Health Insurance in the US of A:
some simple tweaks

Since the first Clinton administration politicians, and presidents in particular, have been trying to fix health care in the United States of America. During this time, the situation has deteriorated alarmingly: horror stories, disrupted lives, and personal bankruptcies continue to accumulate, and the fraction of GNP devoted to health care continues to soar. Lengthy byzantine congressional bills, many thousands of pages long, come and go. Here, I propose a different (and roughly orthogonal, in the sense that they are not in conflict with other proposed measures) set of changes which are simple, and would go a long way to improving the situation.

  1. Make health insurance premiums tax deductible.

    Such premiums are currently deductible to an employer using them as a benefit, but not to an individual. This economic distortion links employment with insurance, makes it harder to start a small business, and hurts the unemployed. (Allowing employers to deduct premiums was set up during World War II as a way to allow employers to attract employees despite the wartime wage freeze.)

  2. Forbid price discrimination by health care providers.

    Hospitals and other health-care providers currently charge dramatically different rates to different patients for the very same service. Often the same procedure will, through negotiation with an insurance company, cost the insurance company a small fraction of the amount charged to an uninsured or self-pay patient. (A 2007 study found 4.1 and 2.5 times higher at for-profit and public hospitals respectively, so $4,000 vs $16,400, would be typical.) Charging more to the neediest is unfair and unjust. It is simply not right for an insurance company to pay $1,700 for an appendectomy while an uninsured patient is billed $35,000. Let hospitals and doctors and pharmaceutical companies charge everyone the same amount for the same thing.

  3. Permit inter-state competition for health insurance.

    Currently, each state has its own set of rules for health insurance. These regulations are so complex and licensing requirements so onerous that it is extremely difficult for an insurance company to "break in" to a new state. For this reason, most people have very little choice of insurance company, as in each state only a handful---often just two or three---are available. If uniform rules at the federal level were set up that made it easy for insurance companies to do business in all fifty states, competition would be encouraged and market forces would help push down premiums and punish bad insurance companies.

  4. Permit high-deductible policies with a set-aside reserve mechanism

    High-deductible policies (in which the patient pays for their own care up to a specified amount, say $10,000) are discouraged. Instead they should be encouraged, with some mechanism to ensure that the insured person has that amount in reserve---perhaps a special account with that amount of money in it that can be used only for medical care, and if liquidated for other purposes requires the insurance policy to be simultaneously modified in accordance. High deductibles make people much more careful about unnecessary tests and procedures.