According to various news reports, President Bush is going to float proposals for expanding health insurance coverage in his State of the Union address. More than a third of Americans say health care should be among the top priorities for the federal government. This is likely because we have a very strange system. in this country For the most politically connected Americans, health insurance has become tied up in the issue of employment. Companies began offering health insurance to workers as a benefit when wages were controlled around World War II. Federal tax law has since enshrined this benefit by making insurance deductible as a business expense for employers, and untaxed for employees. This system worked when Americans worked for the same big companies for their entire lives. But many Americans now switch jobs every few years, and many of us don’t work for employers at all. The ranks of the self-employed grew by over 150,000 in December alone, the Labor Department reports. Clearly, there should be a huge market for individual health insurance out there.
And yet the problems of moral hazards and government regulations keep us from having an efficient market for the 1099 set. When I paid for my own health insurance as a completely healthy self-employed 24-year-old in New York City, it cost me $286 a month (a few years ago). In California, I could have purchased a plan for about $69 a month. Something is screwy when there’s a 400% price difference in different locations. New York required me to have “good” insurance that covered all sorts of things I didn’t need. Plus, the state requires insurance plans to accept all comers and charge them the same amount. So a healthy 24-year-old gets stuck with the same rate as a 60-year-old with heart disease. The 60-year-old wins big in this case (she would not get a $286 rate in California) but it was very tempting to go without insurance. When young people go without, that raises rates for everyone.
Bush is proposing incentives for states to create pools for individuals and small businesses, which will remove some of the moral hazard issue in pricing. Insurance companies can offer group rates for these pools, without worrying that every comer to the pool has a health issue he or she is hiding (which jacks up rates). The President also proposes expanding Health Savings Accounts. These high-deductible policies let individuals get the same tax advantages businesses have in the past, and by making consumers responsible for paying many of their own medical bills, introduces some typical consumer incentives into the market.
It’s about time. I went to a travel doctor recently — a service often not covered by insurance — and I looked at the list of prices for various shots and services. That’s not something my primary care doctors — who are covered by insurance — ever offer me.
Regardless, more and more people are realizing there are problems with health insurance in America. Some liberals are simply proposing to expand Medicare around the edges to cover more people, and get the government even more involved. I don’t think this would create the right incentives. But conservatives need to recognize that there’s a lot of unhappiness out there, particularly among the growing ranks of independent workers. If we want to avoid a government-run, socialized medicine system, we need to figure out how to make the market work in health care, and propose more free market style solutions. President Bush is working on it, but every conservative law maker needs to think hard about this.
Laura Vanderkam, a New York-based writer, is the author of Grindhopping: Build a Rewarding Career without Paying Your Dues (McGraw-Hill).
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