The following article ridicules Obama's critique that McCain's health plan would lead to the unraveling of employer based health insurance system. That system, which resulted from a poor WWII-era bureaucratic decision that provided substantial tax benefits for employers and employees to offer non-monetary compensation packages, created an unnatural condition in the marketplace and therefore market distortion of health insurance costs and benefits. People who have employer based benefits think they're getting them for free, so they overuse services, which leads to steadily increasing costs to insurers and therefore increasing premium payments as time goes on. When end customers don't know the true costs of a product they use, they can't make informed choices about their level of consumption. And because benefits are tied to employment, people live in fear that if they lose their jobs they'll lose their insurance as well. That makes little sense. We don't rely substantially on our employers to provide any other type of insurance like we rely on them to provide health insurance. Our employers don't buy our auto or home insurance. Why should health insurance be any different?
The solution isn't to Socialize health care, as BHO wants to do in a round-about, back-door fashion. We already have a gigantic burden with our Socialized health coverage for retirees. The solution is more competition, which can only be gained by normalizing the individual health insurance market so that American coverage is no longer customarily tied to employment. We also need to deal with the uninsured, as I've discussed before, and particularly those who are uninsured due to preexisting conditions. That portion of the market likely needs to get subsidized by government in order for premiums to be affordable. I am a big proponent of Health Savings Accounts (which FYI include reasonable per year deductibles before insurance goes into effect). In my vision all Americans would be encouraged to sign up for HSAs and to sign their children up from birth on. For those who seldom experience major illnesses or injuries over the course of their lives, their HSAs should accrue hundreds of thousands of dollars by retirement.
Healthcare Shouldn't Be Linked to Employment
THE CHOICE you'll have," said Barack Obama during last week's debate, as he told voters what to expect if John McCain's health-insurance proposal becomes law, "is having your employer no longer provide you healthcare.
"Don't take my word for it," he added. "The US Chamber of Commerce, which generally doesn't support a lot of Democrats, said that this plan could lead to the unraveling of the employer-based healthcare system."
If only.
An end to employer-based health insurance is exactly what the American healthcare market needs. Far from being a calamity, it would represent a giant step toward ending the current system's worst distortions: skyrocketing premiums, lack of insurance portability, widespread ignorance of medical prices, and overconsumption of health services.
With more than 90 percent of private healthcare plans in the United States obtained through employers, it might seem unnatural to get health insurance any other way. But what's unnatural is the link between healthcare and employment. After all, we don't rely on employers for auto, homeowners, or life insurance. Those policies we buy in an open market, where numerous insurers and agents compete for our business. Health insurance is different only because of an idiosyncrasy in the tax code dating back 60 years - a good example, to quote Milton Friedman, of how one bad government policy leads to another.
During World War II, federal wage controls barred employers from raising their workers' salaries, but said nothing about fringe benefits. So firms competing for employees at government-restricted wages began offering medical insurance to sweeten employment offers. Even sweeter was that employers could deduct those benefits as business expenses, yet employees didn't have to report them as taxable income. For a while the IRS resisted that interpretation, but Congress eventually enshrined the tax-exempt status of employer-based medical insurance in law.
Result: a radical shift in the way Americans paid for medical care. With health benefits tax-free if they were employer-supplied, tens of millions of Americans were soon signing up for medical insurance through work. As tax rates rose, so did the incentive to keep expanding health benefits. No longer was medical insurance reserved for major expenditures like surgery or hospitalization. Americans who would never think of using auto insurance to cover tune-ups and oil changes grew accustomed to having their medical insurer pay for yearly physicals, prescriptions, and other routine expenses.
We thus ended up with a healthcare system in which the vast majority of bills are covered by a third party. With someone else picking up the tab, Americans got used to consuming medical care without regard to price or value. After all, if it was covered by insurance, why not go to the emergency room for a simple sore throat? Why not get the name-brand drug instead of a generic?
Unconstrained by consumer cost-consciousness, healthcare spending has soared, even as overall inflation has remained fairly low. Nevertheless, Americans know almost nothing about the costs of their medical care. (Quick quiz: What does your local hospital charge for an MRI scan? To deliver a baby? To set a broken arm?) When patients think someone else is paying most of their healthcare costs, they feel little pressure to learn what those costs actually are - and providers feel little pressure to compete on price. So prices keep rising, which makes insurance more expensive, which makes Americans ever-more worried about losing their insurance - and ever-more dependent on the benefits provided by their employer.
De-linking medical insurance from employment is the key to reforming healthcare in the United States. McCain proposes to accomplish that by taking the tax deduction away from employers and giving it to employees. With a $5,000 refundable healthcare tax credit, Americans would have a strong inducement to buy their own, more affordable, insurance, rather than relying on their employer's plan. As millions of empowered consumers began focusing on price, price competition would flourish. And as employers' healthcare costs declined, most of the savings would return to employees as higher wages.
For 60-plus years, a misguided tax preference for employer-sponsored health insurance has distorted America's healthcare market. The price of that distortion has been paid in higher costs, fewer choices, and mounting anxiety. The solution is to restore market forces by fixing the tax code, and liberating Americans from an employer-based system that has made everything worse.
Jeff Jacoby can be reached at
[email protected].
Top