Tuesday, January 30, 2007

Jeff Jacoby: A proposal for affordable health care

Why in the hell wasn't Bush working on things like this, when he had a Congressional majority?

Even if the Demunists would have demogagued it, the Republicans could have tied such a reform to the new Medicare prescription drug entitlement they went along with--the spoonful of entitlement sugar to make the real health care medicine go down, so to speak.

The gist of Jacoby's insighful column follows:

Why does it matter whether Americans pay for medical care directly or let insurers cover their bills? Because thrift and price awareness usually go out the window when we're spending other people's money. Under the present setup, most Americans have little incentive to be economical consumers of health care. As a result, health care expenditures — and insurance premiums — have been racing ahead at three and four times the rate of inflation.
All of this is due to a quirk in tax policy dating to World War II, when employers looking for a way to enhance workers' salaries without running afoul of federal wage controls hit on the idea of providing medical benefits. When the IRS agreed not to treat such benefits as taxable income, it triggered a far-reaching change in the way Americans paid for health care.

What had been a relatively free market in medical services, with patients transacting directly with doctors and hospitals, gave way to a third-party system, in which employers paid the insurance companies, and insurance companies paid the bills. Americans increasingly used insurance to cover routine medical expenses, not just major unexpected costs like hospitalization or surgery. Imagine what automobile insurance would cost, writes Gratzer, "if people insisted on plans that had [low] deductibles . . . or policies that included not just major body work, but also oil changes and gas."

To properly disentangle this snarl, Congress ought to end the tax exclusion that causes it. Employers don't generally provide workers with homeowner's or auto insurance, or for that matter with food, clothing, or housing. Ideally, medical treatment would be handled no differently, and Americans would benefit from a far more robust and competitive healthcare market than they do now.

But after 60 years, it's probably infeasible to simply eliminate the tax deduction altogether, so the president has proposed a second-best alternative: eliminating the bias for employer-provided health insurance by giving every family with health insurance a $15,000 deduction ($7,500 for individuals) — no matter where their insurance comes from or how little it costs. Employer-sponsored insurance would become taxable income — but since most insurance policies cost less than $15,000, most employees would enjoy a significant tax break.

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