Health care costs in America are rising out of control for one principal reason: third parties – employers, insurance companies, and governments – pay nearly 80 percent of all medical bills. When patients seldom pay, or even see, an intemized bill the discipline of the marketplace breaks down.
The reason individual Americans do not control their own health care dollars is discriminatory treatment of those expenditures by the U.S. tax code. When employers pay for health insurance it is tax free; when individuals pay it is first subjected to federal, state, and local taxes.
A viable solution to the problem of uneven tax treatment would be medical savings accounts (MSAs). Tax-free deposits would be made into accounts by employers, individuals, or by governments (in the care of Medicaid and Medicare recipients). These accounts would be the property of the individuals who could then pay: a) ordinary medical expenses and b) premiums of non-cancellable, high-deductible, catastrophic health insurance. This would restore consumer control to the medical marketplace.
Encouraging individuals, rather than third-parties, to own and control their health dollars would eliminate the need to find new coverage every time the worker changes jobs and would force insurance companies to offer only non-cancellable policies.
Health insurance, like other forms of insurance, should be priced according to the expected cost and risk that an individual brings to the insurance pool.
The primary reason most of the 37 million uninsured Americans lack health coverage is that they consider the price to high relative to the benefits. Relatively few have been denied coverage. Equal tax treatment and medical savings accounts would entice the many young, healthy uninsured individuals into the health insurance market.
Canadian-style, single-payer health reforms lead to shortages of medical treatment, long waiting lists, and rationing.
Managed care, or efforts to encourage people to join heath maintenance organizations (HMOs), results in a one-time savings of 10 to 15 percent. After that, costs grow at the same rate as for other types of health care delivery systems because HMOs, like the more traditional fee-for-service systems, fail to solve the fundamental problem: the third-party payer system.
The role of managed care in the health care system – and all other reforms – should be determined by the market test of competition, not by government mandates.