With millions of people losing their jobs, and maybe their employer-provided health insurance as well, it is a good time to ask, how does the federal government encourage private coverage—both at work and for those who buy their own? And is there a better way?

The short answers are: the current system is an incoherent mess; and of course there is a better way.

Let us look at what the federal government is doing now.

Employer-provided coverage escapes income and payroll taxes—a generous subsidy that can amount to as much as half the cost of the insurance. But this is a highly regressive form of subsidy—one which gives the most help to employees with the highest incomes. In fact, families in the top tenth of the income distribution as a group get about 30 times as much subsidy as people in the bottom tenth.

For people who purchase their own insurance, Obamacare subsidies lower buyers’ premiums and in some cases their out-of-pocket costs. Unlike subsidies in the workplace, this system is highly progressive. The lower the buyer’s income the greater the amount of help. But it is also a subsidy that phases out rather quickly. An individual who earns as little as $50,000 gets no help at all.