We Can Fix the Health-Insurance Mess
Face it: In today’s economy, employer-based health insurance doesn’t make sense. Whereas Americans used to stay with the same employer for life, nowadays the average worker in a small or mid-sized company changes jobs every 15 months. Thus, people are constantly changing their health insurance and their providers. The result is a mess of growing expenses and declining satisfaction. We spend $2 trillion a year on health care in the United States, and the government subsidizes health insurance (through employer tax deductions) to the tune of $250 billion annually. Unless we reform this outdated arrangement, costs will double in only seven years. This kind of bankrupting growth is not sustainable. How did things get so out of hand? Back in the 1940s, as part of the war effort, the government imposed wage and price controls. Seeking a way to provide competitive salaries to workers without violating the law, employers began offering health benefits. In October 1943, the Internal Revenue Service legitimized the practice, ruling that health benefits would remain tax-free.
As a result, it made sense for firms to offer health benefits—and lots of them. But as the costs of these benefits have mounted, employers have less money for wage hikes, and employee income stagnates.
I propose we scrap the employer health-tax exclusion, which would cause most employers to stop offering medical coverage and instead provide higher wages. This change should also be accompanied by income-tax reductions, putting more money into employees’ pockets. The resulting increased take-home pay would allow people to buy their own health insurance. In Switzerland, people pool their risk based on age. So a 50-year-old man with heart disease pays as much as his healthy 55-year-old neighbor, but both pay more than a person in his 20s. We could do that — or allow people to group together voluntarily, such as through their church, synagogue, or union. Under such a system, many people would buy higher-deductible plans and put some of their insurance money into a Health Savings Account (HSA).
Contributions to HSAs, created by Congress in 2003, are in pre-tax dollars. Leftover HSA dollars at the end of a year could be rolled over indefinitely, from year to year to year. Here, then, is the core of the idea: For smaller medical expenses, people would pay out of the HSA, giving them the incentive to economize and shop around before seeing a provider. For large expenses, they would be covered by catastrophic insurance.
Because the money would be their own, people would be savvier about spending it, visiting primary-care practitioners more and specialists less. Some ailments require a specialist, but often we don’t need to see a doctor with decades of education and training. If people were empowered with health-care dollars, more would flock to nurse practitioners and physician assistants.
Yes, there would be a transition period, but over time, families would take more responsibility for staying healthy and learn to shop for good care at a good price. This would lead to more health-care competition and innovation. We’re already starting to see this with clinics opening in stores like Target and Wal-Mart. These clinics, staffed by NPs, offer inexpensive, no-frills, no-hassle health care.
For 60 years, Americans have looked to government to improve health care. In the rest of the economy, we look to choice and competition to work its magic. Is there any question which direction we should choose for health care?
This piece originally appeared in Clinical Advisor
This piece originally appeared in Clinical Advisor