Yes, There is a Free-Market Alternative to Obamacare
It often seems that supporters of President Obama’s Patient Protection and Affordable Care Act see only two ways to reform American health care: either PPACA or some version of a single-payer system. What both have in common is a lot more government control, coercion, and spending. As a matter of belief, this crowd views health care as a public good where markets don’t work very well. And as a matter of principle, they have a problem with private companies making a profit from delivering healthcare.
By default, anyone who does not subscribe to these views a) doesn’t much care about healthcare reform and b) doesn’t have much to offer other than criticizing what Obama did.
None of that is true, of course. There is another theory of the case, one that argues government is the problem, not the solution. Government — through the tax code, regulatory code, and social insurance programs — has sabotaged market forces that, if allowed to work, would create a healthcare system with more choice, coverage, quality, value, and efficiency.
For now, let’s just focus on one aspect.
Rising healthcare costs have been driven by public policies which have insulated consumers from recognizing and bearing the true costs of their healthcare decisions. The most important flaw in this system is the tax preference given to employer-based health insurance. Employer payments covering premiums for employer-sponsored health insurance are exempt from federal income and payroll taxes. If you go out and buy a health insurance policy on your own, you do it with after-tax dollars. If you employers buy the insurance for you, it is with pre-tax dollars. This is a problem, as Rep. Paul Ryan has correctly noted:
Under current law, employer-sponsored health insurance plans are entirely exempt from taxation, regardless of how much an individual contributes to their policy. This tilts the compensation scale toward benefits, which are tax-free, and away from higher wages, which are taxable. It also provides ways for high-income earners to artificially reduce their taxable income by purchasing high-cost health coverage – which in turn can fuel the overuse of health services.
Advocates of pro-market, consumer-driven healthcare have suggested a variety of ways. to tackle this distortion.
– Ryan, for instance, wants to replace the inefficient tax treatment of employer-provided health care with a portable, refundable tax credit. It would be available for those who get coverage through their employer or buy insurance themselves. Consumers who wanted Cadillac plans would have to pay the difference. But if they chose less-expensive plans, they could use the leftover money to pay routine, out-of-pocket expense. This would encourage healthcare consumers to finally act like, well, consumers keeping an eye on cost and value.
– Harvard University’s Regina Herzlinger would transform the tax exclusion into a cash-out that employees would use to buy their own health insurance, with the tax exemption eventually extended to all individual buyers of health insurance. Herzlinger:
Republicans could enact Swiss-style universal coverage by enabling employees to cash out of their employer-sponsored health insurance. (Although many view employer-sponsored health insurance as a” free” benefit, it is money that would otherwise be paid as income.) The substantial sums involved would command attention and gratitude: a 2006 cash out would have yielded $12,000 — the average cost of employer-sponsored health insurance — thus raising the income of joint filers who earn less than $73,000 (90 percent of all filers) by at least 16 percent. Employees could remain in with an employer’s plan or use this new income to buy their own health insurance.
– AEI’s Jim Capretta would immediately substitute the tax credit for the tax preference in the case of smaller employers — many of who don’t even offer coverage — giving these workers a chance to get gain insurance they can keep and take with them. For employees at big companies, Capretta would leave them be, for now:
For both political and practical reasons, it would make sense to leave these people where they are, in their large-employer plans, as the reforms in the other parts of the marketplace are implemented and refined. The advantages of these changes — including the expansion of personal and portable health insurance, lower-cost health coverage, and higher take-home pay — would, over time, become evident to workers in large-employer plans. … The only modification that should be pursued immediately is the placement of an upper limit on the amount of employer-paid premiums eligible for the existing federal tax break; this would level the playing field somewhat between the existing tax benefit and the new tax credit. … This would give both employers and employees a stronger incentive than they have today to move toward low-premium, high-value plans.
I think maybe it’s time to create a FAQ or primer on how pro-market, consumer-driven healthcare would work. It might enlighten some folks out there who seem unaware that such a thing even exists.
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Comments:
Oct '10
Re: Yes, There is a Free-Market Alternative to Obamacare
I did write a primer on Republican health policy: Republican Health Policy in Compact From. I think it's rather good as an introduction to the cutting edge of GOP policy ideas.
Jun '12
Re: Yes, There is a Free-Market Alternative to Obamacare
We need to get this message rolling. I am just astonished at how many people are just sort of resigned to a statist system (or actually want it, buying into the we should all want to be like europe insanity). Another issue I have been wanting to explore but just haven't found time is why did religious sponsored health care atrophy? If you look at the impact that Catholic women religious had in the U.S. in terms of hospitals founded and run from the mid-1800s to early to mid 1900s it is astonishing? Why did they diminish so? Government regualtion? That is my guess. Couldn't compete? seems unlikely as they would have been non-profit. There probably were cultural factors (decreasing vocations), but it seems to me that an over looked part of the solution would be a re-invigoration of religiously run hospitals. Of course, they would probably be shut down by the courts for discrimination or some such rot....
