Thanks, Boss, but isn’t there a better way?

I didn’t take in any shows while in Las Vegas, but I did see a presentation on healthcare trends by futurist Andrew Zolli that was almost as eye-popping. According to Zolli, the price of a typical new car in the U.S. includes about $1,000 in materials…and $1,200 in health insurance costs for the men and women who built it.

One of the most significant factors in the perpetually rising cost of healthcare is the distorting effects of employer- and government-paid health insurance that insulates the market from supply and demand. If you have health insurance today it is most likely an employee benefit from your job, thanks to an act of Congress more than 60 years ago. Today at least 25 congressmen would like to undo that. Before you reach for the tar and feathers, however, allow me excerpt a couple of articles that set the stage.

For a little history, here’s what Karl Zinsmeister wrote in the March issue of The American Enterprise magazine (boldface emphasis mine):

The root of this is very simple–and it is an accident of history. During World War II, while strict wage controls forbade companies from paying higher salaries, firms short on labor grew desperate for ways to attract and keep badly needed workers. They discovered the government would let them pay the health costs of employees as a kind of backdoor substitute for increasing their wages. And health benefits, unlike wages, weren’t taxed, a loophole that made them even more attractive to both workers and companies than cash wage increases. Employer-paid health benefits soon became universal and permanent.

The unforeseen side effect was that it became uneconomic for Americans to buy health care for themselves. Why pay your own doctor and insurance bills with after-tax income when your employer can do it with pre-tax dollars? Soon health care seemed like a “free” entitlement to average Americans. Given that something like 80 or 90 percent of our health care costs are now picked up by someone else, it’s no wonder that medical expenditures in the U.S. have soared to 15 percent of our national income (roughly twice the level of countries like Japan, the U.K., and Italy).

What if those World War II employers had offered instead to pay the grocery bills of their workers? Imagine if today hardly anyone handed his own cash to checkout ladies, but instead a food co-op or insurance company selected by your boss covered the costs of whatever food you consumed. You can be sure that 1) You’d be spending a lot less carefully (and a lot more) on groceries today. 2) You’d have much less individual control over your diet. 3) The grocery and food-provision business would be far less efficient and varied and competitive and cost-controlled–almost certainly it would be one of the more troubled sectors of the U.S. economy.

Hmmm, I wonder if opportunistic politicians might be organizing bus rides for seniors to Canada to buy back bacon? Similarly, do you think you’d be happy if the groceries by government plan required you to spend a large chunk of your “benefit” on groceries you didn’t like and didn’t need, even if you never consumed them?

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Restoring control of health insurance decisions to the direct consumer could finally bring healthcare costs under control by applying market power instead of lobby power. One of my job-related news services forwarded an article to me recently about H. Res. 215 proposed by Rep. Tom Price (R-GA) and co-sponsored by 24 other representatives calling for Congress to get employers out of the business of buying health insurance for their employees in favor of direct ownership.

The article, (subscriptin required) by Steve Tuckey for National Underwriter magazine contains the following:

“Right now employers or the government determine which health benefits are included in an insurance policy, and it may not be what the patient needs or wants,” Price, a third generation physician, said on the House floor, according to a copy of his remarks that appears in the Congressional Record. “When patients voice their concerns, insurance companies respond with a deaf ear because the patient cannot change the policy. They are excluded from that decision.”

Nearly 90% of companies with fewer than 200 employees offer only 1 health plan, Price said.

“What this means is that the person most affected by health care, the patient, has little or no input into the type of coverage they have,” Price said. “Patients should be able to control their health care.”

It’s kind of fun to think about what would happen if the dollars employers currently spend on health insurance were turned over to the employees themselves in the form of higher wages – like they would have been before World War II – and that money went into personal Health Spending Accounts (essentially tax-deferred IRAs for health) and high-deductible plans, and something to get into in another post.

In the meantime, H.Res 215 has been referred to the House Education and Workforce Committee employer-employee relations subcommittee. Links to the text of H. Res. 215 and other information about the proposed resolution can be found here.

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