The irrationality of a tax-subsidy-created insurance system which typically gives you free (or at least low cost) health care when you are employed and prosperous, and which then shifts drastically-increased insurance costs to you as soon as you are out of work, is a nasty problem which perennially provides democrats with talking points and opportunities to try seducing the public into supporting its vision of a government-supplied free lunch.
Miraculously, this country actually had enough intelligence to reject HillaryCare once, but neither Hillary nor socialized medicine schemes are going away anytime soon. Today’s lead Journal editorial identifies the actual problems and points out precisely the correct solutions.
the President wants to fix defects in the market for health care. This is an area where he can do a great deal of good at little cost to the Treasury. And it’s high time. The inefficiencies of the current system are a drag on wage growth that’s being felt now even by the United Auto Workers union. And health care costs may partly explain why many Americans don’t feel as good as they might about the current economic expansion.
Longer term, it’s also increasingly obvious that the U.S. is approaching a tipping point where the reforms needed to preserve an innovative, market-based health system may become politically impossible. That’s because almost half of our health-care dollars are already spent by government. Do nothing and the inevitable growth of Medicare alone will lead us far down the path toward government-rationed health care a la Europe or Canada.
Even the half of our national health-care spending that remains a “private” responsibility bears little resemblance to an efficient market. That’s because the vast majority of Americans with private insurance get it from their employers, a relic of World War II when companies adapted to wage and price controls by offering insurance as a benefit to attract the best employees.
A tax exemption for employer health spending was later codified and will be worth about $126 billion this year. This enormous subsidy has created a system of overgenerous employer-provided plans that give individuals little incentive to pay attention to costs. It’s also unfair to people who aren’t lucky enough to get insurance from their employers, and therefore must pay for it with after-tax dollars.
So the first principle of reform must be to equalize the tax treatment of individually purchased and employer-provided insurance. Health Savings Accounts, which were part of the 2003 Medicare bill, are already a step in the right direction, since they mate a high-deductible insurance policy with a tax-free savings account to help pay pre-deductible expenses. Mr. Bush is usefully going further by asking for the premiums on the HSA insurance policy to be tax-free as well.
Equally important is creating a national market for individual insurance. Right now employers large enough to “self insure” can do so mostly as they see fit. But individuals and small businesses who want to buy insurance are at the mercy of state regulators where they live or operate. In overregulated states like New York and New Jersey, residents can pay 10 times as much for insurance as they would in neighboring states, and might not even be able to buy the high-deductible insurance necessary for an HSA. Individually purchased insurance also isn’t portable across state lines, contributing needless anxiety to normal life decisions like moving or switching jobs.
The Founders put the Commerce Clause in the Constitution precisely so Congress could act against internal restraints on trade such as today’s 50-state insurance market. We hope Mr. Bush endorses and fights for the bill from Representative John Shadegg of Arizona that would let individuals buy insurance from vendors in any state, no matter where they live.
The overall goal here is to move from the inefficiency and insecurity of the employer-dependent system to one where all workers have portable, individually owned insurance. A good analogy is portable 401k retirement plans, which are more appropriate to the mobile nature of the modern economy than traditional pensions. They are also more secure, as the increasing number of defined-benefit pension plans in default (United Airlines) amply demonstrates.
Achieving this won’t be easy, especially given the ideological stake that so many politicians have in a government-run system. They like the leverage of determining payment rates to hospitals and doctors, not to mention being able to take credit with voters for providing more benefits. But there is no free lunch in health care, any more than there is in any other part of the U.S. economy.
Health care is either going to be allocated by prices or by government, which in the latter case means price controls and waiting lines. Though it represents one-sixth of the U.S. economy, health care is the one industry in which the purchasers actually have no idea what anything costs. An individual market for health insurance would allow more freedom of choice while making consumers more cost conscious.
Market-based health-care reform could be a big political winner for Mr. Bush and the GOP. Americans have shown themselves averse to rationing via brute force, both in their rejection of HillaryCare and in the backlash against HMOs. And while the opponents have skillfully played on fears, consumer-driven plans — which let individuals “ration” care for themselves — have proven popular when they’ve been offered. Just last week the insurance industry announced that enrollment in HSAs had tripled in 10 months to three million people.
That’s a small part of the entire market, but an important start. Policy inertia on health care will inevitably lead to more government and Canadian or British-style waiting lists. But there’s still a chance to change course. Republicans in Congress should join Mr. Bush in seizing it.
