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.
Far too many Americans still believe that their employer pays for their health insurance and that has no affect on their take home pay.
It’s a really good point. Historically, a similar argument was made in favor of direct taxation vs. tariffs. According to that argument, the cost of tariffs are hidden in the cost of goods. By hiding who actually paid the taxes, the powerful could protect their interests, while the people were in the dark. The original, argument for free trade and direct taxation was one of equal rights and transparency.
Hillary should have given the genuine liberal case for free trade (and there are others), rather than just pretending to agree with Bernie and Trump, in a transparent attempt to say whatever it takes to get into the White House.
Obamacare did, in fact, take the cost ‘problem’ seriously and provided exactly the marketplace to bypass, completely, the employer based health care in the form of individual plans.
The present rise in health care costs was completely predictable given a sudden influx of 20 to 30 million people into the market and was expected to, at least, level off if not fall over time as these people (often the poorest and the sickest who had been turned down by the insurers previously) were treated and made well. To suggest the present rise is just ‘more of the same’ is just cynicism.
Nor, in fact, does it suite well to act like the interstices of health insurance and health care are mere economic levers. I know how much I pay, as do many of my peers. That’s one remove. At the next remove, I really don’t know the exact procedures or medicaments it will purchase me… I just know it will purchase them, at whatever price. So I have no way to determine if what I am paying is too much or too little. And, while I’m perfectly content to husband my own medical care under the aegis of ‘cost containment’ there is no price I would not pay for the health of my wife and my children.
Interesting to note that Obamacare offsets subsidized costs with a tax credit – exactly what Mr. Havighurst says should be done for employer based coverage:
https://www.bostonglobe.com/business/2017/10/30/health-connector-primer-open-enrollment-opens/0GvhSW7LiSoe5zUxJg2G2O/story.html
“The [Health Connector plan] cost varies widely, depending on which plan is selected. On average, monthly premiums for popular silver plans will rise about 24 percent in 2018.
“People who buy plans on the Connector and receive tax credits to offset their costs will not feel the full effect of the increases. But some 80,000 people [out of 253,000] are not expected to qualify for credits, and they will have to pay everything out of pocket. […]
The average premium for a 42-year-old adult buying a silver plan in Worcester will rise to about $444 a month, from $360 a month in 2017, according to the Connector. For bronze plans, the premium will rise to $357 from $334, and for gold plans, the monthly cost will increase to $523 from $453. ”
It’s remarkable that Health Connector costs would go up 24% in a year. The GIC costs also went up – see the recent scandal where GIC attempted to can three state health plans, and had to revert itself.
Don’t you think, Petr, we have a systemic cost problem, above and beyond the costs of the newly insured? Because you write:
> The present rise in health care costs was completely predictable given a sudden influx of 20 to 30 million people into the market
This sudden influx did not exist in MA. We’ve had universal care before Obamacare, and costs keep going up. Yet Beacon Hill does not feel the heat to act. Why is that?
The sudden influx did occur in Mass, only before the influx in the country as a whole (though, likely, Mass did not escape repercussion of the nationwide influx also) and I don’t recall saying it would be over just like that. This is a several decades long process… or haven’t you noticed?
The nation wide increase in patients from a few years ago when Obamacare extended coverage does not explain the insurance cost increase in Massachusetts in 2018..
I don’t buy this analysis. In countries with single-payer or other government sponsored health care, consumers are more insulated from costs, yet health care in those countries is much cheaper.
It’s the problem of going from A to B.. You need different incentives to leave A than to stay in B.
Missing from the argument: people are getting much sicker. In the 1890s, dishwater was measured in terms of 2-3/1000, and that was amongst people going to hospitals. China just did a survey and found a rate of 11% for diabetes and 36% for prediabetes. These rates are everywhere. We are in the midst of a slow moving global health catastrophe. It is the Black Plague but you die slower and of some complication of metabolic syndrome.
Universal health care and/or single payer will make the cost lower, but won’t help with the fundamental problem that too many people are too sick.
Where is the data showing people in Mass are much sicker than a year ago, or five years ago? I don’t think that’s true.