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If we just changed the tax code so that either everyone could deduct the cost of healthcare, or no one, then businesses would not feel obliged to buy health insurance for their employees (the current system almost forces everyone to get their health insurance from an employer, since it is tax-free to the employee, and the employer can deduct it as a compensation expense). Employers could pass the money they are spending on to their employees, and everyone could buy their own. That solves the portability problem (you can take your insurance with you whereever you go), and it would encourage everyone to think about whether they were spending their money on a policy that made sense for them.
The biggest problem this would solve is the "third-party-pays" problem. Currently, those who use healthcare are not the ones who pay for it. To understand why this is a problem, consider the following thought experiments:
Jenkins writes from the point of view of an historian looking back on the huge changes that followed from tax reform that put everyone in charge of spending their own money on healthcare:
I give my child a credit card when he goes to college, telling him that it is for emergencies and for special purchases such as books and supplies. What are the chances that he will use it for all manner of things, since I am the one paying the bill? How careful will he be about his purchases, even if for legitimate purposes? How likely am I to be shocked at how much he ends up spending each month?
The government decides that no one should go hungry, and that it is not fair for the rich to be able to eat more than the poor or middle class. Everyone should have access to affordable, quality food. To that end, the government gives everyone a "food card," modelled after popular healthcare plans, and paid for by everyone's employer. Those with the card can buy all the food they want, but they do have a $15 co-pay every time they go to the market. What are the chances that a decent number of people will end up buying more food than they really need? How much food will go rotten sitting in people's refrigerators? What will prices matter to those with cards, if a pound of filet effectively costs the same as a pound of hamburger? How long will it take before stores run out of filet? What are the odds that the cost of the program chronically exceeds the government's estimates?
In order to reform healthcare, we first need to reform the tax code. It's that simple. No amount of late-night tinkering by senate and house committees can possibly come up with a better or cheaper solution than can the American consumer turned loose in a truly free healthcare market.
Eyes newly opened, they demanded cheaper insurance options, covering fewer services (cancer wigs, family counseling, in-vitro fertilization), and opted for plans with higher deductibles and co-pays in return for much lower monthly rates.
Because consumers were now spending their "own" money on health care, doctors and hospitals found it necessary to publish and even advertise their prices. A hospital that specialized in heart surgery, performing thousands of procedures a year, found it had both the highest quality and lowest cost -- and now marketed itself as such. Ditto specialists in cancer, diabetes and other conditions.
For the first time, Americans spent less and got more. Spending fell overnight by 13%, which happened to be exactly what economists had predicted if the price tags were restored to health care and consumers were allowed to see clearly what they were getting (or not getting) for their money. As predicted, too, spending thereafter rose only in line with incomes.
What's more, many fewer people remained voluntarily uninsured now that health insurance was no longer a gold-plated extravagance affordable only by those in the top brackets who could slough off 40% of the cost on other taxpayers. Existing programs for the needy, in turn, could be downsized and revamped into voucher programs. The federal budget benefited twice over -- from fewer claimants and from medical care that was less costly. Fiscal wreck was avoided.
16 comments:
Curious how persons with pre-exsisting conditions would be handled. I have a buddy with a pre-exsisting condition with a blue cross group plan, rates for his group have risen sharply, those deemed good risks are allowed to shift to another lower cost group while he is stuck in a shrinking risk pool with ever rapidly rising premiums. They can't drop him but they make the cost so onerous that insurance becomes unaffordable. Since we all will eventually develop a pre-exsisting condition at some point this problem has to be addressed in any reform. So far the market hasn't seem to come up with a solution.
Scott,
I used to be in favor of a adequate (starting at about $12,000 per family) refundable but means tested tax credit for health insurance as a means to achieving universal health care. It would preserve or perhaps even expand our private insurance program with all of the supposed incentives to conserve on cost. However Republican intransigance has led us to the point of the public option becoming a real possibility. Why is it only now that Republicans are offering olive branches? Is it because they sense imminent defeat?
P.S. j has a good point.
j: I am aware of that problem since it affects me. I don't have a good solution, and I'm not aware of any but would sure like to find one.
Mark: what have the Republicans done to promote the public option? That is the thing that all non-liberals hate.
Bottom line: When individuals are at RISK for their actions --monetary or otherwise, they tend to make better decisions or they suffer. This is EXACTLY why in time elected governments have always failed --the government individuals making the decisions, i.e., politicians and bureaucrats are at no risk for the money of others wasted or the consequences of their decisions that drain society.
The ONLY way for a Civilization to survive is for individuals to be able to have a choice of what free-enterprise government they want to protect their property (could be dozens/hundreds; what money systems in which to partake: no different in concept than what health insurance to buy; what supermarket at which to shop; what security company to protect your house or with what bank to hold your money.
