By J.D. Kleinke

What makes the contraception coverage debate currently raging in Washington unusually problematic is that both sides are exactly right. Female employees who receive part of their cash compensation in the form of health benefits have the right to benefits that include FDA-approved birth control methods. Employers defined by their religious values—not just churches, synagogues, and mosques, but also thousands of hospitals, universities, and charities—should not have to compromise those values with their own money, and the government has no right to trample the First Amendment by compelling them to do so. The Obama administration’s “accommodation” —shifting the new federal requirement to the insurers who administer those organizations’ health plans—is a cynical shell game that ignores the most basic tenets of business accounting.

As the problem is no more complicated than two sets of equally valid rights in direct opposition, neither is the solution all that complicated, at least in principle: employment and health insurance should have nothing to do with each other.

Unfortunately, this arrangement—a relic of the World War II civilian wage freeze and enshrined in the tax code as soon as workers got a taste of this new-fangled “fringe benefit” of employment—is now an enduring part of the U.S. healthcare system. The entanglement of our health insurance with our employment goes a long way toward explaining not just today’s conundrum over the birth control coverage mandate, but myriad other economic distortions, market dysfunctions, and cultural conflicts that define much of what is wrong with the U.S. healthcare system.

The Obama administration’s ‘accommodation’ last week is a cynical shell game that ignores the most basic tenets of business accounting.

A dozen years ago, the exact same debate played out in public over requirements that employer-sponsored health plans cover female birth control if they also covered vasectomies for their male employees. At about the same time, in private, executives from many large corporations that self-insured their health plans—and thus could tailor those benefits all the way down to monthly pill counts—took time out of their busy days to argue over, among other pressing health benefit design matters, the monthly number of Viagra tablets they would cover for their workers. Seriously.

Thanks to the tax-advantaged status of employer-sponsored health coverage, U.S. employers are forced to make decisions about the most intimate details of their employees’ private lives. Coverage of in vitro fertilization for employees unable to become pregnant on their own—a drawn-out, morally ambiguous process with a total price tag now pushing $30,000 and a high rate of costly medical complications downstream—is another glaring example. While more folklore than actual practice, employers have on occasion terminated employees with expensive medical problems—most famously, those with HIV/AIDS. And a large number of employees believe their employers snoop through their medical records for precisely this reason.

As a result, many employees withhold information from their own physicians; they lie about their medical conditions to other caregivers; they fragment the more sensitive components of their own care (e.g., psychiatric treatment and medication); and in the process, they expose themselves to the medical dangers of conflicting medications and incomplete information. A different class of employees will find as many ways as possible to consume every kind of medical service they can think to need, in effect giving themselves tax-free, non-cash raises with each unnecessary or overpriced medical product and service. And there is abundant literature documenting the shift in compensation from cash to all manner of “health” benefits (e.g., luxury medical spas) for highly compensated employees, as a way of avoiding taxes.

The rising cost of all employee benefits—in particular health benefits—has diverted compensation resources away from wages.

These are the costly and counterproductive games that tens of millions of employees play and, ultimately, that we all lose out on because they coalesce into a healthcare system marked by misallocation, mistrust, and misuse. Contrary to what the average worker says about something from the company health plan being “free,” it isn’t. As Sylvester Scheiber and Steven Nyce found in their “Treating Our Ills and Killing Our Prospects,” which they presented at the American Enterprise Institute in October, workers’ productivity increases over the past 30 years have not translated into cash raises. The rising cost of all employee benefits—in particular health benefits—has diverted compensation resources away from wages and straight into the healthcare system.

Unfortunately, the fundamental economic dysfunctions of an employer-financed healthcare system—and all the inevitable collisions between an employer’s moral position and an employee’s personal privacy—are not going away any time soon. A cornerstone of the Obama health reform plan involves cramming still more people into employer-based health plans, thus guaranteeing a future filled with more showdowns like today’s contraception conundrum. So much for the best, most profound, and most obvious solution.

The next best solution to this problem is the stealth one the market has slowly been introducing since the early 2000s, when command-and-control managed care started giving way to more consumer-oriented forms of health insurance. Higher deductible insurance, Health Savings Accounts, and more employee cost-sharing for drugs mean that low-cost, routine medical items like birth control can once again become the business not of American business, but of American women. Which is precisely how it was at the end of World War II, when health insurance truly was a “fringe” benefit; the standard deductible was $200 ($1,881 in today’s dollars, let alone healthcare dollars, which are easily double that); and you hoped you never actually needed it—like fire, auto, or homeowners’ insurance today.

Thanks to the tax-advantaged status of employer-sponsored health coverage, U.S. employers are forced to make decisions about the most intimate details of their employees’ private lives. The fact that routine birth control is even included in a debate about “insurance” is ridiculous anyway—as if a woman becomes accidentally sexually active one day, the same way she can have a heart attack, or fall and break a hip, or confront breast cancer. Wrapping all of the routine matters of our self-care into an “insurance” plan belies how completely warped the insurance system has become over time, thanks to the tax-advantaged imposition of our employers into our private lives.

From this broader view, the entire contraception conundrum—with its forced stand-off between two groups who have equal and opposing claims on the outcome—could have been avoided entirely. Instead of mandating coverage for something a large group of American women want and need, and that a sizable group of American employers find abhorrent, the government could simply have made it easier for those same employers to pay their employees their full compensation in the form of pre-tax cash—and use it to make their own healthcare decisions.

J.D. Kleinke is a medical economist, author, and health information industry pioneer. His work has appeared in the Wall Street Journal, JAMA, Barron’s, the British Medical Journal, Modern Healthcare, and numerous other publications.