

Curing the health insurance crisis

- The Washington Times - Saturday, January 27, 2007



The president's plan deserves a more serious look. The health insurance problem is twofold: Too many Americans, some 47 million, lack basic health insurance; and the rising cost of health care makes even those with insurance at risk of being unable to afford good care.



But to the employee, the health care coverage is worth much more than its equivalent in cash, because the former comes tax-free, while the latter gets taxed. Under the president's plan, insurance premiums for employer-provided health insurance would be treated like any other income, as they should be. This would be offset by a new tax deduction.

The president proposes to allow a standard income and payroll tax deduction of $15,000 to every family ($7,500 for an individual with no dependents) for health insurance. Since the average family policy costs about $11,500, this would benefit most people who receive insurance through work (everyone would get the same standard deduction, regardless of the cost of their insurance).


Potentially, even those who have employer-provided policies might have an incentive to push for lower-cost plans, since they will be taxed on the value of the premiums. If they're relatively healthy, they might prefer higher deductibles for routine care, or they might want only catastrophic insurance to pay for some unexpected illness, injury or hospital stay.

The real question is: Would new forms of insurance spring up to meet a new demand for lower-premium policies? In a free market, there's no reason to believe they wouldn't.

We already have such a system in other forms of insurance. When you buy auto insurance, you can choose to pay lower premiums but accept higher deductibles on any claims. When you purchase life insurance, you determine how much coverage to buy, and pay premiums accordingly, as you do for property insurance.

And there might even be some other benefits if individuals paid directly for their own health insurance, rather than have a third party pay. Safe drivers get breaks on their auto insurance because the company isn't as likely to pay out claims as it is on a reckless, accident-prone driver.

The same goes for life insurance. A slim nonsmoker who doesn't engage in risky hobbies would pay lower life insurance premiums than a chubby, pack-a-day amateur skydiver.

Maybe if more Americans had to pay their health insurance premiums directly, they would be likelier to follow their doctors' advice to lose weight, quit smoking and engage in moderate exercise, because their premiums would go down accordingly.

But the Democrats' only alternatives to the current system are to force more employers to provide ever more expensive plans to expanding groups of workers -- or have government pick up the tab.

Linda Chavez is a nationally syndicated columnist and author of "An Unlikely Conservative: The Transformation of an Ex-Liberal."