We need to fix the health care system.

                                                        

The tax-code quirk and the health care mess
By Jeff Jacoby
Monday, January 29, 2007

Wading into the fraught issue of health care during his State of the Union address, President Bush noted that for most Americans, "private health insurance is the best way to meet their needs. But many Americans cannot afford a health insurance policy."

Why is health insurance so expensive? One explanation is that the extraordinary gains medical science has made over the last few decades come with hefty price tags. The revolution in cardiac care, the myriad new drugs, the invention of CAT scanners and MRIs, the ability to transplant organs -- these and so many other lifesaving medical miracles didn't come cheap. It stands to reason that insurance covering the cost of such miracles doesn't come cheap either.

But wait -- *does* it stand to reason? Information technology has exploded in recent decades too, yet computers have never been as affordable as they are now. Agriculture is far more advanced, and the quality and variety of food available to consumers far greater, than they were 50 years ago, yet the real cost of food has plummeted. The price of a primitive color television in 1954 was equal to three months' wages for an average American worker; today that worker gets a sparkling picture on a 25-inch screen for just three days of work.

"Why is it," asks David Gratzer, a physician and scholar at the Manhattan Institute, "that in every other field where enormous technological strides have been made, total costs have fallen over time, but in health care they have increased?" The answer, he writes in The Cure, a lively and engrossing new book on the American health care mess, is simple: Health care costs so much because most of us pay so little for it. And we pay so little -- out-of-pocket expenses amount to just 14 cents of every health dollar spent in this country -- because a third party nearly always picks up the tab. For most working Americans, that third party is an insurance company paid by their employers. (For the poor and elderly who rely on programs such as Medicare and Medicaid, it's the government.)

Why does it matter whether Americans pay for medical care directly or let insurers cover their bills? Because thrift and price awareness usually go out the window when we're spending other people's money. Under the present setup, most Americans have little incentive to be economical consumers of health care. As a result, health care expenditures -- and insurance premiums -- have been racing ahead at three and four times the rate of inflation.

All of this is due to a quirk in tax policy dating to World War II, when employers looking for a way to enhance workers' salaries without running afoul of federal wage controls hit on the idea of providing medical benefits. When the IRS agreed not to treat such benefits as taxable income, it triggered a far-reaching change in the way Americans paid for health care.

What had been a relatively free market in medical services, with patients transacting directly with doctors and hospitals, gave way to a third-party system, in which employers paid the insurance companies, and insurance companies paid the bills. Americans increasingly used insurance to cover routine medical expenses, not just major unexpected costs like hospitalization or surgery. Imagine what automobile insurance would cost, writes Gratzer, "if people insisted on plans that had [low] deductibles . . . or policies that included not just major body work, but also oil changes and gas."

To properly disentangle this snarl, Congress ought to end the tax exclusion that causes it. Employers don't generally provide workers with homeowner's or auto insurance, or for that matter with food, clothing, or housing. Ideally, medical treatment would be handled no differently, and Americans would benefit from a far more robust and competitive healthcare market than they do now.

But after 60 years, it's probably infeasible to simply eliminate the tax deduction altogether, so the president has proposed a second-best alternative: eliminating the bias for employer-provided health insurance by giving every family with health insurance a $15,000 deduction ($7,500 for individuals) -- no matter where their insurance comes from or how little it costs. Employer-sponsored insurance would become taxable income -- but since most insurance policies cost less than $15,000, most employees would enjoy a significant tax break.

Under the Bush plan, the tax code would no longer penalize Americans who don't get health insurance through their employers, since they too would be eligible for the $15,000 tax deduction. Millions of others would have an incentive to shop around for a health plan less pricey than the one available through work, since cheaper insurance would end up meaning a bigger tax break. That would put pressure on insurers to develop more high-deductible, low-premium plans -- and on health care consumers to start paying attention to prices.

Bush's prescription won't cure everything that ails American health care. But there's no question it would make an excellent start.

Comments

[Charles Slakan]

First, Mexicans who believe that the southwest of USA belongs to them are not being historically correct!
There is no dispute that the Conquistadores claimed the Southwest for Spain, and subsequently to Mexico after Maximillian was ousted.
Aside the fact that Mexico got their tails tore up and ceded those territories to the USA, the Comanches and
Apaches affectively stopped possession by all claimants until the US Army finally was able to subdue those tribes.
Possession is an important part of this claim, and Mexico was not EVER able to take possession under any government from these Indians who hated them. They had always robbed, murdered and looted from them even after treaties with the US were signed.
But have the Mexicans decided to return much of Mexico back to the Mayans, Aztec and Toltec, or even the Yaquis?
Why should these illegals get any different treatment than any other immigrant who has been going through
our Immigration Department?
You mean to tell me that if one or to people broke into your home, you would help them out with your kids educational funds, their food, their future?
How does it sound then if 100 illegals decided to rest in your house, use your families resources while they were doing you a favor, working and sending the money home to Mexico?
So I think what the deal is because there are 100, instead of 1 or 2, that means put the law aside for them that YOU certainly haven't been doing for American Citizens!
Say their kids are Americans because they were dropped here.
The laws that these alien
associations refer to that supposedly supports the rights of their kids born here to be citizens, refer to a case of a Chinese Man that lived here obviously, legally before he returned to China.
The question of whether his rights to be ab American citizen was covered by the 14th amendment.
The bottom line in this case is that congress has had the authority to implement immigration laws
from the start, and that's exactly what happened, Immigration laws were put into place when someone thought settlement had come to its conclusion.
Subsequently, those immigration laws dictated our immigration policy. If in fact the immigration laws had no authority, then
what exactly is the purpose of those?
The Constitution does not guarantee all people unalieanable rights, rather for AMERICAN CITIZENS.
Congress
Congress has the duty to protect states from INVASIONS according to the US Constitution.
I would say 100 invaders in my house or 11 or 20 million aliens can certainly be seen, even by a child, as an INVASION.
I have heard these alien sympathizers whine about the word, "alien".
I wasn't referring to the idol worshippers,Catholic Church, Kennedy, the Democrats. Banks and anyone else who stands to benefit from this travesty, but the Hispanic Lefts.
The word alien preceeded ET and is written into our Constitution, it means foreign, invaders, not American Citizens or here with an invitation!