May '12
Re: Yes, There is a Free-Market Alternative to Obamacare
It is a start, but still requires government intervention via tax policy to induce certain behavior. If you want to see the free market work eliminate any tax treatment, deduction, credit or otherwise for health insurance or expense.
If we want to carry the mantle of the free market then free the market. Playing the game of our government intervention is better than your government intervention only affirms government must be the solution to anything deemed a 'problem'. Government isn't the solution it is the problem no matter how the intervention is inserted.
May '10
Re: Yes, There is a Free-Market Alternative to Obamacare
James is exactly right. Besides draconian rationing, there is no effective approach to cost containment other that free market solutions. And those in high office (including Speaker Boehner) advocating retainment of many of the "popular" Obamacare features beware - anything short of full repeal makes about as much sense as restoring a Yugo. It may start out with that new car smell, but it's still a Yugo.
Jan '11
Re: Yes, There is a Free-Market Alternative to Obamacare
Excellent WSJ article on this topic over the weekend:
http://online.wsj.com/article/SB10001424052702304870304577490212540553078.html
Feb '11
Re: Yes, There is a Free-Market Alternative to Obamacare
Is this an example of how the blunt force of government can damage a system beyond repair. Can anyone suggest a path from an employer/tax centric system to a free market, where health insurance is insurance and not how you pay for all your medical needs? Without causing such large dislocations as to assure a solid majority against the reforms?
It's like government intervention in the housing market. Even when it completely fails, we cannot wean ourselves off of it.
Nov '10
Re: Yes, There is a Free-Market Alternative to Obamacare
ShellGamer: Is this an example of how the blunt force of government can damage a system beyond repair. Can anyone suggest a path from an employer/tax centric system to a free market, where health insurance is insurance and not how you pay for all your medical needs? Without causing such large dislocations as to assure a solid majority against the reforms?
It's like government intervention in the housing market. Even when it completely fails, we cannot wean ourselves off of it. · 5 hours ago
I think Mr. Pethokoukis's point is that there is a way out, although perhaps the first steps won't look perfect. But we need popular and well written vehicles for getting the word out.
Oct '10
Re: Yes, There is a Free-Market Alternative to Obamacare
Lucy Pevensie
I think Mr. Pethokoukis's point is that there is a way out, although perhaps the first steps won't look perfect. But we need popular and well written vehicles for getting the word out. · 45 minutes ago
Electorally, I think it's better to postpone any messaging push until after the election, otherwise we risk muddling things. We don't need to come up with a concrete, publicly-sold-and-litigated health reform plan until we are in a position to actually pass and implement one.
Edited on July 4, 2012 at 4:59amRe: Yes, There is a Free-Market Alternative to Obamacare
There is something very close to a primer: the Jim Capretta essay in National Affairs excerpted (but not cited or linked to) in this post. For those interested in reading the whole thing (which David Brooks recommends in today's NYT), a direct link is here.
May '10
Re: Yes, There is a Free-Market Alternative to Obamacare
Mr. Pethokoukis, I just listened to your new podcast--very interesting.
Could you please explain to me why, at least in 2012, it should cost more to insure individuals than "groups"? Is it administrative cost? In 2012, that doesn't seem like it should add a lot of expense. By the way, typing out your family name was like test driving a car on a tight, windy course! ;-)
Sep '10
Re: Yes, There is a Free-Market Alternative to Obamacare
BrentB67: It is a start, but still requires government intervention via tax policy to induce certain behavior. If you want to see the free market work eliminate any tax treatment, deduction, credit or otherwise for health insurance or expense.
If we want to carry the mantle of the free market then free the market. Playing the game of our government intervention is better than your government intervention only affirms government must be the solution to anything deemed a 'problem'. Government isn't the solution it is the problem no matter how the intervention is inserted. · 11 hours ago
If you believe this why do you have anything to do with a party who has consistently done the opposite? Anyone who thinks the GOP will significantly reduce government involvement in healthcare is delusional. Healthcare is one of the favored methods that corrupt politicians of both parties use to buy votes. Anyone who thinks they are going to give it up is crazy.
Feb '11
Re: Yes, There is a Free-Market Alternative to Obamacare
Lucy Pevensie
I think Mr. Pethokoukis's point is that there is a way out, although perhaps the first steps won't look perfect. But we need popular and well written vehicles for getting the word out. · 12 hours ago
All the proposals in the original post would keep a tax benefit, just change the form. A true free market solution would not rely on tax incentives, which invite continued government interference.
Free market health insurance would look like auto or homeowners insurance. I haven't heard any proposals that would hope to bridge this gap.
May '11
Re: Yes, There is a Free-Market Alternative to Obamacare
I would add one item. Anytime you hear some leftist charlatan promising that government controlled health care will reduce costs, they invariably explain it by the term "preventative care." Just to be clear: Preventative care (if it works at all) does not reduce health care costs; it increases them. The longer people live, and the longer they linger at end of life, the more health care costs for them. People who die young and suddenly cost less than people who die old and slowly. So if you really want to reduce health care costs, encourage everyone to smoke, drink, and drive really, really fast while texting.
Edited on July 4, 2012 at 5:11pm