No issues in the ongoing Congressional health-care debate have generated more heat than the so-called public option and proposed taxes on “gold-plated” health insurance plans. Conservatives view a new government-run health insurance option as creeping socialism. Unions fear that taxes on generous health plans would penalize their members for hard-won concessions from employers.

Given the torrent of ink and days of air time devoted to both topics, HBS professor Regina Herzlinger offers a refreshing alternative. She sees no need for either a public option or taxes on gold-plated health plans.

Herzlinger points to Switzerland as a model system without a government-run plan. “What I like about it is that it’s got universal coverage, it’s customer driven, and there are no intermediaries shopping on people’s behalf,” she recently told the New York Times. “And there’s no waiting lists or rationing.” The system works because the government requires Swiss insurers to offer coverage to everyone, regardless of medical history. And everyone is required to buy insurance, with government subsidies to those for whom health insurance equals more than 8 percent of personal income.

Rather than tax health benefits, Herzlinger favors tax breaks. She proposes that Congress simply extend to all employees the current tax-exemption employers have for the purchase of employee health plans. Writing in the National Review, she explained how this would work: An employer who today spends $17,000 on health insurance for the family of an employee, for example, could instead offer the employee $17,000 in wages. Any money the employee used to purchase health insurance would be tax free. If any was left over (say $5,000 after the purchase of a $12,000 comprehensive family policy), it would be taxable. For workers at firms that didn’t offer health insurance, any amount they spent on health insurance also would be tax-free.

Herzlinger contends that extending the health-care tax exemption to workers would be relatively easy to implement, help control health costs because workers would shop for affordable policies, and boost take-home wages.

Both of Herzlinger’s reform ideas seem worthy of Congressional consideration. Has Congress missed an opportunity here?

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