimes termed “job lock” — or start businesses of their own for fear of losing coverage. The result is less dynamism, growth, and innovation in the economy as a whole.

With fewer competitors, existing companies can stay stuck in their ways. They don’t have to update to remain on top, reducing innovation and productivity growth. Weaker business dynamism also reduces wage growth. And fewer firms competing for workers gives larger, established companies the ability to negotiate down wages.

Noting the problems with employer-provided health insurance is not an endorsement of Medicare-for-All. The program’s price tag of around $32 trillion over 10 years is massive, more than half of what the whole federal government is already projected to spend over the next decade.

The nitty-gritty details of Medicare-for-All could create other concerns, from what procedures it will end up covering to whether or not the government will be effective at reducing provider payments to keep the price tag low (if $32.6 trillion counts as “low”). And efforts to bring down costs through government pressure could strangle medical innovation in the United States.

Critics of Medicare-for-All should focus on criticizing those shortfalls while conceding the problems of employer-based insurance. Ultimately, ending government subsidies for employer-sponsored insurance will do more to alleviate job lock than the government taking over the healthcare system.

Medicare-for-All is the wrong cure. That doesn’t mean our current healthcare system isn’t sick.