In “How to Solve Healthcare Part I”, I addressed the simpler ways free-market alternatives to “Obamacare” could be used to solve some of the healthcare issues we face as a nation. These issues were identified as: 1) cost reduction, 2) coverage for “pre-existing conditions”, 3) patient choice in doctor selection & treatment, 4) portability of existing coverage in relocation, 5) coverage for catastrophic events, 6) tort reform, and 7) coverage for those involuntarily uninsured because of need. This post will address the more complicated issue of the separation of the patient from the payment and insurance coverage process through employer-based insurance programs. Coverage specifically for catastrophic events will be the subject of a future post.
Since WW II, the healthcare industry has become “layered” with various institutions, which have resulted in financial and personal separation of the patient from his or her doctor, treatment, and payments. Between the doctor and patient payment system, we now have insurance companies, health maintenance organizations, accounting firms, and employers. Some of these institutions are justified specializations that reduce cost or help manage risks. The inclusion of employers in the system is not one of them, is unnecessary, and has created its own set of issues. If fully implemented, “Obamacare” will add a new layer of government to this already complex process. As indicated in Part I, more government control over healthcare products and pricing will ultimately lead to higher not lower costs, fewer choices, higher taxes, more debt, and less competition. Perhaps the best indication of forthcoming problems with “Obamacare” is that the Obama administration has already granted delayed implementation “waivers”, because of higher cost and reduced-benefit concerns, to nearly 1,000 unions and major companies.
Employer-based healthcare plans and other “fringe-benefit” programs expanded significantly during WW II as a reaction to government “Wage Controls” and currently comprise nearly 60% of health insurance coverage in America. Because of government-controlled wages, employer-sponsored healthcare was created to provide valuable services to employees without violating arbitrary wage limits. These employer-based plans have persisted long after wage controls were removed. Since 1954 these employer-paid insurance benefits were no longer considered taxable income to the employee but are a deductible business expense for the firm, which further complicates the issue. The practical effects of this approach have been to insulate the individual patient from the financial implications of doctor choice, medical fees, tests, consultation, and treatment. In addition, individual freedom of choice has been replaced by limited “standard packages” or “one-size-fits-all” from which employees must choose. The alleged benefit for employees is cheaper cost, supposedly resulting from a larger company insurance pool and standardization. In this regard, it should be noted that the “packages” for unions (especially public-sector unions) and for management employees are frequently better than those offered to general employees.
If the employer “layer” was removed from healthcare and current business insurance costs paid directly to the employees as increased wages (with the same tax deductibility provision available to business), the healthcare insurance choices could be made by individuals based on their own cost/benefit analysis and financial choices for doctors and treatment would become more transparent. Coverage would be personalized to the needs of the actual consumer, not the desires of the employer. Because of the impersonal separation of the consumer from actual healthcare costs (other than a small “copay”) individuals generally consider these costs low or negligible and tend to overuse the system. Insurance coverage for separate and smaller employer pools should cost MORE NOT LESS than a larger nationwide competitive pool of all citizens, in which all individuals would have freedom of choice over the plans and costs that fit their personal needs. Why should personal choices for healthcare insurance be different from choices for auto, life, or other forms of insurance simply because of a 60-year old system designed to circumvent temporary government wage controls for WW II? Give back freedom of choice to the individual.
Removing the employer from the system, along with nationwide competition (see Part I) could also solve the “portability” issue of coverage during relocation or loss/change of job and retirement because the employee would own the insurance policy, not the company. Why shouldn’t healthcare insurance for the individual and his or her family be fully portable, like car insurance or life insurance?
Transition to personal-based vs. employer-based insurance could be accomplished by requiring employers to give employees the choice between continuing existing company-paid plans or receiving the company-paid contributions as tax-free employee compensation, as they are categorized under current tax law. This would allow freedom of choice to individuals and gradual adjustment to the new alternative. Besides freedom of choice, the “portability” advantage of personal-based insurance noted above would be another important consideration in the choosing between the two alternatives.
Employers have no reason to be another layer in the healthcare process, add no apparent value, and have created additional problems. If individuals are given the freedom to make their own cost/benefit choices in a free market with nationwide competition, individuals will have more alternatives and will be more aware of their actual healthcare costs. This should result in more responsible use of the system. Individual freedom to control their own healthcare insurance choices and the resulting additional financial transparency should result in more and better personal decisions and lower costs.
Individual freedom of choice, in a free and competitive market with temporary safety nets only for those truly in need, is a better healthcare solution.
The Old Guy PhD