Wednesday, October 08, 2008

The one where I write a lot about health care

This New York Times piece on McCain's health care plan inadvertently delves into the real problem of health care coverage in America. For those who may not remember, McCain's plan involves eliminating the exclusion of health benefits from income taxes, as part of an effort to unleash the health care markets and provide equal footing for those Americans who do not receive employer provided health coverage.

The income-tax exclusion benefits 162.5 million Americans but costs the federal government $145.3 billion in foregone revenue, second only to the tax break for retirement account contributions, according to the Congressional Joint Committee on Taxation.

Still, the exclusion has encouraged the pooling of workers into large purchasing groups that tend to lower costs. And with group coverage, no one can be denied coverage, everyone pays the same rates and the healthy and wealthy essentially subsidize the sick and the poor. Consequently, it is often more expensive to buy equivalent coverage as an individual, partly because insurers pass along the administrative costs of weeding out unacceptable risks.

The exclusion has long been criticized as unfair because the 18 million people who buy health insurance on their own are not entitled to it. Critics also say that it is most valuable to those in high tax brackets with the costliest health plans, that it contributes to job-lock, and that the subsidization of group insurance encourages people to buy more coverage and consume more health care than they need, driving up health spending.


A number of business officials are worried that Mr. McCain’s tax credits would lure young and healthy workers into the individual market to take advantage of cheaper, less-generous policies. That, they say, would leave employers to cover an older and sicker pool of workers, forcing up premiums.

Workers who found that they had less buying power with the tax credits than with the tax exclusion could be expected to pressure employers to raise salaries or benefit subsidies, the business officials said.

First, a couple of points to the critics of the McCain plan, which happens to include my wife. The point is to treat income as income, whether you're someone who's forced to buy your own health plan or someone who takes part in an employer provided plan. I haven't thought too hard about the immediate impact of such a plan, but I think the overarching point is fairness. Personally, I'd prefer to completely dismantle the employer provided health care system, and while this may not go all the way, keeping health benefits as a deductible business expense, at least this is a step in the right direction.

The real problem with health care continues to be not greedy insurance companies, but this insistence on public policy to encourage the pooling of individuals into group plans. This is a problem because it slyly funnels the money of the young and healthy to pay for the health costs of the older and more needy. It's a far cry from any traditional definition of insurance, but this is essentially what health insurance has become. This is exactly why there are worries that under the McCain plan, young workers would refuse to pay for the sorts of health care plans that are currently provided as a tax free benefit. If you're young and you're concerned about the cost of health care, why would you want to pay for a comprehensive plan that covers the sorts of health issues you're 20 years away from worrying about?

Traditional notions of insurance involve insuring one's self againast some future risk, be it a car wreak, a flood, or a fire. Young men who are at a statistically greater risk for accidents pay more for their insurance coverage then older, safer drivers. Yet when it comes to health insurance, employee group plans charge all participants the same rates. Add in the fact that we have a system where government regulations mandate the extent of policy coverage and like I said before, you're a long way from traditional insurance.

One of the complaints I've heard all too often is that someone suffering from cancer can't go out in the market and get coverage and my response is "well duhhhh." A cancer patient in need of health coverage isn't looking for insurance, they're looking for straight up help with their medical expenses. Just as auto insurance companies don't want to start a new policy when your car is on fire, health insurance companies don't want to start a new policy after you've been diagnosed with cancer. This isn't a failure of the market, just common sense.

People should keep in mind their are two separate issues when it comes to health care- one is the question of what makes for the most efficient system for distribution of health care services and the other is what to do about the people who really can't afford to pay their medical bills, keeping in mind that whatever you do has to jive with whatever system you decide to set up. I think there should also be more of a recognition of where health care costs actually lie. And that's the biggest problem with our current system, that the costs are so obscured and hidden, to the extent that we don't have any understanding of what the health care costs of individuals actually are.


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