Who Pays for Health Insurance?
By CLARK HAVIGHURST and BARAK RICHMAN September 6, 2007
New census data showing that the number of Americans without health insurance increased by 2.2 million in the past year (to 47 million) undoubtedly deserves the attention it is getting. But the increasing size of the uninsured population is only a symptom of deeper problems in American health care, not the problem itself. Indeed, concern for the uninsured obscures the plight of middle- and lower-income workers who do have health coverage but pay dearly for it.
In many cases, those who drop their health coverage do so for rational reasons. They apparently prefer to run some financial and health risks rather than pay for insurance that now costs the average family $12,000 annually. The American health-care system resembles all too closely an extortion scheme that forces individuals to either pay a very high price or put their families' health in danger. It is not surprising that many working Americans are deciding not to take it anymore.
Ironically, many more Americans would probably drop their health coverage if they knew how much it really costs them. But they don't know, because of the way the tax system treats health benefits. Under the current system, employers are the principal purchasers of health insurance, and workers seldom know how much their employers pay. They also don't realize what economists have repeatedly concluded: Employer outlays for health insurance translate directly into less take-home pay for employees.
Because the tax system has induced workers to believe that someone else was paying the bills for their care, they have pushed for better health benefits regardless of cost. Benefits have thus become more comprehensive and expensive than makes economic sense for most working families. Likewise, because voters haven't fully understood who pays for health care, they have supported laws and regulations that strongly reflect the values and interests of the health-care industry and its most affluent customers. Consequently, unlike ordinary consumer products, health coverage does not come in a range of models suited to different pocketbooks.
Weak consumer cost-consciousness has left the U.S. with private insurance that functions as a reverse Robin Hood scheme, taking from middle-income Americans to support a health system that benefits many elite interests. A significant fraction of the cost individuals incur for health coverage goes not to pay for care they and their families receive, but to support a variety of industry activities and projects, including medical education and research and the building of costly facilities. Even assuming the industry pursues only socially worthwhile goals, its otherwise uncompensated efforts should be financed by a fair system of taxation. At present, many such costs fall on premium payers like a regressive "head tax" rather than in proportion to their income or ability to pay.
Evidence also suggests that many benefits of health insurance, though paid for equally by everyone, flow disproportionately to the affluent. For example, cost-sharing requirements deter lower-income individuals from using their coverage more than they deter wealthy ones. The latter also know how to manipulate the system to obtain more and better services at plan expense. Legal mandates requiring insurers to cover such services as mental-health care and fertility treatment make available, at collective expense, benefits that the affluent are much more likely to use.
Particularly in view of the widening income gap between middle- and high-income earners, serious attention should be given to how the health-care system takes lots of money from the working class without giving them commensurate value for much of it. One does not have to be a populist to see the unfairness (as well as the tendency to increase the uninsured population) of forcing workers to pay unjustifiably high prices as a condition of being insured at all.
A good way to prepare the public for needed health reforms would be to expose consumers to the true cost of health insurance. President George W. Bush's pending proposal to tax the value of employees' health benefits as income, while also providing a compensating standard deduction or tax credit, would serve the useful purpose of stimulating market and political demand for low-cost alternatives, including coverage that stops short of paying for everything seemingly mandated by professional (that is, non-economic) standards.
Congress is making a mistake in ignoring the president's proposal. If voters realized that it is not only the uninsured whom the current system victimizes, would-be reformers of all stripes might finally find a broad constituency willing to support fundamental change.
Messrs. Havighurst and Richman are professors at Duke Law School.
I am not sure our health care system and insurance system works for anybody...-Randi L. Niklekaj
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