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Two Modest Health-Insurance Suggestions . . .

eye on the news

Two Modest Health-Insurance Suggestions . . .

. . . as reformers continue to improve the system. March 22, 2017
Healthcare

The unintended consequence of a World War II policy mistake distorted the U.S. health-insurance system, and reformers have been trying patchwork solutions to solve those unanticipated problems up until Obamacare dumped yet another layer of misguided policy onto what was already a mess. The tangle is now so perplexing that perhaps, once Congress takes the necessary first step of passing the House health-insurance reform bill tomorrow, legislators might consider further reforms that erase the original error instead of merely papering it over.

As World War II raged and competition for scarce labor grew fierce, what with so many able-bodied men in the military, legislators, worried about possible runaway inflation, imposed wage controls in 1942. In response, employers began enticing workers by offering rich benefits in lieu of increased wages, and, as these benefits were not income, they were exempt from income and payroll taxes, a subsidy to workers and employers alike. Chief among these benefits was health insurance, whose cost was originally modest.

But as the cost of health care rose in the 1950s, retirees and the poor found insurance unaffordable, and President Lyndon Johnson, who never saw a problem he didn’t think big government could solve effortlessly, injected Medicare and Medicaid into the health-insurance business. Prices continued to rise, in part because of spectacular advances in medicine, such as the development of coronary bypass surgery in the late 1960s, and by 1980, corporations found their medical-insurance costs increasingly burdensome. They tried all sorts of schemes to bring those costs under control, from health-maintenance organizations, which added in layers of administrative costs, to employee wellness programs, which turned out to keep workers living long enough to develop the diseases of aging, with the result that employer costs went up instead of down. Corporate-financed gyms disappeared from the scene. It saved corporations money to have employees die before their health problems could become financially burdensome.

Aside from all this lay a great inequity. People with corporate jobs got (relatively) affordable group insurance, subsidized by the two tax exemptions. People without such jobs had to buy unsubsidized and therefore more expensive individual insurance. So future reforms ought to get employers out of the health-care business entirely, since they are there by accident and add nothing of value to the health of the nation. Either remove the tax-deductibility from employer-provided health insurance, or else give everybody who buys health insurance an equivalent tax deduction. Insurance companies will prove intelligent enough to promote the formation of groups of those who buy their own insurance, so as to give them the benefit of the group-insurance discount. And as every commentator has observed, the freedom to sell insurance across state lines and to design a multiplicity of plans would spur a cost-controlling competition.

A second worthwhile reform would be to encourage the rebirth of the mutual health-insurance company, such as Blue Cross-Blue Shield used to be. Like the Victorian Friendly Societies, early American health insurers were just vehicles for pooling risk, with people knowing that they were all subject to serious illness, but not knowing whether or not it would ever afflict them, so it made sense, behind this veil of ignorance of the future, to pool their money to pay the expenses of those among them unfortunate enough to contract one of the thousand natural shocks that flesh is heir to. In the forties and fifties, the owners of these insurance companies were the policyholders, and their employees were just administrators who calculated the risks, collected the premiums, and paid out the benefits. Blue Cross and Blue Shield were in the insurance business, not the investment business, and they needed no high-paid top executives to make investment decisions to enrich non-policy owning shareholders, because there were none. No insurance company presumed to tell a doctor how to treat his patient, because profit erosion through higher costs was not a baseline concern. The demutualizing of these companies was a huge policy mistake, vastly increasing the cost of health insurance in order to reward public shareholders and executives, not policyholders. Now the tail wags the dog.

I’ve said nothing about health care for the poor. I’d only point out that in mid-century America, nobody went untreated. There were always doctors who wouldn’t charge patients who couldn’t pay, always charity hospitals staffed by the same doctors who staffed the fancy hospitals, always union clinics and company doctors, always emergency rooms that would treat first and ask about ability to pay later. And all these delivery systems provided better care than Medicaid.

The ruling concept in America’s technology companies is continuous improvement. Health-insurance reformers, starting now, ought to make it their motto as well.

Photo by Theo Heimann/Getty Images

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