The Ownership Society and Health Care

Most would agree that people are less careful about what they purchase or how much it costs when spending someone else’s money.

For example, a decade-long health insurance experiment found that people given “free” medical care consumed 43 percent more care, yet saw little or no benefit in terms of health. In contrast, those who owned the money set aside for the first few thousand dollars of their medical expenses bore the full consequences of their decisions. They demanded value in return for their money.

America’s health care system is in trouble primarily because big government discourages ownership of one’s health care dollars.

• Government encourages and even requires Americans to turn their health care dollars over to their employer or the government itself.
• That’s why roughly 86 percent of all medical bills in America are paid by someone other than the patient.
• As a result, patients quite reasonably act as though they are purchasing health care with someone else’s money.

In 2004, Congress took a first step toward establishing an ownership society by creating Health Savings Accounts, or HSAs. HSAs remove many of the incentives that encourage Americans to turn their health care dollars over to an employer. Here’s how they work:

• HSAs combine health insurance with a tax-free savings account dedicated for medical expenses.
• Contributions may be made generally up to the amount of the catastrophic deductible.
• An HSA is like a 401k. Both employers and workers can make tax-free contributions and earnings roll over tax-free, though withdrawals incur income taxes (plus a 10-percent penalty if made before age 65).
• Unlike a 401k, HSA withdrawals for medical expenses are never taxed.

HSAs promote an ownership society by fostering:

• Personal Responsibility: Because they own the money that purchases their routine medical care, HSA holders take the time to become more savvy consumers and take greater care of their own health.
• Freedom: HSAs re-establish the freedom to choose one’s doctor, to choose one’s health insurance, to own one’s health insurance policy, and to save for future medical needs. HSA funds follow workers from job to job and provide coverage in between jobs. They can even empower workers to purchase health insurance policies that also stay with them through job changes.
• Competition: Individual ownership will make health care markets more competitive. Providers must work harder to win the dollars of consumers who face trade-offs between medical care and other items.

Most people would also agree that assets are safer when they are under the direct control of the person they are meant to benefit. Yet elderly Americans don’t have the protection of ownership when it comes to their health care.

Medicare is the federal government’s program that provides health care to the elderly and disabled. The program taxes today’s workers to provide medical care to today’s retirees. When today’s workers retire, their health care will be subsidized by taxes on tomorrow’s workers.

But there’s a problem. The tax burden of the Medicare program is growing. It may soon reach the point where workers refuse to pay the high taxes necessary to provide promised benefits.

Rising health care costs and a shrinking ratio of workers to beneficiaries are increasing the tax burden that Medicare places on every worker.

• According to Cato Institute economist Jagadeesh Gokhale, Congress would have to increase the Medicare payroll tax by 500 percent to finance future benefits. By 2008, an increase of 700 percent would be necessary.
• Before long, workers will resist such dramatic tax increases, which will jeopardize seniors’ access to medical care.

It doesn’t have to be that way.

Congress can increase the security of seniors’ access to medical care by giving seniors ownership of their Medicare benefits. Congress should permit workers to save a portion of their Medicare taxes in a Retirement Health Savings Account that will grow over their working lives and provide for their health care in retirement.

• Learn how Congress can further promote the Ownership Society through HSAs.
• Frequently Asked Questions About Health Care and Ownership.