Forbes, May 12, 2012
How Employer-Sponsored Insurance Drives Up Health Costs
and
by Avik Roy
. Employer Insurance Raise Costs, May 12, 2012
... the study really tells us is how much the
exceptional cost of American health insurance is caused by our system’s
original sin: the fact that, due to a quirk in the federal tax code, most of
us don’t buy insurance for ourselves, but instead have it bought on our
behalf by our employers.
“In the constant attention paid to what drives health costs,†the authors
begin, “only recently has scrutiny been applied to the power that some
health care providers, particularly dominant hospital systems, wield to
negotiate higher payment rates from insurers.â€
... The fundamental cause of this problem is
the fact that only 10 percent of Americans with health insurance buy it for
themselves. Due to an artifact of World War II-era wage controls, if
employers take money out of your paycheck and use it to buy health insurance
for you, you don’t pay income or payroll taxes on those funds. However, if
you decide to buy insurance for yourself, you have to do so with after-tax
dollars.
...
The solution to this problem is, from a policy standpoint, simple: equalize
the tax treatment of individually-purchased and employer-sponsored health
insurance. If more people bought insurance for themselves, more people would
understand the tradeoffs between higher prices and access to brand-name
hospitals. Those “must-have†hospitals, in turn, would be more reluctant to
exploit their market power to raise insurance premiums.
... as insurance gets more and more expensive, and more
and more Americans are priced out of the system, calls for socialized
medicine will grow louder and louder.
The best thing about Obamacare is that the debate around the program has
brought considerable attention to the real problems facing our health-care
system. That political window will not last forever. For market-oriented
health reformers, it’s either now or never.
2. Obama Care and Employers, May 14, 2012
Employer-sponsored coverage is generally less costly than individual
coverage because firms are able to capitalize on lower administrative costs
associated with economies of scale. Employers have also been able to drive
costs savings through health management plans. If the tax exclusion were to
be eliminated, savings that employer’s plans generate from economies of
scale and adoption of health management plans would diminish as they drop
coverage. ...
The key to keeping administrative costs low is to take advantage of
economies of scale, in which large numbers of people are enrolled in the
same insurance pool. Properly-designed health insurance exchanges are
another device with which to achieve this. Another option would be to offer
a slightly higher exemption to smaller businesses relative to larger ones.
2-4-8 Response - 1
There are different types of health care and hospital
emergency medicine seems to be paid for by the government whether one has
insurance or not. It would seem to be efficient to have the government pay
for these services and set the price as necessary (as is done in Workers
Compensation and Medicare). These essential costs for essential services may
amount to 50 to 60% of current health care costs. Individuals might be
permitted to elect to take a voucher and purchase expanded hospital services
including any number of elective treatments, private rooms, etc.
In regard to non-emergency services, it is certainly
prudent to have insurance for general doctor visits but people should be
free to simply pay with cash as needed. With a division of health services,
the government would exert primary control over emergency care costs and
both the insurance companies and free market would keep the cost of doctor
visits in check.
Tort reform and open enrollment may also be needed to
level the insurance markets. Innovation and provider competition might
require health insurers to receive and maintain digital health records of
all patients, identify and help create best practices (i.e. interactive
online patient questioners, nurse and physician assistant triage, video
examinations, and doctor referral scheduled only as needed), and steer
patients to cost effective providers (through lower co-payments and other
incentives). Have faith that managed competition can improve quality and
reduce the cost of health care.
From a tax reform perspective the government coverage
for emergency hospital care or voucher for upgraded insurance should be
enough of a government contribution to permit the elimination of other
health tax subsidies. Substantive changes in health care policy cannot be
expected before tax reform and a stable economy.
Of course, the Supreme Court could sustain Obama Care.
2-4-8 Response - 2
Health insurers do not make money by keeping
health care costs low. They make money by charging 5% more than the expected
costs. They can give lip service to the unwarranted health care cost
increases and simply raise their rates and make more. More importantly,
insurance companies are not health providers and, without a change in
policy, should not be expected to micro manage costs.
In many states the Commissioner of Insurance
must approve rates but this is often a rubber stamp. Insurance companies are
a near monopoly licensed by the states, and competition focuses on sales of
large employer accounts and customization of some group policy terms. A
larger group can obtain a lower price and more favorable terms.
Because health care is a universal need, it
might be best to mandate open enrollment and prohibit group discounts.
Insurance companies might supply policies focusing on the needs of basic
population groups such as children, women of child bearing years, senior
men, etc. By permitting policies for demographic groups with different
medical needs two things might be accomplished: first the rates may fairly
reflect the true average costs for the population group and second the
insurance company might focus on entering into cost and service agreements
with providers specializing in the needs of the demographic. Such a system
would be more like buying car insurance with basic coverage and more easily
understood by purchasers. The intended result is to eliminate the
competitive disadvantage for individual purchases and to have insurance
companies compete among themselves in providing cost effective insurance and
better care for specific groups with common medical needs and costs.
Different tax treatment for health policies
by occupation or industry, as discussed in the article, does nothing to
encourage better medicine. ObamaCare, if it survives the Supreme Court,
should be repealed.
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