Tuesday, October 21, 2008

Employee based health insurance

Here's a thought provoking piece from the Boston Globe arguing that the traditional link between employment and health insurance ought to be severed. Now I won't pretend to be an expert on the complexities of health insurance policy and tax codes but the article makes a couple of interesting conjectures (especially with regard to third party payors), even for an amateur like myself.

After all, we don't rely on employers for auto, homeowners, or life insurance. Those policies we buy in an open market, where numerous insurers and agents compete for our business. Health insurance is different only because of an idiosyncrasy in the tax code dating back 60 years - a good example, to quote Milton Friedman, of how one bad government policy leads to another.

During World War II, federal wage controls barred employers from raising their workers' salaries, but said nothing about fringe benefits. So firms competing for employees at government-restricted wages began offering medical insurance to sweeten employment offers. Even sweeter was that employers could deduct those benefits as business expenses, yet employees didn't have to report them as taxable income. For a while the IRS resisted that interpretation, but Congress eventually enshrined the tax-exempt status of employer-based medical insurance in law.

Result: a radical shift in the way Americans paid for medical care. With health benefits tax-free if they were employer-supplied, tens of millions of Americans were soon signing up for medical insurance through work. As tax rates rose, so did the incentive to keep expanding health benefits. No longer was medical insurance reserved for major expenditures like surgery or hospitalization. Americans who would never think of using auto insurance to cover tune-ups and oil changes grew accustomed to having their medical insurer pay for yearly physicals, prescriptions, and other routine expenses.

We thus ended up with a healthcare system in which the vast majority of bills are covered by a third party. With someone else picking up the tab, Americans got used to consuming medical care without regard to price or value. After all, if it was covered by insurance, why not go to the emergency room for a simple sore throat? Why not get the name-brand drug instead of a generic?

This complete disconnect between consumers (patients) and knowledge of the cost of the delivery of health care is a major issue. What would happen if we made grocery stores covered by a "national food insurance initiative" and we ran it the way we run medicine, where only a third party is aware of what we spend? You could saunter into your local Giant Eagle (or Safeway or Kroger or whatever) and start loading up. Why buy generic sliced cheese when you can fill your cart with the ultra cool hunks of gorgonzola and gouda? Why buy three boxes of Cheerios for $5 when you can get three different, significantly more flavorful brands? Count Chocula and Lucky Charms! Why buy a loaf of boring wheat bread when you can get frshly baked french baguettes straight from the oven? It's all the same. Someone else pays for it.

At some point, this "moral obligation" to provide health care for all Americans needs to become more of a two way street. Maybe not two lanes in each direction. More likely four lanes one way and a dirt road going the other. But at some point the consumers (individual patients) need to assume some responsibility. With third party payors, there's no incentive to contain costs on the consumer end. On the provider end, physicians' urge to contain costs is trumped by a fear of litgation.

Cost containment, then, needs to be addressed at both ends of the stick. Tort reform is the first obvious step. Once the fear of fruitless lawsuits is removed, then we can hold doctors accountable for the ordering of unnecessary tests and changing a patient's perfectly effective generic hypertensive pill to the latest flashy new combo med that costs ten times as much. On the other hand, perhaps we need to involve patients more in the decision making process. When you go to get your oil changed, those mechanics are always trying to scam you into replacing your air filter or serpentine belt or whatever as well. Even when it's not technically recommended. (I love how they have to always take out the filter and show you how incredibly filthy it is, even when it just got replaced three weeks ago). But the choice is yours. And it isn't hard to say no.

Maybe in medicine the same rules ought to apply. If you want the most expensive medicine, the body scan, the dubiously indicated MRI, then you have to contribute to the costs individually, outside the coverage parameters of your insurance plan. Having a tiered distribution of resources is not a foreign concept in this country. Those who can pay, generally are more apt to receive the most extravagant and limited options. As long as the standard of care is not compromised, those of limited resources ought not to be eligible for certain tests/procedures if not clearly indicated. Rationing, unfortunately, is going to part of any conversation we have going forward on health care reform.

Now someone could make the argument that having a nationalized health care delivey system would solve the problem of third party payors; under one omnipotent banner, decisions on tests/medicines could be made unilaterally without input from doctors or patients. But I don't think we really want to toss all our marbles in the basket of a completely government-run system. The history of bloated, behemoth government bureaucracies is not so reassuring (see the VA system and county charity hospitals).


rlbates said...

The disconnect would make it easier to "keep" your health insurance when changing jobs.

OHN said...

This is an excellent post. It brings about many thoughts that should be fodder for the water cooler. So many employers now are offering employment below the standard 40 hour week so they can skirt the issue of offering health insurance. Our local hospital is not replacing retiring/eliminated people with full time workers, rather hiring 2 people part time to fill one vacancy and still saving money over offering health coverage.

I see a time, in the not too distant future, where health care will once again be a lure to attract top shelf staffing as the insurance umbrella will be phased out for the majority of "ordinary" people.

Unknown said...

This was a very interesting article. It's true that insurance is very confusing and stressful, but i agree that consumers need to try to gain more knowledge about insurance as a whole.

Anonymous said...

We actually at one time had homeowners and auto insurance through an employer as well as health insurance. The rates were great because it was "group" insurance.

The big negatives:
1. Lose your job, lose your coverage. COBRA doesn't apply for auto and home.
2. Use it, lose it. We filed 2 homeowners claims in 1 year for storm damage(after not using it at all for the prior 8 years). When renewal time came, we were denied because of excessive claims. Very hard to get new insurance after a denial.

Anonymous said...

Good post-If I had a dime for every time I heard someone say " I don't care what it costs,I have insurance" I would have a lot of dollars!

Insurance is intended to be for unexpected/non-routine/major events. Getting a flu shot,or a sports physical should not be paid for via insurance. A free service has no value to the consumer.

For a real eye opener, go visit a county/public hospital ED/Clinic where "the poor people go". Check out the parking lot (no not the doctors parking lot). Frequently looks like an Escalade dealership! Count the number of cell phone users-think Sprint provides free service? Ah yes, the cigarettes!

Anonymous said...

A lot of plans, Medicare for a good example, don't have set co-pays for Medical services (Hospital is different), people are well aware of the costs, because they are responsible for 20% of the bill.

The issues come when you lose your job/insurance for some reason. Most insurers will not cover pre-existing conditions for two years, especially hard if you left your previous job for a medical reason that does not qualify for long term disability.

The article makes a point about not doing unneeded tests to cover the butt of the doctor, but I want to know the doctor is free to order those tests if (s)he feels they are warranted. I know I don't have an extra few thousand laying around if I need some CTs and MRIs.

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