Some quick and easy health care improvements

I'm going to withhold explaining free market economics 101, where price is a function of supply and demand and if demand goes up, so does price until the demand stabilizes, but that's why your first paragraph doesn't apply.

But the bigger point is that this wouldn't particularly save any businesses any money. Right now, they deduct the full cost they pay for their share of the employee's health insurance coverage. The problem is that the employee often can't deduct his share of the cost, and if the employee chooses to purchase insurance on his or her own, not through the employer, then the employee can generally not deduct any of the cost of that insurance.

For most perks your employer gives you, you must pay taxes on them. If you have a company car which you can use for personal as well as business purposes, then the value of the personal use of the car is taxable income to you. Not so with the perk of health insurance. You don't have to declare that as income, but the employer still gets to deduct the cost of providing it to you. The tax structure provides an extremely strong incentive for a system dominated by employer-provided health insurance to develop.

At the same time that employer-provided health insurance gets strong tax support, individually-purchased health insurance is strongly discouraged. If you are self-employed and buy your own insurance, you generally cannot deduct that cost and must pay income tax on it just as with all your income.

Frankly, you'd be an idiot to purchase health insurance on your own if you (or your spose) have an employer offering health insurance, so great are the tax incentives.

My proposal is simply to give all health insurance the same favorable tax treatment, by allowing individuals, as well as employers, to purchase health insurance with pre-tax dollars. It really should have very little impact on federal tax revenue, as the most probable result is simply shifting the purchase of insurance from one place to the other. To the extent it reduces taxes, it will only be reducing them on the self-employed or small-business employed who can't get employer-provided health insurance and must buy Blue Cross or something on their own.

As for home equity loans, I agree with you generally, but that's off topic to my point.

Agree and disagree, Dave.

Bucyrus is quite right: under the scheme you've suggested prices would rise.

The overall results of the items Pat lists (or even any one of them) would be both lower "line item" prices and more efficient use of available health care services. But that wouldn't lower overall system cost. The health care market is demand-driven. We can move the pieces around, make our spending more rational and efficient, but as a society we'll continue to spend every penny the market will bear. End result--more services provided and more efficiently, but NO lower overall system cost. If we get prices lower we'll just consume more.

We can maybe slow the rate of cost increase some. We can get more for our dollar, we can get more overall, we can get better distribution of delivery, but we won't spend less. We can blame the providers as much as we like, but they can get away with their charges because as a society we're willing to pay them. That hoary old maxim of economics--demand is unlimited, resources are not.

"Better, faster, cheaper...pick any two out of three."

Thanks for stopping by, Dave. We always enjoy new perspectives.

My supply and demand comment was directed specifically at bucyrus' comment about employers lowering the cost of health insurance, consumers suddenly buying more of it, increasing the problem. I wasn't, in this instance, making a more general point about the more complicated effects of supply and demand as they relate to health care.

I like to call the system that we have now "privatized socialized medicine". We have all the worst parts of both capitalism and socialism thrown into one lovely package. There's a profit interest for doctors, hospitals, and insurance companies, while there's little price competition because the consumers are largely insulated from making decisions based on price competition. If you've got a decent job, you pay money to the HMO chosen by your employer, then you pick from a list of participating doctors, all of whom are paid the same by the HMO. Then you pay only a very modest co-pay for each particular service rendered to you. The only price competition is between the insurance company and your employer. There's not even much competition between the doctors and the insurance companies, because there are so many formularies and rigid fee schedules, with the big HMOs having tremendous bargaining power.

That's why I think the ultimate solution is to inject market forces back into the system, not just increase the private and governmental regulation and control of the industry. I favor decoupling health insurance from employment, providing some type of refundable tax credit for the purchase of health insurance. I would also provide a structure which would encourage new types of insurance products, such as a "chronic illness" insurance, which would pay out if you were diagnosed with, say, diabetes, and which would continue to pay your claims after diagnosis for as long as you needed care.

I'll stop by and check out your posts at The Glittering Eye; maybe we can get a good cross-blog discussion going on this extremely important topic.

AS an example. In today's news from Modern Healthcare

Sens. Olympia Snowe (R-Maine) and Ron Wyden (D-Ore.) are set to introduce legislation that would require the HHS secretary to initiate price negotiations with drug companies under certain circumstances and to develop a plan to eliminate a coverage gap in the Medicare Part D drug benefit. The law that created the drug benefit currently prevents the federal government from negotiating over drug prices. Instead, private insurers that offer the benefit or pharmacy benefits managers negotiate for price discounts. Like the Snowe-Wyden proposal, a bill introduced in the House last week by Reps. John Dingell (D-Mich.) and Charles Rangel (D-N.Y.) would remove the legal barrier to negotiations. However, there are differences between the two. The Snowe-Wyden bill would require the secretary to negotiate with drug companies in cases where the drug is single source, the drug was created with substantial taxpayer funding, or a private insurer requests help. Savings from negotiations would be used to reduce the federal deficit or improve the Part D benefit. -- by Matthew DoBias Chris

So we're going to get lower prices so we can consume/pay for more. Again, its LESS THAN A ZERO SUM GAME.

I was hoping you'd stop by.

I certainly agree that the tax deductibility isn't going to solve the problem of access for the people on the low end of the wage scale. But I do think that restructuring to remove the strong incentive for employer-provided care and removing the disincentive for individually-purchased care will foster a greater market for insurance products targeted at the lower end of the scale. Not the full bells-and-whistles policies, of course, but at least some keep-you-alive-and-out-of-bankruptcy policies.

As for prevention, I pointed out in my comments over at the TMV thread that it doesn't necessarily save money for the system as a whole, even where it makes the cost of treating particular individuals lower. If it costs $100,000 for preventative medicine for a group of 100 to keep the 2 people who would otherwise need heart surgery (for example) from needing it, but it would only cost $50,000 for the heart surgery for the 2 people, then preventative care actually costs the system more money, even though the preventative care only costs $1,000 per individual, while the emergency care costs $25,000 apiece.

Would you like to do a guest post for us on your prescription to wean us off of our bloated, trans-fat health care diet, so that we can pay, maybe, Outback prices for Outback quality?