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Return health care to true market

By Gregory L. Schneider - | Jan 23, 2008

The presidential candidates in both parties have devised reform plans for health care. In many polls health care tops the list as the most significant problem among voters in the country, so it is crucial that the candidates address this issue as primary season begins. However, which plans are best? Which plans will contribute to lower costs and better efficiencies?

From a philosophical and economic perspective, the plans that focus on empowering the consumer and developing a true market in health care are the best. The plans that focus on creating more government bureaucracy and impediments to market based reforms are the worst. Why would this be the case?

The biggest stumbling block in health care is the fact that a true marketplace for health services does not exist. In fact one can argue that since the creation of employer-sponsored health insurance during World War II, such a market has never existed. As a result of favorable tax rulings the employer who provides health insurance receives the tax benefit for doing so. If you are fortunate (and most Americans were until recently) to receive such insurance from an employer, it was a good benefit for you and a terrific tax benefit for your employer.

However the changing nature of the economy has left fewer Americans working for large corporations that provide health insurance. The growing costs of insuring employees have forced many firms – especially small businesses employing 20 or fewer employees – to stop providing insurance to their employees. Individual contract employees and the self-employed market also are hurt by rising costs of insurance coverage.

What we have is not a market system at all. We have a government system that funds nearly half of all health care in the country and that some politicians, sensing the mood which grips the electorate this year over growing health care costs, wish to expand.

The best solution for health care is to create a true marketplace for health care insurance and services. Some reforms have already been enacted, such as Health Savings Accounts, individually owned insurance accounts that place the control of health care spending back in the hands of the consumer rather than a third-party payer. While HSAs have grown in recent years, few insurance companies market them as much as they should. They offer the best hope for small businesses to be able to provide insurance to their employees while reducing the costs of insurance and the costs of health care as well.

Other ways of reforming health care include tax code changes that allow individuals (and families) to deduct the costs of their health care insurance under federal tax law. President Bush recommended this in his State of the Union address in 2006, yet nothing has come of this in Congress. Finally, allow health insurance to be portable from job to job and from state to state. Auto and life insurance are portable – why is health insurance so heavily regulated? Reforms of the insurance market including ending community rating and guaranteed issue would also contribute to a stronger marketplace for health care.

– Gregory L. Schneider is a senior fellow with the Kansas-based Flint Hills Center for Public Policy.