Are you among those who believe that America’s healthcare system is in crisis? If so, would you believe that a single federal policy enacted 100 years ago started at all? Believe it or not, this is exactly the case. We can trace the current crisis back to a fateful decision made in the 1920s.
The Hill contributor and Cato Institute director of health policy Michael F. Cannon explains it all in a recently published piece, if you care to read it. I will do my best to summarize it here, along with adding my own comments.
The Early Days of Health Insurance
The history of health insurance in American dates to the early 20th century. As the quality of healthcare in this country improved, states began licensing clinicians. More hospitals were opened, and the pharmaceutical industry was emerging. All of this improved the quality of care. But with increased quality came higher prices.
Employers decided to begin offering health insurance for two reasons: to help them compete for workers and to make medical services more affordable to people who could otherwise not afford them. That much was good. But then federal bureaucrats made a fateful decision.
They decided that, in order to encourage people to enroll in health insurance programs, they would make the money put toward employer-sponsored plans tax-free. If a person decided to purchase health insurance on their own, the tax-free incentive would not apply.
Employers Choose the Plans
Buying one’s own health insurance meant less take-home pay compared to someone who let his employer sponsor their health plan. So, what did most people do? They enrolled in employer-sponsored plans. That was it. Once employers started offering health plans, employees no longer had an incentive to get the most bang for their buck. They also did not have the ability.
Think about it. Before you buy a high-ticket item, don’t you shop around for the best price? Don’t you make sure that you are getting what you’re paying for? Of course you do. But health insurance is different.
You and I do not shop around because we get insurance through our employers. Our employees don’t spend a whole lot of time shopping around, either. There are reasons for that, but they are fodder for another post at another time. The point is that market forces are not holding health insurance in check because consumers don’t have control over their insurance options.
Self-Funding Changes the Game
Despite an arcane government policy creating the healthcare crisis we now live under, there is a way around this mess: self-funding. Companies that choose to self-fund their health plans can completely bypass insurance carriers if they want to. Many do.
Self-funding involves establishing a monetary fund through which an employer will pay all its employees’ medical bills. The money for that fund is supplied by a combination of employee payroll deductions and employer contributions. Finally, stop loss insurance protects the employer in case its annual healthcare expenses outpace previous estimates.
Many self-funding employers turn to third-party benefits administrators like employee benefit insurance Nevada’s StarMed. The administrator handles what would normally be taken care of by an insurance company. And still, self-funding is a lower-cost insurance alternative because it brings competition back into the equation.
Government Is the Problem
As Cannon so effectively points out in his piece, the government is the main problem in our modern healthcare crisis. Whenever government gets its hands into healthcare, costs go up. You can go all the way back to the 1920s to find more than enough proof. It has been happening for 100 years.