ALL Civilizations have ended up in the dustbin of history because of the error in believing SOMEONE ELSE is better able to make decisions for the individual than the individual himself. Is it not interesting that a politician --prior to being voted into office-- is just an individual who is, according to the common myth, unable to make decisions for his own good, but the very politician voted into office was, just prior to taking office, an individual incapable of making his own decisions but somehow INSTANTLY becomes smart enough to make life-and-death decisions for the individuals within Society (anyone thinking of an upstart community organizer or the like?.
The only solution is voluntary choice as to what service-oriented government one wants to contract with to provide services...and when that government does not perform, the individual may fire the government and contract with another just like selecting at which bank one wants to do business or which health insurance provided on wants. Really simple!
And yes, the solution to voluntary government (and how to manage physical force/coercion) has already been discovered and articulated at www.civilizationengineering.com. Full disclosure: I have no financial interest in this website, just passing on a solution to which everyone is struggling to discover.
CDLIC: The Cult of the Presidency
http://www.amazon.com/Cult-Presidency-Americas-Dangerous-Executive/dp/1933995157/ref=sr_1_1?ie=UTF8&s=books&qid=1245291061&sr=8-1
is a good book on the subject of how people have this urge to idolize people with power and/or fame/celebrity.
We have given way too much power to people like Obama, and Bush for that matter.
Scott,
I thought I was being clear. Universal health care is coming no matter what anyone says. It is standard in the entire developed world. The point is the following. What form will it take? Will it be private or public?
Sorry, "public option" has a definite meaning for me, as in a state-run insurance company offering a policy to the public. That would compete unfairly with private plans, and that is the backdoor to universal healthcare.
Anyway, I'm not ready to admit defeat. Universal healthcare is not a done deal.
Scott,
My point was that universal care could be acheived without the public option, but it would require a adequately funded refundible tax credit. That's the only way it could be completely done through the private health insurance system.
I take it you're opposed to universal health care on any grounds. Oh well. I think that's a done deal.
Nice post Scott. Real health care reform should start with eliminating the tax deduction for health insurance. Not only does it tie health insurance to employment, which makes little sense and is an artifact of WWII wage controls, but it promotes the use of insurance. Insurance makes sense in the health care realm for catastrophic events but not routine procedures. If you need a knee replacement you should shop around for the best price. Indeed, in areas like Lasik and cosmetic surgery where people shop around we see little inflation.
Other measures that probably make sense include malpractice reform and re-examining license requirements, which limit the supply of health care professionals and push prices up.
Pre-existing conditions are where we need a safety net and where the government can help. Also, chronic diseases among the poor. All else should be private insurance that is true insurance like a term life policy. If we just covered the currently sick and the chronically sick poor (I mean really poor, not a family making $60K), in time we'd spend a fraction of what we do now.
Colin: Excellent points, thanks
Economist Glenn Hubbard wrote a great (thin) book on healthcare reform. Some key insights:
- Currently, health "insurance" is not insurance at all, it is pre-paid health spending.
- We've squelched the price mechanism that tells us what medical disciplines we need doctors for. How do we know that we need more brain surgeons rather than gastroenterologists, or less? We don't.
- If we pulled the tax deductibility of employer-provided health insurance, people could choose continuing their benefits or higher cash wages. Many would choose higher cash wages, which would be taxed as income. This incremental tax revenue can fund a safety net for the chronically sick poor or the currently sick without penalizing the healthy and the middle class.
CDLIC,
Reading a good book called "How We Decide". Great section on how people get into credit card debt which is akin to your politician not sharing in the pain of the money he spends.
Pain carries more weight than positive emotions and when people spend cash or use debit cards, they are more likely not to spend because it carries an actual negative physical emotion with it. Credit cards trick the brain by detaching the emotion associated with the loss of your money. The industry knows this just like Vegas knows the gambling mind. Why else would someone sit at a slot machine that pays out 90% over the long run?
This emotion is essential to the decision making process but can be fooled in many ways. Our Government is completely detached from its spending and dangerously leading us down a fiscally unsustainable path. We are addicted to debt because the people making decisions do not share in the losses associated with their actions. Look at California, the legislature completely separated the payment for spending process from deciding how much to spend. Wow.
It is a vicious cycle and can get out of hand very quickly. Individuals are microcosms of this ugly cycle. We are at those crossroads. Either we understand our addiction and how the mind is working against us or we leap off the ledge with reckless abandon.
I suspect we will collapse before we see the light because the last trick played on the mind is that when we feel a great sense of loss, our ability to think clearly through the next few decisions becomes even more blurred taking our behavior to even riskier levels. Does this sound like our Government?
Thank you Scott for pointing out that health care needs a tax code solution.
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