woody_zimmerman_118_2007A huge national uproar has erupted over the Obama administration’s attempt to enact a drastic change in how health care services are delivered and paid for. Although the effort has been put on “ramming speed,” opposition from voters has become so intense that some politicians (mostly Democrats) are complaining that protesters are “an angry mob” using “brownshirt” tactics to disrupt town meetings. Senators and representatives have been trying to use such meetings to sell this gigantic program as part of the “change” Mr. Obama promised to the country. Recently, Speaker of the House Nancy Pelosi threw gasoline on the fire when she wrote that the protestors are “un-American.” (Wait – wasn’t protest the “highest form of patriotism” just last year? But never mind…)

Polls continue to show that a significant majority – as much as 86% in some polls – of Americans are “satisfied” with the health care they receive and the insurance they carry to pay for it. So it’s perhaps not surprising that a lot of folks would distrust a nebulous, ill-defined, costly plan – designed by the Congress (God help us!) – that might well cost them more money for poorer coverage than they have now. Americans are famous for saying, “If it ain’t broke, don’t fix it,” and they are saying that now. Hope and Change are fine in the abstract, but it’s another thing to change something that doesn’t really seem to need changing.

An old rule of politics says: “When your opponent is destroying himself, get out of the way and let him do it.” The health-care/insurance change is a Democrat idea that could severely wound the party. So I’m reluctant to intervene while Democrats are doing such a fine job of shooting themselves in their collective foot and squandering their party’s control of government.

Nevertheless, I hope I’m a patriot first and a Republican second. So I am bound to point out that not everything in the health-care “garden” is lovely. There are some things that could, in fact, use a little attention. I’ll review a few of them in this column. It’s not a comprehensive list, but I think they’re near the top in importance.

One problem relates to the curious fact that health insurance has become primarily associated with one’s employer instead of part of a national free market. The employment link to health insurance originated during World War II, when federal wage controls limited what companies could pay their employees. Benefits like health insurance thus became competitive delineators for companies trying to recruit the best people. Unions latched onto health insurance, and it gradually became a permanent fixture of the employment landscape. It is now so common to have health insurance provided by one’s employer that most workers can’t imagine things any other way.

This has contributed to a general ignorance of how much one’s insurance plan really costs, since employees pay only a small fraction of its cost from their own funds. I personally know people who think a $300-a-month premium (i.e., $3600/year) is quite expensive, but who don’t realize that their plan might cost as much as $15,000 a year, or more, per family. Indeed, some “Cadillac” plans cost above $20,000 per year. Auto-worker unions negotiated lavish health insurance plans that actually helped collapse Chrysler and General Motors into bankruptcy.

This is not to say that lavish insurance plans are necessarily bad. Within reason, workers are entitled to whatever they can get. (The auto-workers’ plans can be considered a “boundary point.”) But insurance is a “socialist” type of compensation calibrated to family size, not to workers’ skills. A custodial or clerical worker might have a large family, while a top executive might have none, making the lower-tier worker’s insurance plan costlier than the executive’s plan. I spent a long career in a California company where this inversion was applauded as a kind of “social justice.” But top managers began to see a disadvantage in significant segments of employees’ compensation being unrelated to the skills they offered to the company. In worst-case situations, some employees’ health-insurance plans cost the company as much as their salaries.

Another problem with employer-provided insurance is the “stove-pipe” problem. Each plan is tailored specifically to that company, so employees typically lose their insurance coverage when they leave the company. This exceedingly clumsy arrangement produces many of the uninsured people that politicians want to include in a new federalized “universal” coverage plan. Yet studies have repeatedly shown that many who are “uninsured” at any given moment will be insured within a short time – as soon as they have new jobs. This problem could be eliminated entirely if individuals could carry their personal health insurance policy with them from job to job. As things stand, each worker is a brand-new insured person at each new job.

Moreover, individuals who retire early, or otherwise do not resume regular employment with a company that furnishes health insurance, can find themselves in deep financial water. When I retired early, at age 60, I had 18 months of COBRA coverage under my company-provided insurance plan. I paid the full premium, without any company-subsidy – still a fairly reasonable cost, about double what I had paid while employed. The policy covered my wife and me.

When COBRA ran out, my company furnished a follow-on policy, as required by state law. There was no control on the cost, however. Because we were now placed in a small pool of retirees from that company, the premiums went sky-high. By the time I reached Medicare age, I was paying a premium of $1900 a month, just for myself. Many people could never pay that, so they might go without coverage. I felt that I couldn’t risk a serious medical incident that might ruin me if I didn’t have insurance. The experience made me realize that this problem needs redress. There has to be a better way.

