Government Health Care? Why not Try Something Different?

September 7, 2009

For release noon Sept. 8 and thereafter (661 words)

With a presidential address to Congress capping a rough-and-tumble summer, we’ve learned at least three things about health care. Most people are concerned about the health care system; reasonably happy with their own health care; and quite worried about a massive increase in government’s involvement in the system.
In political economy, it’s standard to note that people don’t pay much attention to politics — they’re busy mowing their lawns and raising their children — unless the (perceived) costs of political activity get too high. That’s what we have now.
And the public is smart to be wary of political promises and concerned about the costs of more government involvement.
Democratic proposals seek to dramatically expand health coverage for those who do not have insurance. This would increase costs, reduce (or “ration”) coverage for those who currently have coverage, or probably both.
A dramatic increase in costs is problematic. Politically, taxpayers don’t like it. And in terms of the economy, there are two painful choices. You can borrow the money, extending the massive debt built up by the current and past president — somewhere between a bad idea and a disaster. Or you can increase taxes — not good medicine for an economy, especially during a recession. Higher payroll taxes would be most painful, since they make it less likely that firms will want to hire workers.
If not more debt or taxes, then we’re left with wishful thinking about greater efficiency by adding government — or increased rationing. Although the term “death panel” is hyperbolic, it is certainly reasonable to predict that the prime candidate for increased rationing would be expensive, end-of-life care.
Is (a lot) more government really going to help? And if one really believes this, why not try 50 different state-based approaches rather than one, grand, federal experiment? On the other hand, is reduced government — more of the free market — a potential solution?
First, consider that insurance typically covers rare, catastrophic events. In contrast, health insurance covers everything from allergies to cancer. Because it is so extensive, it is also so expensive. Imagine the cost of car insurance which would cover everything from door dings and oil changes to accidents.
Health insurance is also odd because it is often connected to our employment. How did this happen? In a nutshell, it was caused by a government subsidy available to workers — to receive health insurance as a non-taxed form of compensation through a firm. As a result, we have too much insurance — low co-pays and deductibles and expansive coverage — and it is connected to our employment. The results? Massive increases in costs (and ultimately, in premiums) and an array of potential “portability” issues if you change jobs.
What can we do about this? Ideally, we would eliminate the subsidy, taxing fringe benefits and reducing income or payroll taxes by the same amount. Politically, this would be difficult. So a more feasible, second-best solution would be to extend the subsidy to all people and to separate it from employment.
Second, what are some other helpful policy changes? Reduce or eliminate mandated coverage by insurance companies; significant tort reform that would reduce defensive medicine and lessen malpractice insurance premiums; force or allow insurance companies to compete across state lines instead of restricting competition; expand the availability of Health Savings Accounts (HSA’s); and so on.
The government is heavily involved in health care right now — directly and indirectly. You have to ask whether more (federal) government will be an improvement. After we decide against a heavier federal role, hopefully we can embrace market-based reforms that will increase competition, lower costs and move health insurance toward true insurance.
D. Eric Schansberg, Ph.D., is an adjunct scholar of the Indiana Policy Review Foundation. This article, a version of which originally appeared in the Indianapolis Star, is the last of a four-part series on the economics of health care. The articles can be downloaded individually under the “Petitions/White Papers” tab at (No registration required.)


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