Wednesday, March 24, 2010

What Now?  How About Health-Care Reform

Holman W. Jenkins, Jr. Opines in Today's WSJ that after passing health-care reform, we are in a great position to carry out some health-care reform....

Jenkins argues that the president, congress, and politics in general have failed this country by writing legislation requiring everyone to have insurance.  The result of this legislation is that rising health insurance costs is no longer the health insurance industry's problem since consumer's cannot respond by dropping insurance.  Jenkin's argues that root cause of our health-care industry woes is the $250 billion-a-year tax benefit for employer provided insurance (EPI).

A brief description EPI's evolution follows: Prior to WWII, EPI was rare.  During WWII, prices and wages were frozen.  However, employers could get around the wage freeze by offering health benefits packages, EPI.  EPI was not taxed by the IRS for several years, and when they finally did get around to taxing it there was a strong public backlash.  Congress acted to make EPI tax exempt.  From this point on, individual consumers did not have to face the reality of their health care choices.  The rest is a history of rising costs caused in part by consumer choices made in the absence of responsibility. 

For example: if I participate in a basketball game and the next day my ankle is tender, through my insurance I can seek out the best podiatrist in the region, pay out a small deductible, and receive first rate diagnosis and treatment. However, if I were faced with paying the full cost of my care, I would most likely choose more economical means of alleviating the tenderness of my ankle (ice).

The current health-care bill does nothing to change my incentive to seek out the priciest health-care options available.  It does nothing to bring health-care costs back home to the consumer.  As long as consumers continue to choose the priciest, and often unnecessary, treatments available through their insurance, health-care costs will continue to rise.  However, as Jenkins argues, that is no longer the insurance industry's problem.

The problem is now the government's and ours.  The government must provide subsidies to the required additional 32 million insured mandated by the current health-care bill and tax payers must provide the government with funding for the subsidy.

To sum: increases in health care costs continue unabated.  The government requires everyone to have insurance and will subsidize poor households so they can meet this requirement.  Health insurance companies will increase their premiums to pay for rising costs of health-care, thus requiring greater subsidies to the poor.  The government will fund the increasing costs of its subsidies to the poor by increasing income and investment taxes on the wealthy.  There is no reason to believe this process will not spiral out of control until something gives.

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