Giuliani's Health Care Plan

Former Mayor Rudy Giuliani announced his health care plan yesterday, although it lacked details. Calling his Democratic rivals' plans "socialist," Giuliani proposed a radical realignment of how health insurance in provided in American. Instead of an employer based system, the result of a World War II era appeal for workers, Giuliani would offer tax exemptions of up to $7,500 for individuals and $15,000 for families to buy their own insurance on the open market. Giuliani explicitly rejected that idea of any employer mandate that would require companies to provide health insurance or any mandate that individuals buy insurance, a swipe at the universal program signed into law by rival Mitt Romney in Massachusetts last year. Marc Santora of the New York Times writes:

In proposing a tax exemption of up to $15,000 for a family and $7,500 for individuals, Mr. Giuliani said that money could be used by consumers to buy an insurance policy of their liking. The money left over, he said, could be put into a “health savings account” to be used to pay for deductibles or other uncovered medical expenses.

Mr. Giuliani said the resulting flood of competition among insurers for customers would lead them to reduce the costs of their policies, estimating that only 20 million to 30 million of the 120 million who currently get their insurance through an employer would need to sign up for individual insurance plans for that to happen.

“You have to start bringing the price down before you can figure out how many people can you include,” he said at a news conference after the speech. “It can’t be done with a magic wand all at once.”

While insurance may begin to cost less, the real impact will be in people starting to realize exactly how much health care really costs. Most employees have no idea how much insurance costs unless they are forced to by COBRA coverage or their own insurance. Employers provide a massive subsidy for health insurance in most cases and that is unknown and unrealized compensation for most Americans.

With the knowledge of how much health insurance actually costs and how much individuals services for health care actually costs, along with how one impacts the other, there will be a consumer drive to lower costs. The market force to keep prices lower will improve the health care spending in this country.

But there is an added benefit for Americans-higher salaries. First, with the expiration of employer provided health care, people will be forced to pay for the health insurance, out of pocket, until tax time. This means that they will seek pay increases to cover the additional cost. Employers on the other hand, by not providing health insurance benefits will lose that tax break (employers pay payroll taxes, but that is exempt from their taxable income) that comes with the compensation benefit. In order to avoid a higher tax hit, they will increase salaries somewhat to compensate. Employers could also increase the value of other benefits like 401(k) matching and other benefits, but the biggest bump will come in salary.

Even with Giuliani's health plan, there is still the matter of addressing actual health care costs. Better information, and payments out of pocket for care and insurance, will go a long way to informing consumers about how much care really costs. A few more details on the plan will go a long way to helping Americans come to grips with such a massive change in health insurance provision in this country. Giuliani will need a transition period, to allow insurers to develop and get approved plans to be offered (plans would need approval by the state insurance commissioners). The details will also satisfy question regarding ERISA and the technicalities of insurance in general, such as how the pools would work, etc.

Still, I like the plan at least so far.