ABOVE THE BELTWAY
March 20 2007 by Edwnj. Feulner
The Blind Leading The Sick
The cynics in this town-and only masochists aren’t cynics around April 15-have a glib rationalization for doing what’s politically expedient on the health care front: “In the long run, we’re all dead.” If the raging health care debate goes the way it appears to be going,
Many now believe that a “kinder and gentler”
The cost of employee health insurance is staggering and there’s no end in sight. In fact,
THE PRODIGAL CORPORATION
Why then aren’t business leaders leading the fight against such policies? Business is begging for relief because it can’t afford to finance
In 1985, business spent an average of $1,724 per employee on health care; the estimated cost in 1989 was $2,745-a 59 percent jump. And it’s been getting worse fast, jumping 18.6 percent from 1987 to 1988 and an estimated 16.5 percent from 1988 to 1989.
Chrysler, for example, spent $702 million on employee health care in 1988, up from $432 million in 1985. Chrysler estimates this adds about $700 to the average price of its cars. Remember, these are current expenditures. The trend line is anything but reassuring and
Consider the legislation proposed by Sen. Edward Kennedy to require virtually all employers to provide employees with insurance. Robert R. Nathan Associates, a respected Washington, D.C.-based economic consulting firm, estimates that such a law would cost business and consumers some $30-$100 billion, and would cost the economy about a million jobs.
The Institute for Research on the Economics of Taxation estimates the law would increase insurance costs by $100.8 billion annually, and add another $35 billion to the deficit through increased Medicare and Medicaid costs. The National Association of Manufacturers reports that health benefits alone are now eating away as much as a fourth of many companies’ profits.
Even that’s just tip-of-the-iceberg stuff. There also appears to be growing support for government-provided insurance for long-term care that would cover nursing home care (which now costs upwards of $30,000 a year in many parts of the country) and home care as well.
Imagine what health care costs will be like early in the next century, when baby boomers reach retirement age. By then,
But the picture gets worse. Despite this monstrous expenditure, an estimated 30-37 million Americans have no health insurance at all, and only 2 percent of the elderly have the long-term coverage they need. Costs have increased at twice the rate of inflation since 1980 and still there are too many individuals falling through these gaping holes in the system.
SLAYING THE HEALTH CARE GOLIATH
Is there a realistic way out? We at The Heritage Foundation have proposed a top-to-bottom overhaul of the present system.
Americans want government to have a rote in health care, but that role must be redefined to direct resources to the truly needy. Otherwise, not only will the country go broke-and our $3.1 trillion national debt is not exactly glowing testimony to our present degree of fiscal responsibility-but the quality and accessibility of care will deteriorate even further.
Any workable solution must begin with an understanding of the root cause of the present system’s colossal failure: the tax exemption for employer-provided health insurance.
But isn’t it nice of government to encourage business to provide health insurance for employees? Like so much else dreamed up in
Consider the incentives the present system has created. Maybe it’s a bit much to call it fraud, but it does encourage employees to think, “What the hell, I’m not paying for it”-which of course they are. We all are-in higher insurance premiums, shrinking profits and a general drag on the economy.
The money employers pay for employee health insurance could go for higher salaries instead. But higher salaries would be taxable and employees would then have to take responsibility for selecting their own health care insurance or paying for medical expenses out of pocket, which translates to more work for less reward.
The answer is simply to give direct tax relief to workers for their out-of-pocket health expenditures as well as for their health insurance premiums. This would certainly bring greater choice for health care consumers, who could then buy policies tailored to their particular needs instead of just going along with their companies’ group policies.
Doctors, in turn, would be motivated to give the best service for the least cost. Since the money consumers could save by shopping around for the best health care values would be theirs, they would become more cost-conscious.
In addition, a market-based system could even make insurance affordable to those considered high risks-those with large families, disabled parents or children, or chronic diseases-by increasing their tax relief accordingly.
Under the present system, neither patients nor doctors have any reason to he price-conscious. When the company pays, few people lose much sleep over, say, a few extra tests, any more than they lose sleep over the third martini at an expense account lunch. This lack of incentive greatly increases demand for medical services and forces prices through the roof.
SPARE THE CUTS, SPOIL THE SYSTEM
The only way to control costs in such a system is through government edict, which, as our experience with price controls in other areas has shown, creates more problems than it solves. The goal should be to harness market forces, not distort them.
It shouldn’t take Milton Friedman to figure out that the present system poorly serves everyone. And the more businesses pay for employee health insurance, the less they have for raising salaries, hiring new workers, or investing in new equipment and R&D. How can they compete against foreign firms unburdened by all this?
Unfortunately, some of today’s business leaders now want to leap from the frying pan of the present system into the consuming fire of a “free” (i.e., let-government-do-it) system. Why worry about patients forced to wait weeks and sometimes months for urgent surgery? Or about access to the latest life-saving technology being restricted because of tight government budgets? Those are some of the costs of “free” medicine, as Canadians can attest.
Have we learned nothing from recent history? Like priests who forget the Bible, some business leaders must relearn some old virtues, starting with free markets and limited government.
Edwin J. Feulner, Ph.D., is president of The Heritage Foundation, a Washington, D.C.-based public policy research institution. He also serves on the board of several other foundations and research institutes. Dr. Feulner is the author of Conservatives Stalk The House.