Health Insurance

Here's one for you to ponder. John Stossel has some interesting thoughts about health insurance, at Townhall.com. What he has to say runs contrary to currently popular political speech on both sides of the aisle, which bemoans the under-insured state of many Americans. Stossel suggests instead that Americans have way too much insurance, rather than too little. That's something of a counter-intuitive statement, given the discussion that's going on in political circles these days about how to get more coverage for more people, but I tend to agree with him, based upon my own experience and that of my family.

I'll give you a few examples. Several of my close relatives have to provide their own insurance, for various reasons. Being farmers. my in-laws have no employer to provide it as a perk, so they have opted for the most cost-effective option available to them. They have very high deductible insurance. They pay for routine medical out-of-pocket, and save the insurance for the big-ticket medicine, saving them money on premiums, but still ensuring that they don't lose the farm (literally) over catastrophic illness or accident. They decide for themselves what doctor to see, and how often, and whether a given medical procedure is worth their hard-earned money. They may have to plan a bit to make sure they have the money available when it comes time to go to the eye doctor, but the big stuff is covered and they're not paying through the nose for the monthly premium.

My sister's family, on the other hand, pays for HMO-type insurance (Kaiser), which supposedly covers every scratch. When they can get in, that is. This costs them a staggering amount of money monthly, and also has the disadvantage of putting their medical choices in the hands of a very inefficient bureaucracy. Not only does the HMO chose for them which medical treatment is covered, but because the system is in many ways unaccountable, important decisions get lost in the system. My sister was once diagnosed with a serious medical condition, and didn't receive proper treatment for eight years. The right hand didn't know what the left hand was doing. I grant you that this is anecdotal, but it still influences my opinion of insurer-makes-the-decisions healthcare. I can only imagine how much worse it would be if that insurer was the federal government. Can anyone say DMV?

My husband and I have a different, and much better, situation than my sister. Our insurance, although employer-provided, shares some of the better aspects of his parent's self-insurance arrangement. Ked's office went the HSA (health savings account) route a couple of years ago, and we love how the whole thing works. Instead of low-deductible, high-cost insurance, we now have high-deductible, low-cost insurance. You may be asking, "What's to love about a high deductible? Doesn't that mean you have to pay for more of your medical expenses yourself?" Well, that's where the HSA comes in. Because the insurance company doesn't have to pay for the minor and routine medical stuff, Ked's boss saves money on insurance premiums. He passes those savings on to his employees. He deposits enough money to cover that high deductible into the HSAs, which are under employee control. We pay for routine medical out of that account, and--here's the good part--we get to keep what we don't spend, like it's in a retirement account. This gives us incentive not to run to the doctor for every sniffle, while still covering us for major health issues. We and our doctor decide what to spend the money on medically, and we get a retirement savings bump if we're frugal.

Stossel's article is quite interesting. He has some convincing things to say about how much is added to the cost of medicine in America simply because the insurance industry is so intimately involved with it. He also discusses how it came about that insurance got so interconnected with routine medical care in the first place, and whether the push for government intervention is a good idea. (Interestingly enough, he makes the case that government is responsible for the current state of affairs in the first place.) You may agree with his conclusions; you may not, but have a look.

A New Approach To The Cost Of Healthcare

We were in transit to Florida during President Bush's State of the Union speech, and I confess that I have not looked online for the text or a video since we returned. Too many other things to do and read. I just haven't managed to make it a priority. However, I read a Michael Barone piece today that makes it sound as if the President has at least one worthwhile proposal to his credit from that speech. Ron Wyden, the Democratic Senator from my home state of Oregon, seems to think so, and is putting some effort into furthering the President's idea, engaging his fellow Senators on the topic. I have some respect for Wyden. Although I disagree with him on many issues, he seems to me to be a principled man, not simply a partisan, and his willingness to run with an idea in which he finds merit, despite the fact that it came from not only a Republican, but the oft-criticized Target-in-Chief himself, made me pay attention to what he's promoting (as well as sending Wyden up a step or two on my opinion meter.)

