Tuesday, March 16, 2010

The Healthcare Gecko - Revisited

Here’s a question for you: Why is there no healthcare Gecko? Wouldn’t it be great if 15 minutes could save you 15 percent or more on health insurance? For that matter, where is the Progressive girl with the red lipstick selling health policies? Is it possible that this is the real problem? Is it possible that the reason this is a crisis is that there is no such thing as a true individual market for healthcare? The fact is, only about 5 percent of the insured buy their own health insurance. The other roughly 95 percent get their insurance from the government or their employer. For car insurance the numbers are reversed and there is no similar crisis in that market. Now that Warren Buffet, the other guy from GEICO, has spoken out on healthcare and recommended starting from scratch, perhaps he’ll push for an individual market. Then again, he would be accused of having a conflict of interest, so on Mr. Buffet’s behalf, allow me to make the belated case for the healthcare Gecko. 

First, how is it that we ended up almost entirely removed from our healthcare purchases? The original sin dates back to FDR and WWII when wages were frozen and companies found a loophole by deducting benefits. Like many loopholes, this one grew into the monster it is today and along the way it carved in stone the expectation that healthcare is someone else’s responsibility. That expectation has led us down a path towards distorted markets, rigid employer-paid insurance, ever increasing government involvement, and skyrocketing costs. Meanwhile, the car insurance market keeps innovating and improving.

Comparisons of car insurance and health insurance are of course not always appropriate. The President is fond of comparing mandatory car insurance with a mandate for health insurance. I suspect Mr. Obama knows the difference between mandated liability coverage, and a mandate to cover one’s self. These are not comparable. I’m not aware of any state that mandates insuring your car, only the harm you may cause to others. I suppose one could argue that society is harmed when a person receives medical care and doesn’t pay, but I would suggest that those who are indigent be covered by Medicaid and those who are not, pay their medical bills or be penalized. Ask any hospital administrator what it’s like collecting money from patients today. Then ask an auto mechanic. The latter has it much easier.

Some may say healthcare is way more expensive and complicated than car insurance and hence individuals can’t be expected to understand it or afford it. Did you ever try to read your auto policy cover to cover? And while car insurance itself is much cheaper than medical coverage, did you know that individual Americans spend on average four times more on transportation than they do on healthcare? Is your car really four times more important than your health?

Some may say that owning a car is a choice but healthcare is a right. Well if that’s the case, we should amend the constitution because that right is not currently there. Incidentally, It would be the first time since slavery that one person would have the explicit right to compel another to work for his benefit! In fact, if you think about it, any government entitlement not fully funded by its recipients, amounts to a claim on the labor of others. Most of the time, we accept that burden to help the needy, but too often we are just enriching ourselves and passing those claims onto future generations through deficits. Pretty selfish don’t you think? Is that the way you want to fund your perceived right to healthcare?

Short of that, here’s a way out led by the healthcare Gecko, and the cost is neutral to all parties involved: Step one: Eliminate the tax deduction for all employer paid health insurance, and Step two: Offset the tax consequences with a reduction in payroll taxes. That’s all it would take to establish an individual market and finally begin the healing process.

Here’s how it would work: Employers losing the deductibility of health insurance would be compelled to transfer the policies to their employees and gross-up their wages accordingly. The result would be marginally higher taxes for both the employer and employee which would then be offset by a commensurate drop in payroll taxes. It may not be exact for each individual, but the aggregate would be completely neutral.

TV commercials would begin running instantly showing piles of cash with googly eyes, cavemen, talking lizards, and girls with red lipstick. Employees would be able to control their own healthcare decisions and take full advantage of their positive lifestyle choices. If you are a tri-athlete working for a donut company, which group would you rather be rated with, the tri-athletes or the donut tasters? Those currently without employer coverage would suddenly have a multitude of offers thrust at them from companies clamoring for their business. They’d also have more money available to buy insurance due to the lower payroll taxes.

To be sure, there are other issues in addition to cost that an individual market alone cannot address, but those are subjects for another day. Suffice it to say that once voters are made the masters of their own healthcare destiny, the other issues like subsidized insurance for long-term pre-existing conditions, portability, and tort reform will all get addressed or politicians will pay at the polls. Currently, politicians are insulated from these issues because most people just blame their boss or the insurance company they are stuck with.

Of course, we would still have a subsidized public option called Medicaid for those unable or unwilling to participate in the individual market. But, as competition lowers costs and increases choice, we would likely end up with a much smaller and sustainable Medicaid. Wasn’t that one of the original reasons we were told this was a crisis?

Recall how we got here: It was a mistake; a loophole; an unintended consequence of a WWII wage freeze. Knowing that, wouldn’t undoing that mistake be a great place to start? The polls show that the people instinctively know this. Unfortunately, politicians have a long history of being able to convince enough people to stick the next generation with their bills, and because of that, Obamacare is a fait accompli.