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A Stupid Way to Get Health Insurance

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Who came up with the idiotic idea that workers should get health insurance through their employers? If it’s such a great idea, why is no one getting their fire and auto insurance that way?

Does it make sense to be tethered to your boss in this manner? There are people who fear changing jobs because they don’t think they will qualify for insurance with the new employer. That’s a bad reason to be stuck in a job one hates.

If people get their insurance through their employers, it is their employers — not they — who pick the health plans. No wonder some people are dissatisfied! How would you like your employer to pick your supermarket and the groceries?

This inane way of obtaining insurance — this intolerable paternalism — is one of the major problems with the medical care system in this country.

Why do we have such a dumb system? It goes back to World War II, when industries needed a way to attract workers that wouldn’t run afoul of the government-set wages. Someone hit on the idea of noncash benefits, such as medical insurance. The government approved and said that noncash benefits — unlike money wages — were not subject to the income tax. This had the effect of pushing workers toward employer-provided medical insurance. After all, if your boss gives you a medical plan worth $2,000 a year, you get the full benefit. But if he gives you $2,000 in cash, you’ll have only $1,400 to $1,700 after taxes with which to buy your own insurance.

So under current tax law, it makes sense to get insurance through one’s employer. But the tax benefits do not remove the drawbacks — such as the consumer’s exclusion from the plan- selection process.

Where do the HMOs enter the picture? In the 1970s the federal government thought Americans were spending too much on medical care. That was mainly because Medicare, started in 1965, had set off a mad rush to consume medical services. (If the price of a service appears to be zero, people will use more than if the price is higher.) In 1973 Congress passed the HMO Act, which was specifically written to herd Americans into “managed care” in order to control costs. Today, demagogues in Congress, such as Sen. Edward Kennedy, bash HMOs for doing what Congress created them to do. Kennedy was a prime sponsor of the HMO Act.

It wasn’t enough for Congress to merely let HMOs compete against traditional insurance and fee-for-service medical care. No. It had to subsidize HMOs and require employers with more than 25 employees to offer managed care as an option (a requirement since repealed). The consequence was to artificially procure a large marketshare for these organizations that today are the object of such scorn.

You’d think that given these facts, Congress would repeal the HMO Act and free workers of income tax when they buy their own insurance. No way. Rather than remove the government interventions that have helped create such a mess, Congress, as usual, wants to pile new interventions on top of old, ensuring an even bigger mess.

What’s scary is that people such as Senator Kennedy don’t mind the prospect of a bigger mess. They wouldn’t be bothered one bit if the so-called Patient’s Bill of Rights increased the cost of insurance, driving companies out of business and causing employers to drop coverage. Why? Because that would provide the excuse for a government-run national health plan, like the disasters in Canada, England, and elsewhere. That’s what Kennedy and his ilk have wanted all along.

We need what medical economist John Goodman calls “patient power.” There is no question that individuals would be better off if they personally shopped for and selected the medical plan best tailored to their and their families’ circumstances. The resulting market competition would best ensure that consumers were well-served at the lowest possible prices.

Cost-conscious consumers would control expenses, as they do with all other goods and services. A range of plans would emerge, mirroring the Volkswagen-to-Cadillac range of choice we see in the automobile industry. Government has screwed up again. It’s time to try freedom and free markets.

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    Sheldon Richman is vice president of The Future of Freedom Foundation and editor of FFF's monthly journal, Future of Freedom. For 15 years he was editor of The Freeman, published by the Foundation for Economic Education in Irvington, New York. He is the author of FFF's award-winning book Separating School & State: How to Liberate America's Families; Your Money or Your Life: Why We Must Abolish the Income Tax; and Tethered Citizens: Time to Repeal the Welfare State. Calling for the abolition, not the reform, of public schooling. Separating School & State has become a landmark book in both libertarian and educational circles. In his column in the Financial Times, Michael Prowse wrote: "I recommend a subversive tract, Separating School & State by Sheldon Richman of the Cato Institute, a Washington think tank... . I also think that Mr. Richman is right to fear that state education undermines personal responsibility..." Sheldon's articles on economic policy, education, civil liberties, American history, foreign policy, and the Middle East have appeared in the Washington Post, Wall Street Journal, American Scholar, Chicago Tribune, USA Today, Washington Times, The American Conservative, Insight, Cato Policy Report, Journal of Economic Development, The Freeman, The World & I, Reason, Washington Report on Middle East Affairs, Middle East Policy, Liberty magazine, and other publications. He is a contributor to the The Concise Encyclopedia of Economics. A former newspaper reporter and senior editor at the Cato Institute and the Institute for Humane Studies, Sheldon is a graduate of Temple University in Philadelphia. He blogs at Free Association. Send him e-mail.