Free Money for Health Insurance

Health insurance policy is tricky business. When people have too little, they must go bankrupt, collect welfare or forgo needed treatment when medical catastrophe strikes. When they declare bankruptcy or otherwise stiff hospitals when they cannot pay, paying customers must fill the shortfall, which drives up prices and thereby drives up health insurance premiums, which means fewer people carry health insurance. It is a vicious circle.

But too much insurance carries its own dangers. With the insurers paying all the bills, doctors work more for the insurers than for the patients. (This holds whether the insurance is private or via government program.) Patients have no incentive to shop. Prices skyrocket, until insurers take on the task of shopping, in an expensive bureaucratic fashion. Finally, modern medicine is very costly in part because it doesn’t work for all conditions. But that doesn’t stop desperate patients from trying a succession of questionable and expensive treatments. With insurers picking up the tab, there is no restraint other than third party rationing, which has its own ethical dilemmas.

Prior to the recent healthcare legislation, we had the worst of both extremes. With health insurance subsidized as a tax deduction, the well off – those best equipped to buy expensive medical services without insurance – were encouraged to buy excessive insurance to maximize the tax deduction. Meanwhile, the working poor – those who need more insurance – gained little from the tax break since they were in low tax brackets. Moreover, the old system granted the tax breaks only to those who received coverage through their employers. This left day laborers, seasonal workers, and the self employed frequently uninsured and some uninsurable (those who became seriously ill between jobs/businesses).

As to the new system, who knows? Who has read the bill in its entirety? How can anyone know how it will fully play out after bureaucrats turn it into regulations and corporations discover loopholes? Given the history of such complex legislation, the prognosis is grim.

A simpler solution existed: free money for health insurance. That is, take some of the citizen’s dividend that we are promoting here and give it in the form of health insurance coupons instead of cash. This is a bit nanny-state-ish, but in our modern wealthy society we are not going to just let people go without needed medical care, so let’s just get people covered in the simplest fashion possible.

How Much Free Money for Health Insurance?

We want to encourage near-universal catastrophic coverage while still preserving a market for cash based medicine. We also want to keep people shopping for the insurance itself. If we provide coupons that are less than or equal to the price of the cheaper catastrophic healthcare policies, then the marginal cost of an additional dollar of coverage is still a dollar; i.e., higher than under the current system for those in higher tax brackets. So we would have a market for rationally determining whether to buy more insurance or simply save the money for a rainy day. Unlike an unsubsidized market, however, the total cost can be made affordable even to the working poor.

Catastrophic coverage still leaves significant expenses during bad years, but this plan is still more progressive than the old system of pre-tax payments for health insurance. Here, the benefit is per person, regardless of employment status. Minimum wage workers receive as much benefit as high dollar professionals. With tax deductions, it’s the high-dollar professionals who receive the most benefit, which is rather backwards! Those who change jobs frequently can do so without having to change insurance. We don’t penalize part time workers. Finally, unlike cash benefits promoted elsewhere, we could grant health insurance coupons for children as well without introducing a moral hazard; i.e., paying people to have children.

Of course the price of catastrophic health insurance varies based on age, habits and pre-existing conditions. How to best deal with these complexities will be dealt with in future articles.