As an Oregonian, I've been aware that Wyden has been quite concerned about providing health care to those who cannot afford to buy it for themselves, and whose employers do not provide it for them, and he has encouraged the examination of The Oregon Health Plan (our state's answer to universal coverage) on the national level. He's not new to the topic of providing insurance to the poor. Michael Barone, writing at Townhall.com, examines the healthcare proposal the President made in the SOTU, which Wyden is now floating among his colleagues. I find a lot of merit in the idea, because it's not another government-run program, where bureaucracy and inefficiency (or is that redundant?) could make healthcare a nightmare for us all, but rather an adjustment in the way health insurance is taxed, which might lead to a more progressive, but reasonable approach to providing coverage that doesn't route it through the workplace. I'm going to quote at length here:

Bush's proposal in a nutshell is to end the preferential tax treatment for employer-provided health insurance. In 1943, in the midst of World War II, when wage and price controls were in effect, the government decided that employers could deduct the cost of health insurance for their employees and that employees would not be taxed on the value of the policies. This decision has saddled us with a system in which health insurance has been tied to employment, with many perverse results. Healthcare is perceived as a free good, and consumers have no incentive to take costs into account.

Bush proposes to change this by giving every couple paying taxes a standard $15,000 deduction ($7,500 for individuals) for the cost of health insurance. Those with employer-provided insurance worth more than $15,000 (about 20 percent of the total) would be taxed on the additional amount; this would very likely discourage expensive policies.

As a Washington Post editorial on the speech pointed out, this would be a progressive change.

The biggest beneficiaries of the current system are high earners with employer-provided insurance. The biggest losers in the current system are low earners without employer-provided insurance. Health insurance experts on the left, right and center have long called for ending the tax code's preference for employer-provided health insurance. But employers haven't wanted to lose the deduction, and politicians have flinched at the prospect of taxing voters on something they have been getting tax-free. Bush has found a way out, by equalizing the tax treatment of health insurance wherever it comes from.

What Barone says this would accomplish, and Wyden seems to agree based on his support of the idea, is to provide a mechanism to insure a broader range of people, without turning healthcare into a government-run catastrophe. Bush proposes a tax deduction for the insured, rather that the employer. Employer-provided insurance would be treated, and taxed, as income for the employee, rather than as a tax write-off for the employer, and both the people with employer-provided insurance, as well as those who purchase insurance privately, would have a tax break to offset the cost. Employees would then have incentive to keep down medical costs, helping to control the cost of the insurance, and competition within the private market would also serve in that capacity. According to Barone, with a $15,000 deduction, low-end earners could be subsidized by the tax on the policies that cost more than that $15,000 (the more elaborate and expensive insurance of the well-to-do.) This approach could well provide universal coverage without the direct intervention and control of Uncle Sam, leading healthcare in a "progressive" direction, without eliminating the free market and turning healthcare in America into a European nightmare.

There's room for political compromise here. Liberals and conservatives alike can find things to approve in this proposal, if they allow themselves to come at this from the direction of solving the problem rather than winning against the enemy. There are certainly a lot of people who could benefit from a new approach. I'm not big on government entitlements (this is an understatement), and am always reluctant to see the government take over from the private sector. However, if we as a society make the decision that it is in our best interest to ensure that everyone can afford healthcare, then something which keeps the decision-making and operation of the system in the hands of individuals and private companies is much to be preferred over one which makes the government the official healthcare provider. Ensuring equally bad healthcare for all is not my idea of an improvement in the system.

From a practical standpoint there are certainly people who could benefit greatly from the provision of health insurance being uncoupled from employment. Some of my own family members are currently providing their own insurance at $800 a month, and are struggling to do so on disability-hindered incomes. They are not disabled enough to go on the government dole, but are disabled enough to be unable to work at a full-time job which provides insurance. These disabilities also ensure that insurance is an absolute imperative for them. A tax write-off for that privately-purchased insurance would be a big help to them. I probably would not be in favor of this were it simply a new entitlement, but as a replacement to the deduction currently being given to employers, I can see the merit. Of course, I have not done much research on the cons of the proposal at this point, but as far as I've read to date, I think the idea is at least worth discussing in good faith.

Barone points out that the political climate isn't exactly ripe for good-faith compromise, but I at least have hope that some of our political leaders are willing to care more about solutions that reelection points. Wyden has already shown the willingness to cross the aisles on this issue. Maybe his fellows could find somewhere within themselves a willingness to do the same. Maybe.