Healthcare

Expanding Health Coverage in Increments

American healthcare is a lot like Russian roulette. A patient seeking services runs the risk of getting infected, indebted, disabled, drug-dependent, or side-effected. Even though Americans pay the highest per capita healthcare costs in the world, this is what they get for their money: lower life expectancies, lower rates of childhood immunization, and higher rates of infant mortality.

There are two big problems with third-party health coverage in the U.S. First, patients have no incentive to care about price; second, providers have little incentive to care about quality. Consequently, we have both a population that is insufficiently committed to wellness (because medical "fixes" come at little or no added cost to the insured) and a profession that thrives on illness and dependency (where even sloppy and unnecessary services get paid for). Among developed countries at peace, there is no less effective system for ensuring good health for all.

The first task is to decouple health insurance from employment. Because employer-paid health benefits are not subject to income or payroll taxes, the current system discriminates against workers and families who do not have such benefits and must therefore fill the gap with after-tax income that may be as much as 30% less than the gross wage. Republican presidential candidate John McCain wants to eliminate the tax exclusion for employer-sponsored health plans. McCain (whose proposal resembles one advanced by the American Medical Association) would use the resulting increase in federal revenues to pay for tax credits of $2,500 for individuals or $5,000 for families. These credits could be further enhanced by adding another 2% to the payroll tax rate.

Employees (and their families) with corporate plans--about 150 million Americans--would probably migrate toward high-deductible, low-premium insurance. Anything left over from the credits would go for out-of-pocket medical expenses. The credits would also enable coverage for many of the nearly 50 million Americans lacking insurance who at present cannot afford both the premiums for a high-deductible policy and the out-of-pocket costs required to spend down the deductible. High-deductible policies could be coupled with Health Savings Accounts, which allow families to put away up to $5,800 a year, before taxes, for medical expenses. More than four million Americans already have HSAs, although the rule is you cannot self-insure with pre-tax dollars until you buy a high-deductible policy first. (Who but a lobbyist could have come up with that one?)

McCain's plan will work for all but the chronically ill, who will be abandoned by an unregulated market. People with pre-existing conditions cannot now get coverage at any price because they present too great a financial risk. McCain says he will have these people covered with a so-called "Guaranteed Access Plan" similar to the high-risk pools in most states. But the acronym, GAP, says it all. These pools require hefty taxpayer subsidies, and the policies offered through them extract high premiums and co-pays and limit benefits through either temporary exclusions or lifetime caps. In all likelihood, many with medical problems will forgo insurance altogether, figuring that the insurance will make it harder--not easier--to pay their bills. They will pay out of pocket until they are Medicaid-eligible, often delaying treatment and thereby ensuring even higher costs down the road.

Democratic plans for universal coverage meet the fairness issue head-on and insist on insuring the uninsurable. Such a national plan is the desired end point, but not immediately achievable given our present fiscal woes. States such as Maine have found that their own initiatives can be sustained only through draconian taxes, surcharges, and below-market reimbursements, and maybe not even then. The McCain plan, or one like it, would help to create a reasonable transition phase where we begin to change the culture to make healthcare consumers more responsible and providers more accountable. After that, we can begin to talk about extending Medicare coverage, dropping the upper-age limit to 55, say, and including all children five and under. Over time we could gradually shrink the uninsured middle, implementing cost-control measures as we go to make sure that we can afford the extension of coverage.

"The preservation of health is a duty," wrote the 19th-century English philosopher Herbert Spencer. "Few seem conscious that there is such a thing as physical morality." Since Spencer also coined the phrase "survival of the fittest," it can be assumed that he spent more than a little time thinking about what works and what does not. The healthcare system in the U.S. is not working. Fixing it will take time and the equivalent of a wartime mobilization to make sure that all are cared for--and that all care for themselves.

For more on the subject of paying for healthcare, check out this interview with economist Arnold Kling.