Let's not quibble about the current state of health care. There is justifiable angst about the uninsured because even though most Americans end up getting health care when they need it, the current approach produces incredible anxiety and is ridiculously inefficient. There is also dissatisfaction with the quality of health care, particularly the increasingly shabby way insurance companies treat patients. But let's not quibble either about the long-term effects that Obama's plan will have on American health insurance, which will be ultimately to push nearly all Americans into government-provided health insurance. Instead, let's ponder whether such a move is a good thing.I have to agree.
A fundamentally important factor to consider before we start making changes is competition. The problem with American health care is not excessive competition; it is insufficient competition.
The reason for rising frustration with insurance companies is that patients can't do what patrons they do when they receive poor service at a restaurant, which is to go elsewhere. Most health insurance is tied to employment, so most patients are stuck with their insurance company. And it shows.
Other insurance markets are very competitive, so why is the health insurance market so uncompetitive? The answer is that during World War II a tax break was extended to non-wage benefits such as health insurance premiums paid by employers. Over time, this effectively tied most American health insurance to employment. This forces patients to fire their employer before they can fire their insurance company. It is small wonder why we get such poor treatment from insurance companies. The key to returning true competition to health care is to make it possible for individuals to fire their insurance company, which requires eliminating the tax break on employer-provided health insurance by extending it to privately purchased policies.
During World War II there was a decidedly anti-competitive wage controls, which could, arguably, be justified during the emergency. However, in order to attract quality workers, firms began to offer health insurance and because the health insurance benefit was tied to the cost of labor (a tax deductible expense for employers) the tax benefit became entrenched.
Of course, employers are not required to offer health insurance, but nearly everyone does because they want to keep their workers. Thus small companies, say those employing less than 15 people, their health insurance offering is incredibly expensive, taking up a much larger share of their labor expenses than health insurance is for a larger firm. But also, small firms cannot offer options, they usually have one plan and that is all. Larger companies might offer a selection of options within one plan.
Mr. Rose makes a very salient point, if you want a different health care plan (and aren't married to a working spouse), you have to change jobs to change plans.
But if you are insuring, say your house or car, you have a variety of options and can shop for an insurance plan that suits your needs. If you have a beater car and need only liability insurance, you can get that. If you have a brand new car and need full coverage with a low deductible, you can find that. Simply put there are more options and companies compete for your dollar.
Health insurance companies don't compete for the consumer dollar, they compete to get big employers because they can charge a specific, usually high premium for the group.
Giving the tax break to individuals for health insurance would increase competition. But there are some drawbacks to the tax deduction for health insurance as well.