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Schouborg, Gary and Michael Booth (2004).

"Free-market health insurance, the ignored alternative".

San Francisco Chronicle. Wednesday, January 30, 2004, Open Forum, A27.




Free-market health insurance, the ignored alternative


Gary Schouborg and Michael Booth


In arguing for universal health care, proponents often unquestioningly present a forced choice between employer-provided or government-provided insurance. Completely absent from their analysis is what should be an obvious alternative: We each buy our own insurance.


There is no raging debate over whether employers or government should provide our food and shelter. It is accepted that we provide them for ourselves as best we can, from our after-tax income. For the chronically vulnerable, we provide a safety net. Why should health care be different?


In fact, how we now think of health-care insurance is an accident of history.


World War II wage controls limited unions in what they could get for workers. So they agitated for health-care benefits instead of increased wages. As part of the deal, the government made those benefits tax free. Individuals no longer became consumers of their health care. Instead, companies set up a kind of health-care plantation for their employees. This was supposed to be temporary. But when wage controls were lifted after the war, this system, like so many government policies, became permanent.


Permanence inevitably led to the assumption that any good company should provide health-care insurance to its employees. When some companies were unwilling or unable to do so, this sense of entitlement grew to a conviction that any good government should provide health care or force employers to pay for it.


But third-party insurance, whether provided by employers or government, discourages insurance companies from dealing squarely with individuals. They focus on groups. Most insurance companies don't sell individual policies at all, and those few that do are the very devil to deal with, since they have no effective competition. For the 40 million Americans who are self-employed, semi-retired or fully retired and under 65, the "crisis" isn't cost, it's availability -- and that's because we have this unquestioned and relatively recent notion that health insurance should be an obligation of employers.


Third-party insurance encourages employees to take coverage as a right rather than something they should provide for themselves, such as food and shelter. It also hides from employees the true cost of health care, distorting their behavior as consumers of health-care services. If we thought about homes as we do about health insurance, we'd all expect employers or governments to provide us homes in upscale neighborhoods.


As an alternative to third-party insurance, then, government should support a phase-in period (10 years or so), when employers gradually phase out health insurance benefits while insurance companies gear up accordingly for the new market. A coordinated phase-in would be necessary so that employees would be assured of available health-care coverage and insurance companies would be assured of new, individual customers. Such coordination would enable a complete restructuring of insurance company and employer benefits practices. At the same time, government should allow all individual taxpayers to fully deduct, as with mortgage interest, all health-care premiums and costs.


Every insurance company in the United States would immediately have to compete for individual business, and we'd buy health insurance the same way we buy auto, life and home insurance -- individually, by getting quotes for various policies, purchasing only the insurance we need.


In this manner, we would be as a nation more careful about running to the doctor for every hiccup and hangnail. Companies would adjust pay scales to reflect employees' worth in their wages rather than in a tangle of wages and benefits. Politicians would have one less goodie to dangle before voters and would have to face more squarely issues that only government can truly address. Employees and voters would regain the moral dignity and clarity of controlling their health-care destiny.


Gary Schouborg is an individual- and organizational-development consultant and principal of Performance Consulting in Walnut Creek. Michael Booth is a financial analysis consultant and principal of GBA Capital Group in Texas.


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