Category Archives: Politics

Before knee-jerking on out of here, this is an argument that needs to be made in the face of continued charges from the left that the individual mandate to purchase insurance or pay a fine (or a tax) was an idea that came from the right.  It did.  Much of the reasoning was and remains sound.  The conclusions, however, while understandable were wrong.  Very wrong.  Being able to explain this will avoid an increasing number of situations, where the left makes the “right’s idea” claim and the person on the right cedes the point and moves on with no idea of how to address it.  Knowing how to address the mandate origin issue not only shuts this leftist attack down, deflecting hits on Romney and Romneycare, but presents opportunities to swing back and teach market principles as well.

The justification for a mandate starts with accepting universal coverage as a fact of life that has existed since the 1986 Act that required treatment at emergency rooms without the ability (or willingness for some) to pay…..anything!  Following on that, it is hard to imagine conservatives taking the position that ultimately we wish to refuse life saving treatment and let people die as a matter of choice and public policy under any situation.   This is rather a position embraced by Obamacare as part of the atrocity of the Independent Payment Advisory Board (IPAB), that will impose rationing and refusal and delays.

Universal coverage will not go away because, in the end, the life of a fellow human is not a car or a house that over time can be replaced.  To be fair, the situation therefore demands universal participation, the rationale that every individual to the extent possible should do what they can to protect others from them, to not present themself as a burden on their fellow citizen.  It is this view that resulted in the understandable but misguided conclusion that everyone should be forced to buy health insurance because anyone without it becomes a free rider and danger to others.

The flaw comes in our approach.  Who pays is of critical importance.  The mistake of Heritage, Gingrich, Romney and others was following the path of overindulgence in third-party payment.  Nowhere else in our economy do we have a situation in which the vast majority of all transactions involve someone else’s money, even when there is no good reason for it.  Unexpected car repairs can sometimes be expensive but we find the resources within our budget to pay for them directly.  Doing so over the long run saves by not needing the services and expense of anyone else to be involved in the transaction, but more importantly constrains usage and costs by the use of market forces that can only happen by the direct interaction of consumer and provider.  A third-party payer disrupts normal market forces that efficiently set prices and allocate resources in repairing cars or sick humans.  It encourages overuse by creating the illusion of free or almost free to the user at their time of use.  A central goal in healthcare/insurance policy should be the reduction of third-party payment and increase of direct payment as much as possible.  The fact is that we all pay in the end, going through a third-party only adds to those costs, and studies have shown those additions to be considerable.

Had Heritage approached the concept of a mandate with direct payment objectives in mind they may have been on to something.   Consider a system of forced limited budgeting as an alternative to forced third-party prepayment schemes we foolishly accept as insurance.  This is a radically different approach that respects economic freedom and market forces.  Rather than a requirement to buy typical cover everything insurance think of a requirement to direct a percentage of income to a health savings account independent of insurance up to a certain limit that is then indexed to inflation.  The amount may be $30,000 to $50,000 but the vast majority of people would reach this over a surprisingly short amount of time.  Importantly, a huge portion of the money spent on healthcare would then stay with the user, never passing through the hands of any third-party who thereby gains the right to direct decisions in the transaction.  Direct payment puts the consumer in charge and restores the long ago disrupted doctor-patient relationship as nothing else can.

A limited budgeting mandate would importantly be applied to everyone and a percent of any public assistance would be directed to a health savings account as well.  Such accounts would have to be limited in their use without any exceptions.  This approach would all but eliminate the current situation where anyone would receive medical services and pay nothing.  Everyone would almost always have available at least a portion of the payment as well as the freedom and dignity of making their choice as to when and where to spend it.

Of course the need for insurance remains, but limiting that to true insurance for the unexpected and beyond the ability to pay otherwise benefits all, again, by restoring market forces.  It is not the failure of the market that has created the healthcare/insurance mess, but rather a market that can no longer properly function due to the disruption caused by excessive third-party payment and government regulation.  Proof of this can be seen by looking at those procedures not normally covered by insurance.  Lasik eye surgery, cosmetic surgery, and dental implants are all examples and what we see is what the market always does.  Quality improves as prices come down.  Free markets work and bring the only forces that will ever bend the cost curve.

