Mandatory Health Insurance Now!

It will save private medicine -- and spur medical innovation.

Ronald Bailey from the November 2004 issue

(Page 4 of 4)

As Rep. Bill Thomas (R-Calif.) noted at a recent National Center for Policy Analysis conference, if everyone had to buy his or her own coverage the way people buy car or homeowner's insurance, and if the size of the tax breaks didn't hinge on employment status, you would have the beginnings of a real market. Thomas said he wanted to make basic, low-cost catastrophic health care coverage widely accessible through tax subsidies and credits. More-extensive coverage would be available to individuals who wanted it, but they would have to pay for it with after-tax dollars.

Under a mandatory insurance scheme, all Americans would be required to purchase a basic high-deductible catastrophic health insurance policy from a private insurance company. "Let's say you cap the deductible at $4,000 and set a limit that out-of-pocket health care costs can't exceed 10 percent of an individual's or family's income," suggests Pauly. "That would mean that a family earning $30,000 per year would receive $1,000 in a health voucher." In other words, the family would pay the first $3,000 of medical expenses out of pocket and receive a $1,000 voucher to cover expenses up to the $4,000 deductible.

A high deductible would encourage people to be more careful about the services they purchase. They would shop around for good deals on drugs and scrutinize the costs of various treatment options more closely. Of course, some people inevitably would try to save a penny or two by delaying a visit to the doctor for their stomachache, only to find out later that it's cancer, but no system can make people perfectly prudent.

Health insurance policies covering catastrophic expenses today typically cost under $300 per month for a family of four. So that's $3,600 per year for insurance. Assuming employers pay between $6,000 and $9,000 to cover an employee and his family, that means workers would be getting an extra $2,400 to $5,400 in their paychecks. Even a $3,600 policy would be expensive for a family living on $18,000 a year, so perhaps they would be required to pay 10 percent of their income, $1,800, for insurance and receive a voucher for $1,800 to cover the rest of their premiums.

Money in the Bank

This plan differs from the mandatory health care schemes in Germany and France, which are financed by payroll deductions set at a percentage of wages up to a certain income level. In the United States today, an employer generally pays the same health insurance premium for each employee. So if the premium at a company is $5,000 a year per employee, under this plan each employee would get $5,000, tax-free, to purchase insurance. That money would make a lot more of a difference to an employee earning $20,000 than to one earning $80,000.

A second component of the new private insurance scheme might encourage (or even mandate) that families and individuals make annual contributions to health savings accounts (HSAs) similar to those included in the otherwise very flawed Medicare prescription drug law. As currently formulated, HSAs allow employees to set aside pretax money to cover routine checkups, co-payments, prescription drugs, vaccinations, and so forth, while costly medical procedures are covered by high-deductible insurance policies. HSAs permit employees to keep their own money, rolling over any unspent funds in their HSAs at the end of the year and investing the money for future medical expenses or saving it for retirement; the money can be passed on to heirs. Since it's a real asset, people have an incentive to manage it frugally.

HSAs have several attractive features. Employers as well as employees make contributions, so instead of paying insurers for low-deductible policies, companies can give the money directly to their workers. Best of all, for those worried about the instability of linking health insurance with steady employment, people who lose their jobs can withdraw funds from their HSAs to continue their families' health insurance coverage. Employers will be attracted to HSAs because they will be able to lower their health care expenses by offering their employees higher-deductible insurance plans. Such plans generally cost 20 percent to 60 percent less than conventional low-deductible health insurance policies.

There's no reason to put off the campaign for a mandatory private system until we've worked out all the details. To keep the great American health innovation machine running, it is vital to keep medicine private and consumer-driven, and that means going on the offensive now.

Maintaining our private medical system is vital because American health care and medical science are the most advanced and innovative in the world. If a national single-payer health care system is adopted, most medical progress will be stopped in its tracks. The proposal for mandatory health insurance offers a way to maintain our private system, expand consumer choice, lower costs, and allow medical progress to continue.