Increase Individual Choice Over Health Care

A recent New York Times article by David Leonhardt brings up an interesting proposal to pay for government health care:

The numbers show there is only one sure way out of the problem, and, after months of roundabout discussion, that solution has re-emerged: It’s a tax on health care.

If Congress taxes health care, the revenue has a chance of rising with health spending. A health tax will also create an incentive for workers and businesses to slow the growth of health spending – thus reducing the amount of taxes needed to pay the nation’s health bill.

In other words, politicians want to control the health care industry with a special government plan that will cost trillions of dollars in a several-year period. Government doesn’t have money, considering that the nation is broke and suffering a harsh recession. But with this brilliant new proposal, Congress can provide health care service and pay for it by taxing health care spending.

I honestly don’t know where to begin with this one. If cutting wasteful spending is as simple as slapping a tax on an item, why not throw a tax on the escalating government spending, where there is far more waste than any business or service in the marketplace?

More from the Times article:

Because health care – unlike food, clothing and most other things – isn’t taxed, it’s effectively on sale. And when something is on sale, people often buy more of it than they need.

In the case of health care, they buy – or their employer buys for them – insurance plans that don’t make much of an effort to control costs. Rather than putting pressure on hospitals to root out administrative waste, the plans cover the cost of that waste.

Taxing rising spending is not going to lower the price of health care without a cost. To compensate for the lost income businesses will either cut or limit their service or increase prices. If government really knew a method of lowering prices while increasing productivity, I highly doubt anyone would be against that type of plan. It’s funny, though, when I think of the yearning for lower prices and higher productivity, I can’t help but think of some other economic system that provides this exact service without the supposed wisdom of government officials: the free market.

Certainly there is a good deal of waste and over-use in the health care industry today. But the last thing that is causing this phenomena is the lack of a tax on health care spending. The direct problem for rising health care costs is the fact that today the individual carries little control over his or her’s medical plan. Through HMOs and other programs encouraged and forced by government, we have effectively put other people in charge of our health care.

The more that people rely on third-parties to manage and pay for their health care (whether it’s their employer, insurance businesses, or government), the less they will be financially attached to their medical plans. If they aren’t paying for their health care directly, they have little incentive to take cost into account. It isn’t because we haven’t slapped a tax on medical spending that we have the problem of rising spending, it’s because the individual is losing the direct control over medical spending and therefore the incentive to limit medical spending and costs as much as possible. When someone else is paying the bill, who is really going to hold back and not grab as much of a service as possible?

Another problem stems from the idea that health insurance needs to pay for every little medical cost. This again takes more of the incentive away to control spending and cost. If you buy flood insurance, you do not expect it to pay for covering the damage of a muddy lawn after a drizzle of rain. Insurance is a simple tool to measure and pay for risk, not common procedures.

Consider what caused the price of cell phones to drop quickly while the products continually improved. The first cell phone, the Motorola DynaTAC 8000x, released in 1984, weighed two pounds, had a half-hour battery life, and cost $3,995. Today, you can purchase a cell phone for twenty or thirty dollars with far more capabilities than the DynaTAC. Was it a tax on cell phone spending that encouraged businesses to increase efficiency, lower costs, and create cheaper and better products, or was it competition, a relatively unregulated market, and the power of the consumer?

Imagine if in 1984 the government forced employers to offer cell phones to their employees and placed “insurance” businesses in charge of paying the simple fees. When you take the power away from the individual and hand it to a third party, people greatly lose the incentive to find the best product at the cheapest price. They lose the incentive to find value, and the ability and options to find value become greatly limited because of the government intervention. This is why people will often overuse the medical system in Canada, which leads to rationed medical care, limited medical services, and long waiting periods for simple procedures.

The solution to our health care problem does not lie in a collective system such as socialism. We have had a sort of collective corporatism insurance and few people are pleased with it. It really does not matter which third party is paying for health care; so long as individuals don’t have the financial control over their medical care, inefficiency will abound. Employer-provided medical coverage, corporate insurance plans, and socialized medicine all have a basic flaw: they can’t fully serve the individual because it is not the individual who is in full control.

Individuals need more, not less, control over their medical care, and this is what many people and politicians fail to recognize today. More government involvement through subsidies, taxes, and programs will not solve a thing in the long run. To save health care, it must be the individual -  not the employer or the corporate workers or the government officials – who carries the power of choice and the incentive to reward value in the marketplace.

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