Commentary

The Wrong Health Care Debate

Once again Washington has it wrong. The current debate over health insurance reform has been cast as a choice between letting health management organizations (HMOs) control your health care choices or letting the government do it. That’s a choice that is guaranteed to make you sick.

But there is a third choice — a better choice — that is being left out of the debate: giving consumers control over their own health care decisions.

Today most Americans have no choice of health insurance. They must accept the plan their employer chooses for them. Employers, understandably concerned about rising health care costs, are increasingly choosing managed care plans that hold down costs by restricting access to certain services and specialists. Workers, stuck in plans they dislike, have turned to the government for relief.

Think what would happen if you went to buy a new car and were told that just one model was available. Since cost was an issue, the sole choice was a stripped-down model without any options. If you wanted a stereo or power steering, even if you could afford to pay for it, you’d be out of luck. It wouldn’t be long before Congress started a movement for a car buyers’ bill of rights, with Democrats and Republicans arguing over what color the one model of car should be painted.

Of course that doesn’t happen with cars, because you can always go to the lot next door and pick a different model. Why can’t you do that with health insurance?

The reason lies in an anomaly in our tax code. If your employer gives you health insurance, it is tax-free for you. But if you purchase health insurance on your own, you receive no such tax break. That means that if you don’t like the insurance plan your employer offers, you cannot go elsewhere and buy your own coverage without incurring a substantial tax penalty.

Here’s an example: Let’s assume that you earn $30,000 and your employer supplies a health insurance plan with the local HMO that has a value of $5,000. You pay taxes on only $30,000. What if you don’t like that HMO and want to go someplace else for your health care? You could tell your boss to give you that $5,000 he was spending on your HMO coverage and then go out and buy your own insurance. But if you did, you would have to pay taxes on $35,000 instead of on $30,000. That could cost you an additional $2,000 or more in taxes. You are effectively stuck with your boss’s policy, like it or not.

In health insurance, as in so many other things, whoever controls the money controls the game. If the government controls health care spending, the government will control health care. If your boss controls your health care money, your boss will control your health care. But if you control the money, you can control your own health care.

Rather than debating how to best regulate your boss’s policy or whether you should be able to sue the HMO that your boss chose for you, Congress should be seeking ways to give you a greater choice of health plans. In short, Congress should put the money back in your hands so that if you don’t like your boss’s plan you can simply go someplace else and buy one you do like. Some people will stick with HMOs, accepting slightly fewer services and less choice of doctors, while pocketing the extra money. Others will choose to spend a little more to get more choice and extra services. The choice would be up to each individual worker.

Congress can do this by changing the tax code to give individually purchased health insurance, or for that matter health care you pay for out of your own pocket, the same tax break as you get for employer-provided health insurance. Congress should create a universal health care tax credit available to all Americans, regardless of where they buy their health insurance. That would empower individual Americans to choose the health insurance plan best for them.

It doesn’t have to be more power to the government or more power to the HMOs. It could be power to the people.

Michael Tanner is director of health and welfare studies at the Cato Institute.