How (Health) Markets Are Supposed to Work

Uwe Reinhardt was right when he said that “Logically, it must be true that all spending on the health care system in any country originates 100 percent from the budgets of private households.” We all pay for our nation’s healthcare. If we are employed, we pay for it through an impenetrable thicket of state, federal and local taxes and fees, insurance premiums, wage cuts, health user fees and out of pocket spending. And we don’t even get to choose the health insurance we buy. It’s as though we walk into a bar, sit next to a total stranger who helps himself to our wallet. That stranger then orders us both a Bacardi and Coke with our money and returns our wallet. The Bacardi and Coke isn’t really what we wanted but, thinking that the stranger was treating us, we thank him and drink it politely. It’s not until later that we discover we are $20 short. That’s what happens when we get our health insurance from our employer. And we have gotten really good at hiding that from ourselves. We ought to stop it.

We have a lot at stake in stake in the healthcare debate. Trouble is, we don’t know how much. Oh sure, the Milliman Medical Index tells us that an average family of four with a median income of about $60,000 spends over $28,000 on healthcare. The Kaiser Family Foundation lets us estimate how much we would have to pay for healthcare if we were to buy it on the marketplace and provides us with a somewhat customizable Household Health Spending Calculator. But those are all estimates. You can’t take them to your boss and say, “I see you are withholding 30% of my pay to pay for my healthcare. How about you pay me that 30% and I buy my own health insurance?” You don’t have enough information.

You should. We should mandate that our paystub clearly show how much of our pre-tax compensation our employer is withholding to pay for our healthcare. Right now, employers deduct the amount from our pre-tax compensation, pay it to an insurance company and claim it as a business expense. The good news for us is that we don’t pay taxes on the premiums our employer pays on our behalf. The bad news is that we don’t get to choose our insurance. We don’t know (for example) if we might get a better deal on the Exchange or with any of the public options being proposed or implemented at the state level, let alone if any of the public option federal bills become law.

We should have that information so we can make an informed decision (and ask for a raise). After all, who knows and cares about our health and wealth more than us? But we need to know how much we can ask for. That’s why we need that information on our paystubs.

Why should an employer agree to that deal? After all, they are writing off part of your compensation (and a pretty big part at that) as a business expense. Maybe we should let them keep writing it off. Then they won’t care if they pay the money to us or to an insurer. We, on the other hand, might get a pretty substantial raise. Yes, we will have to pay taxes on all your income and yes, we will have to use part of our new-found wealth to buy insurance but we should have the chance to run the numbers and decide whether or not making the switch makes sense for us.Isn’t that how markets are supposed to work? With us deciding on a plan that’s right for us and our family?

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