Saturday, July 18, 2009

Health care: my thoughts

Right now, of the topics that are most prominent in politics, I think the one I would most like to discuss is health care, the current center of acrimonious debate.


The elephant in the room that everyone is ignoring is on what the actual goal is. Do you want to increase coverage or decrease total costs? The government nominally wants both, but in practice it seems to be trying for the former over the latter (indeed, much of the debate focuses on how to pay for the cost of reform... why pay for saving costs?). It seems right now that the major plans in consideration claim to be achieving both while not really achieving either.


From my experience, it seems that there is one option which would make large strides into achieving both simultaneously. This is the taxation of health-care benefits. It is easy to see how this would cut costs: inflation is ultimately caused by too much money chasing too little goods. Taxation soaks up money, which slows the amount of money chasing the scarce resources and therefore lessens the inflation, although it probably wouldn't eliminate it.


This form of taxation would also probably (paradoxically to most people) increase coverage. Politicians like bandying about the 42 million number of uninsured Americans, but there is a truth that they miss: most of those uninsured individuals (excluding the effects of the recession) would not remain uninsured six months ago. In other words, a lot of the uninsured are actually part of the structural unemployment, which is a result of the employer-provided health care. If health-care benefits were taxed with the right regime, there would be no benefit to having health insurance through an employer as opposed to a private insurance company. It therefore increases coverage by shifting more insurance from employer-provided to privately obtained.


The primary problem with this scheme is that unionized workers tend to have rather cushy insurance packages (and therefore more tax-worthy ones), and those voters are a strong base of support for the ruling Democratic party. But as many people point out, the growth in health-care benefits often comes at the expense of income: in essence, these benefits are merely income substitutes. Initial growth of those packages came during World War II as a way of increasing wages during a wage freeze. There is no reason that I can divine that would justify the tax-free benefits of benefits: the point of excluding something from taxation is to encourage the consumption of it.


To control costs, you either have to increase supply or decrease demand. Increasing supply would take a decade to achieve, realistically speaking; decreasing demand would happen within a few years and is also more sustainable and much cheaper (it brings in more revenues instead of costing the government a bundle). But that's common sense, which is probably the trait that Congress lacks most (with the possible exception of having a spine).

2 comments:

Anonymous said...

...logically, taxing benefits will only decrease demand because less people can afford it

Paul said...

One issue with "health benefits" is that (most) payouts from health insurance are not really income - they are monies to cover already-incurred medical expenses. So your proposal would essentially mean taxing sickness - or at least taxing medical treatment.

It's hard to see how this is fair or reasonable.


But I applaud your attempt to clarify the goal - whether it is increasing coverage or decreasing total costs.

In passing, it may be worth noting that that increasing coverage can decrease the costs of mandatory coverage for life-threatening uninsured sickness and injury.

But as an outsider, the strangest thing about the US system is that it isn't really a free market, so it's hard to see how market forces can "fix" the problems you mention.

In particular, the beneficiaries of the insurance are not, in general, the customers who select and pay for the policy. So the costs (premiums) are not borne by those who benefit from the coverage (or who are harmed by gaps in coverage).

Sure, in a market where employers chase scarce employees, there is a somewhat weak connection as good healthcare is a selective advantage, which may compensate for the increased expense - but we don't exactly have that sort of jobs market now.

Maybe deeper structural reform of the US system would have advantages. Much of the rest of the world doesn't have a more centrally funded system out of hatred of industry or private property - there are also benefits to the economy and society. Different tradeoffs if you will - but not irrational ones/