By David McKalip, M.D. 02/15/2011
David McKalip, M.D. is the founder of the Pinellas Medical Foundation (a new medical charity) and Doctors for Patient Freedom.
ObamaCare looms large over our land even as Americans are calling for its repeal. Bureaucrats are working furiously to write the tens of thousands of pages of rules to implement the government-corporate takeover of medicine. Insurance executives, hospitals, pharmaceutical companies and special interests like the AARP have dollar sign dreams as Americans will be forced into the system corporations and governments will control. Thankfully, the bill is clearly on the ropes with Americans and is on track for repeal over several years. But the damage it causes in the mean time will be great and we must be ready to undo the damage by offering good alternatives to solve the real problems plaguing health care now: high costs and limited access for the poor. This series will offer real health reform solutions to all those naysayers in the collectivist and corporate movement who like to say: “You have no real alternative and you must submit to our authority”.
Health Insurance Prisoner of War — Joe Can’t Leave His Job.
Why all health financing should be tax-free.
Joe has worked for the local company now for 10 years and has reached the glass ceiling. He is management material but his corporation has no room for him at the top. Luckily the business across the street does, but there is one catch — they don’t offer a health insurance plan as good as the one he has now and he has three kids and wife who need health insurance. Joe is able to negotiate a higher rate of pay in a new position but it still won’t be enough for him to buy the health insurance plan he wants outside of work. Why? The insurance plan he seeks to buy outside of work will be subject to taxes. The tax plan he has at his old, worse job is not. Joe decides he can’t move to a better job at a better corporation and is now trapped in his job.
This is what happens when the government picks winners and losers through the tax code. This inequity dates back to — as many things do — the wage and price controls established by President Franklin Delano Roosevelt during World War II. In other words, Joe, and all Americans are still being held hostage to ancient policies that are no longer applicable in the modern economy. During World War II, in a classic Keynesian move, FDR froze wages and prices in the economy. Corporations thus had a hard time competing for workers and lobbied for the right to offer health insurance tax-free as an employment benefit. Tax-free health benefits on the job are now a cornerstone of health care financing and a favorite job benefit of union leaders who are able to secure ever increasing and inflationary health benefits from their members — tax-free. Thus Joe and all American Workers are still living in a WWII P.O.W. health insurance camp created by FDR — 70 years later.
As with most exercises in central economic planning, this “incentive” has turned into a penalty for the worker. There are two very large negative effects: 1.) Individuals buying health insurance outside of employment have to do it with after–tax money; and 2) Workers are stuck in jobs they can’t leave for fear of losing their health insurance. The wise move to solve this problem would be to grant the same tax relief to individuals to buy health insurance outside of work and to allow workers to take their health insurance with them after they left their job. This would save employers the cost and administrative burden of buying health insurance for their workers and allow the worker to keep the same insurance plan through their entire life. It would allow for funds that employers now dedicate to health benefits to be released to employees in the form of higher wages. These higher wages can then be used to buy health insurance in an open market — tax-free. That market should be one that is minimally regulated and full of real choice. People that want Cadillac plans could buy them – without being forced into them by union bosses with political agendas. People that wanted an HMO can buy that and those that wanted and Health Savings Account tied to a High Deductible plan (HSA/HDHP) could buy that. The common theme is one of an empowered individual consumer buying health insurance on an open interstate market with many choices. The cost and quality benefits of such an approach are proven and known to all who understand how free markets work. The real proof in the pudding is in the proliferation of Gecko Lizard and “Progressive Lady” ads selling auto insurance on your local television station. Why can’t the Geico Gecko sell health
Having employees keep their same health insurance policy from job to job would have the added benefit of significantly diminishing the pre-existing conditions problem. Now Joe would have a natural and internal incentive to keep the same plan for his entire life, stay healthier and utilize his plan wisely. When he develops a heart condition at age 60, it is covered by the same plan to which he has contributed a life time of premiums. By choosing an HSA/HDHP model he could cover routine medical costs from the health savings account (“out of pocket”) and reserve the actual insurance coverage for the rare times in his life where he would truly need high cost care. This is the same principle that applies to homeowner, auto, life and other insurance policies people keep for years. Furthermore, the market forces that drive down costs for those buying insurance and health care will also drive down costs for the poor and the government safety nets that purchase health care.
Now the central planners among us will offer a different solution — remove ALL tax breaks for health insurance — through employer or through the individual market. Of course, they fail to mention that they would then take this “new found revenue” and redistribute it in the form of government subsidy checks to those individuals and insurance companies the government picks (or just loot the money for other government spending). In the case of the Patient Protection and Affordable Care Act (PPACA or Obamacare) that would mean giving checks to everyone who earns less than 400% of the federal poverty level. Thus for a family of four, anyone earning less than about $80,000 would be eligible for a government check if — and only if –they buy the overpriced, overregulated low quality insurance mandated by the PPACA. All for the “benefit” of being forced into a government cage where doctors serve as rationing agents for the state and the insurance companies (see YouTube video in the link below). Also a financial boon for the insurance company cronies that will work to keep those politicians in office.
If politicians truly want to increase affordability, increase insurance coverage, and increase choice, quality and access in health care, they should provide equal tax treatment for the purchase of health insurance and shield the income used to buy health care and health insurance from all taxes. That is change we can all believe in. It is also change that actually works.