The Bottom Line: To lower health costs, limit employer-funded care

Over this past election season, we have heard countless demands from candidates on the need to reform our health care system. Recently, President Obama released his plan to increase coverage by mandating large employers cover all their employees, and by providing a new public option. Many of our leaders have called for universal coverage and claimed that there are nearly 50 million Americans without health insurance in support of their reforms. However, before we implement any plan for universal coverage, we must ask: Is lack of coverage really the biggest problem with the American health care system?

First of all, in dissecting the health care crisis, one must first get all the facts straight. The claim that "46 million Americans do not have health insurance" is highly misleading. It is rooted in the current population survey conducted by the Census Bureau and the Bureau of Labor Statistics which revealed 45.7 million people living in the U.S. were uninsured. This number at first seems exorbitant (about 15 percent of the population) and evokes an image of millions of American citizens who cannot afford health insurance and are forced to go without. However, of those 45.7 million, 18 million are making more than $50,000 a year and probably can afford health insurance, but, for whatever reason, opt not to. According to a 2007 New York Times article, millions are eligible for public programs such as Medicaid or SCHIP, but are not enrolled. Also, many of the uninsured are temporarily uninsured, but will get insured in the near future. Only about 8 million people who cannot afford insurance and are not eligible for public assistance will go uninsured for two years or more, as found by a 2002 study conducted by BlueCross BlueShield. That is still a lot of people who are in a dreadful situation, but not nearly 15 percent of the population.

The real problem with health care in America is not that an enormous portion of the population is uninsured, but its exorbitant and rising costs. Health care expenditures in the United States are among the highest in the world and will continue to grow. Spending on health care per capita has more than doubled since 1990 and quadrupled since 1980. Annual spending on health care passed $2 trillion in 2006. Since 2000, health insurance premiums for employer-provided plans have increased at least 87 percent. The cost of our public health programs, Medicare and Medicaid, are expected to grow to unsustainable levels.

What really is behind the surge in health care costs is the fact that most consumers of health services are insulated from costs. Since World War II, employer-provided health insurance was declared tax-exempt, which prompted most people to bail on private plans in preference of their employer's. Today, 85 percent of health costs in America are covered by third parties. The fact that most people don't spend their own money on health care and are shielded from prices is the reason why costs are rising. Since people don't shop around for the best bang for their buck, they end up racking up huge expenses. Also, the fact that most people also use their health insurance for every check-up and prescription as opposed to just especially high expenses makes this problem worse. In addition, with an employer-provided health insurance policy, coverage ends as soon as one leaves that employer.

Any solution that focuses on increasing coverage by expanding employer-provided care and providing a public option, such as the president's, would only exacerbate costs and shift some of the costs onto the government. If one is serious about reforming health care, one would focus on making a consumer-driven health care industry by removing the incentive for people to opt for employer-provided coverage. Ending the tax deduction for employer-provided coverage and providing a refundable tax credit for people to buy their own private plans would be an effective means to do so. The implementation of health savings accounts where people can put away money tax-free would also help out. If we can get people to start being more cost-conscious by allowing them to pay out-of-pocket for routine things and saving insurance for more catastrophic situations, the cost of health care could drastically drop back to sustainable levels.