Beyond limited forced budgeting, any consideration of a mandate to limit public liability by buying insurance needs to itself be limited to very large deductibles but with very high or even no limits.  Because very few individuals get involved with the highest of medical expenses this approach could be made affordable to almost all with the participation of all, especially where a budgeting mandate is applied first.  The mandate idea in healthcare/insurance has merit but creative out of the box thinking is required in its implementation, taking care to first and foremost promote a maximum of direct payment that preserves market forces.

Currently available health savings accounts were packaged into the 2003 bill that provided for Part D, the prescription drug addition to Medicare. They were first available in January 2004 and have remained available with many of the same limitations since.  The potential of their inclusion was so great as to cause some such as Rick Santorum to support a bill they otherwise probably would have not.  Had more in a position to do so like Governor Daniels in Indiana found a way to promote and make popular health savings accounts across a wide section of the population, this alone may have shown light on the folly of Obamacare and stood in the way of it becoming the law of the land.

Health savings accounts (HSA) combined with high deductible insurance plans (HDHP) are much more than just a good idea.  They form the only approach that will restore a functioning free market currently poisoned by the presence of unnecessary third-party payment that incentivizes massive overuse, incurs substantial administrative costs, and disrupts the doctor-patient relationship as nothing else.  What is lost on so many is that ceding the responsibility for payment to another willingly hands over to the other party the right to determine how that money is spent.  It is, after all, now their money and the party who has intrusted them with payment responsibility has lost much of their standing in the transaction.  Even though there remains the health insurance contract, the insurance company will look for any legitimate excuse to not spend more of their money than they must in looking out for their interest.  This is one reason why direct payment to the extent possible is so empowering (and third-party payment so enslaving), why efforts to limit it are so short-sighted, and efforts to maximize it are the proper approach.  HSAs along with HDHPs are key in restoring market forces and the personal power that comes with it in any healthcare transaction.

Since their inception health savings accounts have been tied to a required high deductible health plan.  Annual contribution limits at first were based on the amount of the deductible but have since been set free of that and indexed to inflation.  For 2012 the limits are $3100 for an individual and $6250 for a family plan.  Also a catch up provision has been added for those over 55.  There are other rules all explained in IRS bulletin 2008-25.  Health savings accounts offer rare triple tax advantage when used as intended.  Money goes in pre-tax, accrues earnings untaxed, and exits untaxed when used for intended medical purposes.

So how should health savings accounts be improved?  Where is the next level?  Four things could substantially improve HSAs.  First, there is no good reason to require the connection to any insurance.  While high deductible health plans should retain a HSA connection, HSAs should also be available to anyone who wants to establish one.  Every dollar in a HSA protects others from ever having to pick up the tab on their behalf in addition to providing the account holder the power that comes with spending their own money and the dignity of making their own choices.

Second, contribution limits should be raised to match those of 401k retirement accounts.  Keep in mind that assets in HSAs not only benefit the owners of those assets but protect others in an area where ultimately we do not want to refuse life saving treatment to anyone.

Third, anyone on welfare or unemployment should automatically have a portion of such transfers directed to a HSA.  This form of forced budgeting benefits everyone and again is justified due to the reality of universal coverage that has existed since the decision to not turn anyone away from emergency rooms based on ability to pay.  Having almost no one pay zero would greatly lessen the strains on the system.

Fourth, and possibly the most significant, gifting should be permitted from one HSA to another in cases where a medical condition would deplete the account of the recipient.  Such voluntary transfers would bolster the character of us as a people and a nation and should be encouraged.  Communities could put out the call to come to the aid of one of their own much as with bake sales or other fund-raisers.  Groups could commit to coming to the aid of each other thereby lessening the need for insurance and allowing for higher deductibles.

There is no government fix for the healthcare/insurance mess aside from policies that restore market forces surrendered over time by a short-sighted  move to have someone else pay the bill.  Health saving accounts are the best example we have of how government can help, and the time to take them to the next level is now.