The Long-Term Politics of Health Spending
While not taxing health insurance should in theory encourage employees to sign up for costly plans and spend more freely, they say the reality of how people consume health care does not conform with pure economic dictates.
The vast majority of health-care spending, they note, is on behalf of people who genuinely need care, not just those heading to the doctor because their insurance covers it. And the vast majority of treatments occur because doctors recommend them, regardless of patients' coverage. The key to restraining spending, they say, is getting providers to deliver care in more cost-effective ways.
It's an old saying, but a good one: The hospital's most expensive piece of equipment is the doctor's pen. People don't exhibit a lot of traditional consumer behavior in the aftermath of a pulmonary embolism, or a stroke. They don't have the expertise to make the decisions, the time to research them, or, in some cases, the cogency to make them. When someone walks into Best Buy to purchase a television, they might act like a consumer. When someone walks into an emergency room, they act like a patient. That's why we call them that.
That said, McGillis's article doesn't mention what I, and many others, consider the key benefit of separating health-care benefits from employment (which would be the long-run effect of ending the employer tax exclusion). People would actually know how much their health-care cost.
As angry as Americans are over health-care spending, just about none of them have any idea how much is being spent on their behalf. This graph from the Kaiser Family Foundation tells the tale:
The employee contribution is minimal. In Medicare and Medicaid, it's virtually invisible. For all that, people are still upset over health-care costs. Imagine if they actually paid the full price of their policies (which they do, through lost wages and taxes and so forth, they just don't realize it). That wouldn't change their behavior in the doctor's office. But it might change their behavior in the political arena. It's easy to avoid hard decisions when the costs of the status quo are hidden from you. And some of those hard decisions that are being avoided are the very decisions that would change how doctors act.
To put it another way, the central problem in our health-care system is political inertia. We have a looming fiscal crisis that we are not seriously confronting, much less averting. Reforms need to be evaluated not only in terms of their immediate impact on the system's costs, but also on their long-term impact on political incentives to further reform the system.
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