It took me a second pass to read this WSJ editorial by a professor emeritus of law at Duke University… but it was perspective-changing. Why do health costs keep going up, out of control? Mr. Havighurst argues it’s because the costs are hidden from the employees who really bear them.
How is that possible? Do employees not look in their paycheck to see the monthly $50, or $100, or $150 they contribute to health insurance? Yes, they do… but it’s a small fraction of the real cost. It does not include what the employer pays for health insurance.
Why does this matter? Salaries end up being smaller because of employer-side heath costs. But employees don’t know it.
WSJ: The Health Costs Conspiracy of Silence, by Clark Havighurst (just google the title to bypass the paywall)
“Politicians have never felt pressed to take the cost problem seriously for the remarkable reason that the health-care industry picks consumers’ pockets mostly without the victims realizing it. Because employees don’t pay taxes on employer-paid insurance premiums, most workers assume that—and behave as if—their health-care costs are borne by employers. True, most employees now pay some share of premiums directly, along with copayments and deductibles. But they still unknowingly pay far more in lower take-home pay. When working Americans say they like their health plans, it’s clear they aren’t seeing the whole cost picture.”
It’s all true. If employees knew the real cost of their health insurance, and how it depresses their wages, they would be angry enough to trigger politicians into action.
There is no way America musters the political will to go to Single Payer if people don’t truly know the true cost of their health insurance.
The solution, Mr. Havighurst proposes, is to scrap the tax deduction for health care contributions, and replace it with a tax credit. This realigns incentives and brings visibility to employees, even if designed to be tax-neutral.
In general, when you can’t solve a problem outright, the first step is to change the accounting of the problem.