Health Care Quandary

Fellow blogger and all around great guy, Dean, has quoted me in today's blog post about the coming Obamacare debacle we are facing. He further objects to Obama floating a proposal to reverse his position from the campaign and tax health care benefits from employers. Let there be no doubt, the signs are all around us that this administration intends to bring socialism into health care as perhaps its highest priority. One of the trial balloons being floated by Team Barry is to tax employer health plans to provide some of the funding to pave the way for the full government take over of the health care system. As much as I loathe any further government intrusion into health care, the economic purist in me sees the logic of taxing this benefit as follows.

Not taxing this benefit amounts to a subsidy of insurance plans. Further, the more gold plated the plan the greater the tax-subsidy. This was the thinking of the McCain team when they looked at the issue. From the NYT article:

They, like other proponents, cite evidence that tax-free benefits encourage what Mr. McCain called “gold-plated” policies, resulting in inefficient and costly demands for health care and pressure on employers to hold down workers’ pay as insurance expenses rise. And, they say, the policy discriminates against those — many of whom are low-income workers — who do not have employer-provided coverage.

Further, much of what ails the provisioning of health care stems from two related phenomena, third party payer and lack of tranparency. To solve these problems, Americans need to pay more for their health care out of pocket, so they have some "skin in the game." This will bring market pressure to bear to rate health care providers and cause them to bill in ways that real people, as opposed to insurance accountants can understand. I fully sympathize that people struggling to make ends meet would have a hard time with such a proposal. This is why I think that catastrophic caps should be encouraged. For example, the individual pays out of pocket until total expenses hit, say $3000, and then the insurance kicks in to pay the rest. Too help incenctivize such a system, the employee would keep the difference below $3000, but pay taxes on it.

Such a system will change behavior and cause people to shop around for health care. I guarantee it would drive down health care costs. Believe it or not, we already have such a system in place for part of the health care industry. Professor Perry, at Carpe Diem, has a fascinating article about how the cost of cosmetic surgery has fallen over time, even as procedures have improved.

BUT, and it's a big BUT, much like my own, as long as Obama is touting taxing health benefits to pay for socialized medicine, No Sale! Just like McCain proposed, but the media ignored, any such taxing of benefits must be offset by a reduction in the income tax so that government doesn't grow as a result.