Wednesday, October 15, 2008

McCain: Inarticulate on Health Care

So by now I realize that the presidential election is all but over and my preferred (and I use that term loosely) candidate is not going to win, but I do want to comment on the health care issue at stake in this election.

In my view, the issue of how to reform health insurance is the most important domestic issue that will be decided in the next several years. Either we grant the state a bigger role health care or we allow individuals more freedom. We really cannot have both and I would certainly choose the later.

Unfortunately, as evidenced by my friend Rob's recent post, which compared and contrasted the candidates views on health care, McCain is doing a terrible job of articulating what increasing health care freedom means for Americans. So as it becomes less and less likely that anything that I want to happen is actually going to happen let me try to explain what McCain should have said.

The government creates two big problems with health care: Employer based insurance and minimum coverage requirements. Lets take a look at each of these problems and how the government can solve them.

Problem 1: Employer Based Health Insurance

Most Americans receive their health insurance as a benefit from their employer due to federal government tax policy. The policy states that if a business purchases health insurance for its employees, it can deduct the money it spends on health insurance from its taxes just like it deducts the money spent on employee salaries. The federal government does not allow individuals to deduct money spent on health insurance from their taxes. So when most companies and their employees do the math it works best for businesses to buy health insurance for their employees. However at least three problems with this situation have become apparent:
  1. Companies have insurance options, but employees do not: If the company is the one purchasing the health insurance, they are the ones that choose which insurance to buy. They may choose to give their employees some limited options, but at the end of the day the business with likely look out for its own interests not necessarily those of its employees. Likewise, the insurance company looks at the business as their customer, not the employees. So when it comes down to making the business happy or making the employees happy the insurance company will try to please it the business, its customer. This contributes to frustration with "insurance".
  2. No portability of care: When people get their health insurance through their employer, by definition if they change jobs, they have to change insurance. This creates a problem if someone needs to change jobs when that person or a family member is going through an illness. So the person is left with either not changing jobs or potentially dealing with denial of coverage due to the preexisting condition. Just like it does not make sense to change property, auto, or life insurance when changing jobs, it does not make sense to change health insurance when changing jobs either.
  3. The Part-Time Cracks: The previous two problems make health insurance less convenient for the majority of people with a single steady job. However a significant percentage of people lack health insurance all together because they work at a part time job, or perhaps multiple part time jobs. When a business can amortize the cost of an employee's over 40 hours a week for 52 weeks per year, most times they can make the math work out in favor of supplying health insurance for their employees. When they look at an employee who works less than that, either per week or seasonal employment, they may likely conclude that the costs of health care is not worth it relative the employee's total annual salary. People in these situations fall through the cracks of the employer sponsored health insurance.
So what is the solution to all three of these problems? Easy, just shift the incidence of the tax deduction from employers to employees and make employer sponsored health insurance a taxable benefit. It takes both things not just one. The net result, at least via the back of the envelope calculations on McCain's website, is at least a push financially with the current system and has the added benefit of giving individuals increased control over their health care, which solves the three problems mentioned above.

The big open issue with this proposal is what happens if individuals choose to leave their employer sponsored insurance plan for a plan that they buy individually. The key assumption to this plan is that by taxing an employer provided health insurance benefit, employees will understand exactly what their employer is paying for health insurance and consider it an explicit part of their salary instead of a difficult to value benefit. So, an employee chooses to leave their employer sponsored plan, they should demand the full value benefit in extra salary, which would give them the extra money to buy that insurance privately.

Problem 2: State Mandated Minimum Coverage

The second government created problem with health insurance is not created in Washington D.C. but finds it genesis in each of the 50 state capitals where legislatures make rules about what types of procedures health insurance has to cover. The classic example is chiropractic care, which many states mandate health insurance cover, but few people actually have any desire to obtain. This is basically a special interest give away by making the majority of people pay higher premiums so that a minority of people can get their specialty care subsidized. Or so that the providers of that specialty care can make more money.

The simple policy change that this country needs is to allow people to purchase health insurance from a company in another state that may have fewer minimum coverages and lower costs. Personally I will never choose to visit a chiropractor, so I would prefer not to hold insurance coverage that covers chiropractic care because it is marginally more expensive and I neither need nor want it.

What is the concern with this? It is not like we are outsourcing health insurance decisions to some third world country. Health insurance would still be regulated by some state and states and insurance companies would have an incentive to make insurance policies more relevant to the individual's needs. That is a good thing as far as I can tell.

Unfortunately we will not get get it because McCain cannot articulate it.

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