Philadelphia Reflections

The musings of a physician who has served the community for over six decades

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New topic 2015-09-25 21:48:47 description

Paying for Healthcare

At my age, I reflect on inheritance tax once in a while. It's taxed at sixty percent, but there's some consolation. Every time I spend a dollar, I tell myself I'm really only spending forty cents. In spite of a lifetime of resisting such thoughts, it does affect my attitude about spending. And it must affect corporate decision-makers, at least somewhat, as a consequence of paying twice as much income tax as I do. Come to think of it, corporate tax is a double tax on the earnings of the shareholder. Since corporations flourished as outgrowths of the Industrial Revolution, they are probably an extremely efficient way to conduct business, or they couldn't withstand such tax treatment. No doubt, small businesses resent their disadvantage.

But the point to notice is how this tax treatment must affect willingness to spend company money. When companies give a dollar of health insurance to an employee, it really only costs them forty or fifty cents. It isn't even the employer's money, it's the government's tax money. And since the employee gets the insurance for something like seventy-five cents on the dollar counting his own tax reduction, the resistance to spending is even further reduced. As a matter of fact, a clever financial officer can improve on these numbers, but the point is sufficiently made without going into that complexity. Both the employee and the shareholder enjoy a greatly reduced reluctance to spend company money on health care. It just has to be true. And it also just has to be true that the half of us who don't get such a tax dodge, resent it.

It must additionally be true, avoiding this heavy taxation is a major factor in why we have had an employer-based system for a century, with progressive inflation in evidence. It probably contributes to our willingness to tolerate a loss of coverage when employment terminates, and steady price inflation when it doesn't. Rather than go on with a list of problems created by the loss of price resistance, let's get down to the root, in the very design of the system. We have had the wrong kind of insurance for a century. Now that corporate income tax has risen to the highest in the world, our corporations are seen to be fleeing to foreign countries to escape it. So, perhaps it is time to do something about it.

Health insurance is upside down. It pays for small items, and then it runs out of money for big ones. "First-dollar coverage" was once the favored style, but nowadays, for the most part, a token deductible is imposed, but the principle is the same. Even before the Great Depression, young people had comparatively little serious illness and demanded "something for their money." In a sense, it really doesn't matter what the motive was, we started with ensuring small illnesses and tended to run out of funds when expenses really got heavy. Whereas, if we had been concerned with getting the most insurance for the money, we would have begun with very expensive illnesses and then paid for cheap ones only if money was left over. Expensive illness is a threat to everyone, but medical catastrophes are fairly rare. The technical way to achieve this is well worked out, it's called high-deductible insurance, and its motto is "The higher the deductible, the cheaper the premium." Back in the 1960s, I was offered a $25,000 deductible policy for $100 a year. I forget, but I believe it had a top limit of a million dollars coverage. Almost everyone would be floored by a million dollars of expenses, but almost everyone (in spite of their protests) could afford $100. Although you probably couldn't get the same prices, that still seems like the kind of health insurance everyone ought to have. And, regardless of current discussions, it's the kind of insurance we are always going to have unless we wake up.

If you can afford the kind of coverage that includes paying for cough drops, go ahead buy it. But if you are talking about mandatory coverage for everyone, start with catastrophic coverage and then shrink the deductible to what you or the government can afford. And then stop, because you can't afford it. There's really nothing hard about this..

Originally published: Friday, September 25, 2015; most-recently modified: Friday, May 31, 2019