I know this will surprise my regular readers, but I am going to say something nice about John McCain. His medical insurance reform proposals are probably the least stupid of the three remaining electable candidates. A key element of his proposal is to eliminate the preferential tax treatment of employer-hosted group medical insurance, and instead give individuals a tax deduction aimed at switching this preferential tax treatment to the individual who is paying his own medical insurance premium. This would be a very very good thing. Employer-provided group medical and its prefential tax treatment fosters the impression by individuals that medical treatment is essentially free, and disables the normal consumer behavior of buying only those things that they really need and want, and of trying to get the best possible price.
Now, if McCain would just propose a bill to make it illegal to offer a medical insurance policy with a deductible lower than, say, $5,000, I have to reconsider my vote for November 2008. This one policy change would reduce the employee headcount of medical insurance companies by at least 50%, perhaps as much as 90%, and would permit doctors to reduce their employee headcount. In many doctor’s offices, there are two or three full-time employees who do nothing but beg the insurance companies to please please please for the love of god please pay us! The cost of medical insurance would drop dramatically, and the cost of medical care would drop, not as dramatically, but noticeably, especially for routine day-to-day medical care provided in a GP’s office.
People like me, who like to imagine themselves communing with the rationally disembodied distilled essence of Adam Smith (would that be a madeira? a sherry?) in an anarchic market-driven utopia, have a massively negative knee-jerk reaction to the idea of government interference in the problem of medical insurance.
But, we rationalists have reckon with the fact that we start from a real place in the real world, not a fantastic place in an imaginary world. The guvmint is already involved up to its eyeballs in the medical insurance problem, and, amazingly, the guvmint has fucked it up royally.
Have you ever asked yourself, why is it that the prevailing model for the individual’s procurement of medical insurance is to participate in an employer-sponsored group health plan? Did I miss it somewhere where Charlton Heston cowered in fear whilst the moving flaming finger smote the stone tablets with the sacred text “thou shalt buy medical insurance from thine employer, and thou shalt have no deductible, and thou shalt die when thouest art no more than five and fifty years old, unless thou art some species of freak.” interrogatory.
No, this footage does not languish on some cutting room floor. You probably know this already, but the origin of the current state of affairs was wage and price controls during World War II. Employers were forbidden by law to give salary increases to their workers beyond a certain paltry sum, and surprisingly, this made employees cranky. Employers cast about desperately for some mechanism to restore a happy carefree manner to their workforces, and some bright boy, who undoubtedly later wrote treatises on the meaning of the word “is,” came up with the idea of offering “benefits,” NOT, emphatically NOT wages, and therefore not subject to the wage and price controls. It went to the Supreme Court, which ruled that essentially free medical insurance was not wages. The SCOTUS even concurred that the employer’s costs of the providing the medical insurance were a legitimate deduction from the employer’s revenues, and were thus not taxable wages to the employee, and were further even a deduction for the employer! And there was much production of Sherman Tanks and of P-41 Warhawks, and of B-29s, and It Was Good.
Continue reading We need an evolutionary approach to the health insurance problem