Unfortunately, federal law has cemented the health-insurance/employer linkage by letting employees pay for insurance premiums with untaxed money, whereas individuals who buy their own health insurance must pay premiums with taxed dollars. This perverse situation effectively forces consumers to obtain their health insurance through an employer – even if that employer would furnish an allowance so the employee could buy his own policy. The “private” option becomes financially unattractive because the tax break is lost.

Undoing the employer-connection for health insurance is a big problem. Only a federal law could accomplish it – particularly if it includes a tax break for privately purchased insurance. This might line people up on both sides of the issue – much as is happening now – but the change would greatly simplify health insurance procurement. Even more progress could be made if health insurance were detached from states’ control. “Competition” – mentioned by the president numerous times as part of his vision for national health insurance – would be greatly enhanced if individuals could shop across the country for policies, instead of only within their own states.

Another problem that impacts cost is the fact that health insurance is no longer treated like…well, like insurance. When you buy insurance on your car, you generally don’t expect to use your coverage during the year. Indeed, you rather hope not to. Within my lifetime, health insurance was like that, too. You carried what was called “major medical” insurance, to protect you from the costs of major treatments, hospital stays, etc. But you paid ordinary doctor’s fees out of your own pocket. (In the late ‘60s, a doctor’s office-visit cost only $8.) You hoped not to use your medical insurance at all, as that would mean a serious illness.

Today, all that is changed, of course. Insurance has become a “third party payer” for health-care transactions. Neither the providers nor the receivers of health-care services have an interest in controlling the costs: providers because they make more on higher costs; receivers because they aren’t paying them. Mr. Obama has inveighed against providers ordering unnecessary tests or treatments just to make more money. Is that happening? Maybe. But it is certainly true that there is little motivation for providers to limit costs. Receivers of services can be indifferent to costs, too, as they’re not paying them out of their pockets. The entire construct virtually guarantees runaway costs, with only the third-party payer having an interest in slowing the train. Mr. Obama has lambasted insurers for trying to do this by denying coverage of certain treatments.

Only users of health care have escaped the president’s wrath, but their day is coming, if independent evaluations of the proposed government plan for controlling costs are correct. A government-payer system would almost certainly try to control costs by limiting payments to providers, by denying treatments to certain disfavored patients – i.e., the terminally ill, the too-old, or others with prospective lives of “insufficient quality” – and by rationing care in general to meet budgetary constraints.

Apologists for government-controlled care (a.k.a. “Obamacare”) deny this vociferously. They claim that more people will have better care at less cost, but the public isn’t buying it. Voters can see that you can’t have “more” and “better” for less cost. The real world isn’t that way. If Congress tries to make it so by fiat, other unintended consequences will result – e.g., shortages.

The national debate notwithstanding, the fact remains that the current third-party payer system, with insurance connected to employment, is flawed and in need of repair. I wouldn’t say the system is “broken,” as the president has, but he is on reasonably solid ground when he says we can’t go on indefinitely as we are. Costs for medical care are clearly out of control, and the current system can’t bring them under control. Americans who insist on “no change,” because they are happy with their own situation, are not looking at the big picture. If we drift on as we are, the system will eventually crash. When it does, everyone will get hurt. We’re smarter than this.

But throwing everything into a government-controlled system does not seem sensible either. It’s a tremendous leap of faith to imagine that 535 self-interested politicians can fashion a government “solution” to redress 1/6th of the American economy. Addressing the most serious flaws in a systematic orderly way seems the most prudent course. This can probably be done, starting with dismantling the linkage of employment and health insurance for individuals.

Asking the Congress to “solve” health care (and insurance) is something like taking your car to a transmission shop when it has an annoying rattle or squeak. It will almost certainly turn out that you need a new transmission. If you go to a muffler shop, you’ll probably need a new exhaust system. Shops tend to prescribe repairs that they know how to do.

Just so, the Congress will prescribe a large governmental program and/or agency because that’s what they know how to do (sort of). We should be especially wary of assigning the task of health care/insurance reform to a Democrat Congress. They (and President Obama) have an agenda that might give us a new “transmission,” when all we need is a few parts tightened up or replaced.

In a future column we’ll look at some other practical modifications to our current system of health insurance and medical care. As this important national debate unfolds in coming months, I urge my readers to “trust, but verify.” Ask your senators and representatives for proof of assertions they make. Make them cite chapter and verse, and don’t let them get away with sweeping generalities and unsubstantiated claims. Above all, hold them accountable for any enacted legislation at the ballot box. Remember, they work for us – not the other way round.