Articles From the June 1995 Unification News
What Hunger Insurance Could Teach Us About Health Insurance
by Joseph Bast-Irvington, NY
To understand what lies at the heart of the failure of our current health-care financing system, imagine, if you can, what the world would be like if we tried to buy food the same way we buy health-care services.
You could go to work tomorrow morning and hear your boss tell you the following: the company has decided to offer a new benefit-hunger insurance. The company will purchase a hunger insurance policy for you that covers about 95 percent of your food costs whenever you enter a grocery store or restaurant, and a smaller share of the miscellaneous snacks and condiments you purchase from street vendors and the corner drugstore. To pay for the new benefit, the company will withhold some of your pay-about $100 a week or so.
What effect would hunger insurance have on you, a consumer of food? If you're like me, you will probably start to eat more...and eat better, more expensive foods. Why eat hamburger when you can have tenderloin? Why settler for beer when the finest wines cost you just as little?
If there were such a thing as hunger insurance, some of us would stop checking prices before we ordered food, just as we don't check prices when we ask for medical treatment.
What effect would hunger insurance have on the providers of food? Put yourself in the shoes of a grocery store manager. You would start stocking more caviar and less Cheese Whiz, wouldn't you?
Every grocery store would offer an impressive array of products, from the very finest meat department to the best-stocked liquor counter (providing state law allowed it). That the store next door has the same expensive freezers and wine cellar matters not at all; cost, you understand, is no object. "Over investing in new technology?" you ask. Hey, the insurance company pays for it all! And if we don't offer it, customers will cross the street and shop there. You know you would.
What if you were a lousy grocery store manager who just couldn't keep costs down and quality up? Before hunger insurance came along, you would be forced out of the market by stores managed by sharper people able to cut costs without sacrificing quality. Customers wouldn't patronize your establishment, and you'd be out of business. But with hunger insurance, you can pass along your higher costs to the insurer, so the customer never knows how inefficient you are!
If there were such a thing as hunger insurance, the price of food would begin to soar, just as the price of health services has steadily risen faster than the price of other goods and services.
Inefficient, low-quality providers of food would stay in business rather than be forced out by better competitors, just as high-cost providers of health care are tolerated in today's health-care marketplace.
Some people in our imaginary world will be uninsured: they won't have hunger insurance because their employers are too small to afford to offer this new benefit, or because they are self-employed or unemployed. Or, in their effort to control costs and make money, some hunger insurers will refuse to cover people who are high food-risks- the hoarders, the people with exceptionally delicate palates, and the bulimics. They will offer cheaper rates to others: beer-drinking football fans, people who can't smell, and anorexics.
The uninsured will be hurt the most by hunger insurance because they will see the price of food bid up and out of reach by those lucky enough to have hunger insurance.
Civil rights activists and well-meaning people without much understanding of economics would campaign against for-profit hunger insurers, denouncing them for being heartless in their discrimination against people with eating disorders. They would condemn them for profiting from the provision of something so fundamental to human life as food. "Food is a right, not a privilege," they would say. "The high administrative costs of the hunger insurers are what is causing the problem. We should abolish private hunger insurance companies and replace them with a single provider of food."
And since experience will have so convincingly shown that the current hunger insurance system is inefficient and unjust, our enlightened elected officials would eventually yield to the public's demands and pass "pay or play," forcing business to buy hunger insurance for all their employees, or "national hunger insurance," where government acts as the single payor of all hunger insurance claims.
Commissions will spring up everywhere to determine whether a carrot is more valuable to the community's welfare than a grape, and a grape more valuable than a banana; just as commissions are being created at this very moment to decide whether capping 1,000 teeth is "worth more" than extending a person's life for one week by kidney dialysis. The issue will be addressed as if justice and virtue, rather than economics and incentives, were at the heart of the issue.
What if there were such a thing as hunger insurance? This little exercise in imagination teaches us quite a bit about why we spend too much on health care. In its simplest form, the lesson is that we rely too much on insurance to pay for our health-care expenses. This reliance makes us poor consumers, encourages health care providers to provide too much, and allows and even encourages inefficiency and waste.
The solution to the nation's health care crisis is not, of course, to abolish health insurance. Health expenses are an insurable risk, and because they can be substantial, it certainly makes sense for people to buy insurance. But insurance should not be simply pre-payment for routine medical expenses. When insurance is used for this purpose, it leads to overuse and all the problems we saw with hunger insurance.
Insurance, instead, should be limited to protecting us from what is now called catastrophic risks. We should self-insure against small and routine health expenses, and ask our insurance coverage to "kick in" only for large and unpredicted expenses.
Medical Savings Accounts
We rely so heavily on insurance to pay our medical bills because the tax code rewards employer-paid insurance and penalizes self-insurance. Employer-paid health insurance premiums are tax-deductible business expenses for our employers, so they don't count as taxable income at the end of the year. Money spent paying medical bills directly, in contrast, is not tax-deductible. We must pay out-of-pocket medical expenses with what is left of our paychecks after Uncle Sam has taken his tax share.
The way to correct this situation is to follow the path blazed by Individual Retirement Accounts, or IRAs. IRAs encourage us to put away money for retirement by allowing us to deduct the amount of our contributions from our income when calculating our income taxes. Medical Savings Accounts, or MSAs, would operate the same way, but money deposited into the accounts could be withdrawn only for medical expenses.
By giving the same favorable tax treatment to self-insurance as is now given to employer-paid health insurance, we can begin to break our national addiction to health insurance.
Two organizations have done the work designing MSA plans that are fair and affordable for all Americans. They are the National Center for Policy Analysis, in Dallas, Texas, and the Council for Affordable Health Care, in Washington, D.C. Several bills now pending in Washington, including HR5250, would create MSAs.
MSAs offer the best way to control spending without life-threatening rationing, ineffectual price controls, and all the other nonsolutions being discussed by politicians today.
Our fictitious world with hunger insurance reveals how over-reliance on health insurance is at the very root of our nation's health-care problems. The solution to these problems is not to pass price controls or impose more regulation on health-care providers. All that is required is a change in the tax code encouraging people to pay for their own health care out of personal savings.
Joseph Bast is president of The Heartland Institute in Chicago. This article is excerpted from the November Freeman, the monthly journal of The Foundation for Economic Education, Irvington-on-Hudson, New York. Copyright 1993.
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