01 January 2006

Resolution: Health Care

The rising cost of Health care seems to be the topic of the day. In any given Gallup Poll questioning Americans about their Top 10 concerns, health care will undoubtedly be found in the top three. Open any newspaper or other favorite periodical and you will find a headline decrying the rising costs associated with staying healthy. Inevitably the article will speak of a family in Cincinnati or some other all-American city. It will be a family of four with both the mother and father employed. Somehow, because of a problem with “the system/program” they will be making enough money to be excluded from Medicare but not enough to pay for their own health care costs.

The article will inevitably speak of how there are forty-five million (45 million!) Americans just like them who are without healthcare or insurance of any kind. This is where the article takes a decidedly more opinioned tone and the author typically critiques the plans of President Bush and his administration. The reporter is editorializing when she or he should be reporting—-just the facts please, ma’am.

I am not employed by the Bush administration in any fashion, and do not always agree with his policies, but call this a wholehearted endorsement of his Health Savings Accounts.

Health Savings Accounts are based on the same principles as many of Bush’s other “ownership society” measures. Give the control or "ownership" to the people. It is based on the assumption that individuals will make rational choices to benefit themselves--similar to basic assumptions made by economists. The premise of this plan is that people can set up a tax-free account devoted to payment of costs associated with their health care. Into this account they can place some $2000 (the number is still not set) to be used for health-related costs--prescriptions, doctors visits, etc. Instead of subsidizing HMOs by not taxing, they are subsidizing individual-controlled Health Savings Accounts. The idea is, that having set up an HSA, the individual will then purchase insurance which will cover costs beyond the $2000 in their HSA. This insurance will cover catastrophic costs and not the normal day-to-day costs associated with health insurance. Now, because the individual is in control of this money and how it is spent, every cough and ache does not require visit to the doctor and generic drugs become good enough.

There are essentially two issues causing the ever-rising costs of health care: problems with the way insurance is used and the out of control costs resulting from frivolous lawsuits. I'll leave Tort Reform for another day and treat the two problems of insurance as usual. Currently the government taxes wages, without getting into the minutiae of how it works, it's enough to know that these taxes affect both the employer and employee. At the same time the government does not tax payment in the form of health care. Because of this employees see are larger portion of their salary in the form of health care--this because of its (health care's) rising costs. Most health care--government run, business run, whatever--usually require payment of a $10 or $20 deductible. After this payment, the patient/participant can then receive whatever services outlined by the insurance company. Because there is nothing limiting this consumption and because this is a form of their income, the employee/patient/participant has incentive to use and abuse this health plan.

This abuse points a flashing bright neon sign at the fundamental problem with government run health programs and HMOs. Because the money is not owned by anyone and payment levels are required, there is no incentive to keep costs down. The slightest ache or pain merits a visit to the doctor and when there is no extra cost for the full barrage of testing, the patient orders them all. This problem is what economists call “tragedy of the commons.” A common area, owned by no one but used by all is maintained by none and taken advantage of by everyone. HSAs solve this problem by putting the individual in charge of all basic health care and invokes the help of insurance only in cases beyond the means of the $2000 socked away in the HSA. What’s more, any unused funds in the HSA can be rolled into the next year with the same level of contribution allowed. This makes it another way for people to save for retirement with payment of tax on HSAs deferred until future withdrawal.

All this begs the question, when HSAs make so much sense, why don’t we know more about them? I believe the questions has two answers. In the first place, the press has not taken the time to educate themselves about HSAs. They are complicated (though not as complicated as the new prescription drug plan) and difficult to first understand and then explain. Its much easier to write an article about a suffering family of four in Cincinnati (though suffering less because of Carson Palmer)--that's the type of thing that sells papers and appeals to the politics of idealistic young liberal reporters. Lastly, President Bush needs to do a better job of explaining his plan to Americans. If this requires circumventing an unsympathetic press corps, so be it.

Health care costs and problems will not go away. If anything, it will continue getting worse--unless something is done. HSAs are one way to attack the problem, tort reform is another and will be the topic of a future column.


Laura Wright said...

This is an interesting topic. What many people don't know is that they will get better care if they are controlling it themselves. Being able to choose your own doctor/treatment just seems like a basic right that has been taken away by managed care (HMO's). Turns out, doctors don't like having to jump through the insurance hoops any more than we do, and will often treat cash-paying uninsured patients better than you'd think! A few years ago, I was uninsured and still in need of medical care - they gave me a $50 discount just because they didn't have to take the time and trouble to file an insurance claim for me, and they actually spent time with me, rather than rushing me through the mill... I am not a supporter of managed care at all - and I would go with an HSA (in addition to the fact that they are just a good idea) just to spite Big Insurance. HSA's put the power back in the patient's hands, where it rightfully belongs.

Blue Cross of California said...

Great blog I hope we can work to build a better health care system as we are in a major crisis and health insurance is a major aspect to many.