It’s time to throw out the first pitch on this blog. I have been thinking about issues and solutions to health care in this country. I think we need to transition away from employer paid plans and towards a private market driven one instead. How do we get there? Well, I am going to take a stab.
Change Employer Healthcare Contribution Incentives
The current system forces employers to pay for the Health Care of it’s employees. From my understanding, if you have over 50 full time employees, then you would need to provide an approved health insurance policy. This is a costly proposition and varies wildly from company to company. The idea that I have to lose my families coverage and benefits simply for looking at getting a better job makes no sense to me, also the idea that if I get sick and can’t work, I have to quit my job and lose coverage also makes no sense to me. So let’s fix it.
One Employer Pays The Brunt
Currently a family of 4 with two working parents will have two choices of plans to adopt. The likely outcome is that the the family will choose to join the best option of the two plans, and most likely that would be the more expensive option of two policies. So basically no good deed goes unpunished and the employer offer the most expensive option gets the likely burden of paying, while the cheapest company likely gets a pass and doesn’t contribute at all since they likely get opted out.
How much are we talking about? Well according to the NCSL that average cost recently exceeded $16,351. So this clearly isn’t peanuts. Considering that entire burden is equivalent to working a 40 hour week every single day of the year at an hourly rate of $7.86. Ok so we know there is a lot of money at stake, how do we change this around.
This is a very simple fix. I am going to use arbitrary numbers, but I think you will get the idea pretty quickly. We know the average family of 4 health insurance plan costs $16,000, so $20,000 would be a fantastic round number to talk about. I propose we change the tax deduction laws for corporations to be able to deduct UP TO $20,000 dollars per year towards an employees healthcare contributions. That money would be paid directly into a HEALTH SAVINGS ACCOUNT or similar type vehicle. So each year an employee would be given up to $20,000 cash into an account to buy whatever it is they choose to.
Now that may not be a huge incentive for employers to over contribute, so we could simply give a 2X or 3X deduction against every dollar contributed. So if a company made a $600,000 profit for the year and was going to pay a 35% tax on that income leaving them with $390,000 in profit , instead they could choose to fund 10 employees Health Accounts with $20,000 each at a cost of $200,000 and with a 3X write off, they would end up with $400,000 in profit. So you can now see that would be a pretty smart investment by each company as it is a benefit to it’s employees giving them a cash infusion of to $20,000 dollars into their savings account.
But WAIT…. It get’s even better. In our family of 4 example, this would apply to the non paying employer too!!! So now the second person in each household could receive a benefit of $20,000 as well. That means that a family with two working parents could receive up to $40,000 dollars per year in their health savings account. That is a lot of money, yes it is.
So Now What?
So now individuals / families or whomever have these full funded accounts, but they no longer get insurance from their employers and instead received up to $40,000 in cash. So now they will need to buy a private policy directly from an insurance exchange. I will be posting at some point on how to fix the exchanges etc, and no I can’t say I am thrilled, but we have them and they are functioning, and this post is simply tackling the idea of how a person’s insurance should not be attached to their employer.
Ok moving on, if you have a bank account accruing $20,000 dollars per year or more, let’s look at what that could buy you and your family. I like looking at www.ehealthinsurance.com and using it as a reference point. So at random, a family of 4 in Massachusetts can pick a PPO plan costing $941.56 per month, and having a $4,000 dollar family deductible. So that would cost $11,292 per year in premiums, plus another possible $4,000 dollars for the deductible. So basically the absolute total worst case cost for a family of 4 would be somewhere around $15,292 per year. So if you receive $20,000 per year from your employer, you would accumulate a positive surplus of $4,718 per year. If your second employer is kicking in $20,000 then that number jumps to $24,718 extra per year. All while being fully covered from any sickness or injury.
What Happens To The Money?
Ideally this account would grow and grow. Only to be used on Health Care Costs unless a threshold is hit. Let’s say that a surplus of $200,000 is hit, then it could simply flow through as income. We could also make it eligible for converting it to retirement income at a certain age as well. That gives a massive incentive to live a health lifestyle and question high cost health services. It empowers the consumer to make the rational decisions on what policy and plan is best for themselves and gets rid of our current distorted market place. This will no doubt drive down the cost curve on health care costs as it is individuals making individual health care decisions. It removes the religious arguments as it is simply money financing an individual, not a certain drug for abortion or birth control etc. There are infinite reasons we need to get out of our current system, most of all because it is broken. The same concept above could easily be applied to Medicare and Medicaid with a voucher system as well.
I would love to hear your thoughts.