Better Health Insurance Markets
May 4, 2004
Economists say that making health insurance purchased individually fully tax deductible, eliminating state health insurance mandates and creating nationwide insurance markets could reduce the cost of health care and shrink the number of uninsured.
According to John F. Cogan, former Bush administration director of the Office of Management and Budget; R. Glenn Hubbard, former chairman of the Council of Economic Advisers; and Daniel P. Kessler, a Hoover Institution senior fellow:
- Each percentage-point rise in health-insurance costs increases the number of uninsured by 300,000, and the typical worker now pays $750 more per year in health costs than just three years ago.
- There are nearly 1,500 specific state insurance coverage requirements in addition to laws requiring insurers to sell policies to any customer (any-willing-provider laws) and these add an average of 7 percent and 17 percent to the cost of health insurance, or $600-$1,500 per year for the typical family health plan.
- Based on the RAND Corporation's National Health Insurance Experiment, consumers would reduce their health care spending by $65 billion per year if the average annual deductible rose from its current level of $250 to even $500 and the typical coinsurance rate were to rise from 20 percent to 25 percent.
To meet those out-of-pocket expenses, they suggest fully tax deductible Health Savings Accounts (HSAs) -- which would keep the savings account feature of recently enacted HSAs, but allow them to be coupled with any health insurance policy.
Tax preferences are the primary reason five out of every six dollars of health-care spending are paid by third parties. Since people are wiser consumers when they are spending their own money, leveling the playing field so that out-of-pocket health expenses and a variety of health insurance policies receive the same tax advantages can make the market much more efficient.
Source: John F. Cogan (Hoover Institution), R. Glenn Hubbard and Daniel P. Kessler (Hoover Institution), "Healthy, Wealthy and Wise," Wall Street Journal, May 4, 2004.
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