Villanova Tax Professor and prolific tax author Jim Maule has returned the ball to my court in our discussion of the State of the Union health care proposal. He raised some important questions about the proposal in his post and in an email he sent to me.
His questions are in italics, followed by my responses.
Do you think companies will drag out "no frills" insurance with very low premiums, very high deductibles and limited coverage to sell to (self-perceived) healthy young folks?
I certainly hope so. Health insurance should be insurance against catastrophic risks, not just a bureaucratic way to pay predictible and recurring bills. I liken it to car insurance. You insure against the car getting totalled in a wreck, not against needing to replace brake pads occasionally.
Will it become a tax shelter?
It already is. There is a tax incentive to direct compensation to health insurance because its tax-favored. That's why we've had so much first-dollar coverage. Payment of predictable and routine health costs is tax-advantaged, so naturally compensation flows that way.
An ideal tax system would not influence health insurance one way or another. Since the tax system is up to its eyeballs in the health system, we should at least seek to make it less distortive. By giving a standard deduction and taking it out of the employment picture, there's no tax advantage to first-dollar coverage vs. catastrophic coverage. The insured can make his own judgment as to the coverage he needs.
Then when one of those "almost self-insured" young folks has an accident or develops a health issue, what happens?
Much the same thing as happens now, except they'll have to pay the deductible out-of-pocket. If they are smart, they'll have built up their self-insurance reserve in their HSA to help cover it.
It's really no different than with disability insurance.
I notice that because I have health insurance, and many of my doctors' patients don't, I get sent for test after test when things are not even quite borderline. Is it "safe" and "conservative" medicine or is it a matter of creating one more profit-generating test or diagnosis (even at reduced insurance pays the hospital or lab makes more money than it does for people without insurance, I think)?
It's precisely because you have insurance that you get these tests. If you were writing the checks personally, you'd tell the doctor that maybe you don't need the MRI for that hangnail. Since the insurance company writes the check, it's not worth your time to question things.
That's the way I see it, anyway. I've had a high-deductible plan and HSA or MSA for 9 years now, and I know the premium savings and tax savings have more than outweighed the out-of pocket costs for me and my family. I have also built up a cash cushion against future medical costs.
I don't know whether I've satisfied Dr. Maule, but at least I hope I haven't made him angry.
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