Who should make decisions for you?

“Politics is the art of looking for trouble, finding it whether it exists or not, diagnosing it incorrectly, and applying the wrong remedy.” — Ernest Benn

There was a time when there were “company towns”. The company owned all the land, all the buildings. The company provided food and housing; the company doctor provided health care; the bar and general store were company-owned. The employer made all decisions about food, housing, clothing, liquor, etc. Employees had no other choices because the nearest town might be a day’s ride away.

With one major exception, employers no longer decide for us what we will consume. Our employers pay us cash then we go out and buy food, clothing, housing, cars, entertainment, vacations, college educations, etc. We each make our own decisions, not our employers. The one exception is health insurance. In most businesses, the employer chooses our health insurance and we have very little, if any, say about the insurance.

But why? Why should our employer decide what health insurance is best for each of us? Our employers don’t choose the best auto insurance, fire insurance, or life insurance for us. Why should they choose the best health insurance for us? Wouldn’t it be simpler just to take the cash they are sending to an insurance company, give it to each employee, and let each of us decide what is better for us?

If you think it is a good idea for your employer to buy health insurance for you, would you also like your company to buy your food, clothing, housing, and automobile for you? After all, by buying in bulk the company should be able to get a better price on all of your family’s clothes. Isn’t that a good reason for the company to make decisions for you? No, I didn’t think so.

But, you say, it’s “always” been that way; most people get their insurance from their employer. If it ain’t broke why fix it? Well, it is broke. Employer-paid insurance is a major cause of problems with our health care payment system. (Our health care system is excellent; our payment system is terrible.)

Employer-paid insurance is not portable from one job to another job. If you switch jobs, you lose your old insurance and have to get new insurance, probably with a whole different set of conditions. Same problem if you are laid off or the company goes out of business. Contrast this with your home, auto, or life insurance. You pay for those. It doesn’t matter if you switch jobs or lose your job. You don’t lose your insurance.

The problem of pre-existing conditions largely disappears when you own your own health insurance policy. With self-paid policies you might keep the same insurance for years no matter how many times you switch jobs. With employer-paid policies you get a new policy every time you have a change of jobs. If you develop a medical condition after you have had a policy for just a few months, the insurance company can say, “That condition existed before you signed up for this policy, so it is not covered.” But if you have had the policy for years, then the condition started on their watch and they must cover it.

Employer-based insurance suffers from the one-size-fits-all problem. What is right for one employee might be not at all right for another employee, but at most companies they both get the same insurance. If employers simply paid the employees directly whatever amount they were paying the insurance companies, then each employee could choose the kind of policy that is best for him and his family.

Now consider the not uncommon case of both spouses working and both receiving employee-paid health insurance. One of those insurance policies is useless, a waste of money. If something happens they can’t file claims under both policies. If instead, their employers paid them cash, they would buy just one policy; they might take the extra cash and put it into an HSA account.

If you have employer-paid insurance, you probably have no idea what the cost of that insurance is. Your employer pays the cost and doesn’t tell you what it was. When you don’t know the price of something, it is hard to be a smart consumer. It is even harder when you won’t benefit from any cost savings that you undertake.

If you buy your own insurance using money that your employer would have paid to buy his choice of insurance, then you can often greatly reduce total health care costs by shopping around. The Wall Street Journal reported on one surgeon who managed to reduce his patient’s out-of-pocket cost from $20,000 down to $3,000 with a few simple phone calls to an anesthesiologist and nearby hospitals.

So with all of its disadvantages, why do so many of us have employer-paid insurance? It is due to ill-thought out tax policy that gives an incentive for employers to buy insurance instead of paying that same money to employees and letting them buy insurance. (Did you think that politicians and bureaucrats never made bad decisions?) ObamaCare only exacerbates that same bad policy.

Real health care payment reform would give to individuals the same incentive given to businesses to buy health insurance.

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