Follow-up to Holland's plan ...

On Thursday, I posted commentary on a Wall Street Journal article in my post entitled
"Is the Recipe for U.S. Sick-care System found in Holland?". Before that, I suggested that a patchwork of different plans would emerge until the Federal government got around to addressing the issue. Thats not necessarily bad, what is bad is a patchwork without universal mandates. Yesterday, however, a commentary was posted clearly directed at the same subject that was worth considering. I would like to share that commentary with you and solicit your opinions on the subject.

In essence, the commentary suggests that a big part of the "problem" with the U.S. (and many other countries, for that matter) health (or sick) care system is that the costs are largely invisible to patients. For those of us who have insurance, there is often little regard for the true cost of drugs, tests, doctors fees, hospital fees or anything else because we're only concerned about the co-pay. The author argues that the U.S. tax system has induced workers to believe that someone else was paying the bills for their care, so they have pushed for better health benefits regardless of cost. Again, this suggests that the system in the Netherlands may direct more attention towards the issue by making patients more involved in the cost evaluation. The reality is that the cost has not been "free", we have traded higher wages and other benefits (like vacation time) in exchange for healthcare benefits whether we realize it or not.

Another element worth considering is the author's suggestion that evidence also suggests that many benefits of health insurance, although paid for equally by everyone, flow disproportionately to the affluent. He argues that legal mandates requiring insurers to cover such services as mental-health care and fertility treatment make available, at collective expense, benefits that the affluent are much more likely to use. Personally, I do not believe that insurance should be obliged to pay for fertility treatments, as having children is indeed a choice that many people, including younger and older workers, singles, gay and lesbian workers and undoubtedly other groups are forced to subsidize so that a small group of people can enjoy these benefits. The argument is that a wider variety of plans with different coverage would be available if the system encouraged individual buyers rather than collective purchase of healthcare plans. That I would agree with, but today, plans are really one-size fits all, with little regard to the various services that people actually want or need. Hmmmm, the author may be on to something.

I do not agree that President Bush's plan is worth reconsidering mainly because I believe his plan addresses only half of the problem: it eliminates the incentive for any company to offer healthcare coverage while doing nothing to encourage insurers to provide individual coverage, so its not sufficient. However, I do think its worth looking at individual coverage (something that the Massachusetts and Tennessee plans do), again looking at the plan in the Netherlands might be worth considering. Perhaps its good that the individual states are going their own way, at least initially, then the Feds can mandate that all states need to have a plan in place, as long as there aren't too many mandates. Interestingly, the Dutch plan addresses diabetes, but leaves many other diseases out. I am a bit troubled by that, but its a starting point, anyway. I'm curious about what everyone else things. Please, chime in!


Commentary: Who Pays for Health Insurance?
By Clark Havighurst and Barak Richman, The Wall Street Journal
September 6, 2007; Page A17

New census data showing that the number of Americans without health insurance increased by 2.2 million in the past year (to 47 million) undoubtedly deserves the attention it is getting. But the increasing size of the uninsured population is only a symptom of deeper problems in American health care, not the problem itself. Indeed, concern for the uninsured obscures the plight of middle- and lower-income workers who do have health coverage but pay dearly for it.

In many cases, those who drop their health coverage do so for rational reasons. They apparently prefer to run some financial and health risks rather than pay for insurance that now costs the average family $12,000 annually. The American health-care system resembles all too closely an extortion scheme that forces individuals to either pay a very high price or put their families' health in danger. It is not surprising that many working Americans are deciding not to take it anymore.

Ironically, many more Americans would probably drop their health coverage if they knew how much it really costs them. But they don't know, because of the way the tax system treats health benefits. Under the current system, employers are the principal purchasers of health insurance, and workers seldom know how much their employers pay. They also don't realize what economists have repeatedly concluded: Employer outlays for health insurance translate directly into less take-home pay for employees.

Because the tax system has induced workers to believe that someone else was paying the bills for their care, they have pushed for better health benefits regardless of cost. Benefits have thus become more comprehensive and expensive than makes economic sense for most working families. Likewise, because voters haven't fully understood who pays for health care, they have supported laws and regulations that strongly reflect the values and interests of the health-care industry and its most affluent customers. Consequently, unlike ordinary consumer products, health coverage does not come in a range of models suited to different pocketbooks.

Weak consumer cost-consciousness has left the U.S. with private insurance that functions as a reverse Robin Hood scheme, taking from middle-income Americans to support a health system that benefits many elite interests. A significant fraction of the cost individuals incur for health coverage goes not to pay for care they and their families receive, but to support a variety of industry activities and projects, including medical education and research and the building of costly facilities. Even assuming the industry pursues only socially worthwhile goals, its otherwise uncompensated efforts should be financed by a fair system of taxation. At present, many such costs fall on premium payers like a regressive "head tax" rather than in proportion to their income or ability to pay.

Evidence also suggests that many benefits of health insurance, though paid for equally by everyone, flow disproportionately to the affluent. For example, cost-sharing requirements deter lower-income individuals from using their coverage more than they deter wealthy ones. The latter also know how to manipulate the system to obtain more and better services at plan expense. Legal mandates requiring insurers to cover such services as mental-health care and fertility treatment make available, at collective expense, benefits that the affluent are much more likely to use.

Particularly in view of the widening income gap between middle- and high-income earners, serious attention should be given to how the health-care system takes lots of money from the working class without giving them commensurate value for much of it. One does not have to be a populist to see the unfairness (as well as the tendency to increase the uninsured population) of forcing workers to pay unjustifiably high prices as a condition of being insured at all.

A good way to prepare the public for needed health reforms would be to expose consumers to the true cost of health insurance. President George W. Bush's pending proposal to tax the value of employees' health benefits as income, while also providing a compensating standard deduction or tax credit, would serve the useful purpose of stimulating market and political demand for low-cost alternatives, including coverage that stops short of paying for everything seemingly mandated by professional (that is, non-economic) standards.

Congress is making a mistake in ignoring the president's proposal. If voters realized that it is not only the uninsured whom the current system victimizes, would-be reformers of all stripes might finally find a broad constituency willing to support fundamental change.

Messrs. Havighurst and Richman are professors at Duke Law School.

URL for this article:
http://online.wsj.com/article/SB118904358759518916.html