We hear a lot about poor health care coverage and rising costs of medical insurance and how the government should get involved with a public option. Yet, before answering these questions, people need to ask themselves: why is there a rise in cost?
Answer: 3rd party payments to physicians or hospitals and the poor spending habits when handling another's money. This accounts for approximatetly 60% in the rise of healthcare costs---> 1/3 excessive cost for tax exemption and 1/4 excessive cost for Medicare and Medicaid.
Why the dependence on third party systems for payments?
1. Tax Exemption to Companies that Provide Health Insurance:
History -
a. Companies competing to acquire labor during World War II offered medical care as fringe benefit.
b. Congress passes legislation for employee provided health insurance to be tax exempt.
How Does this Account for Rise in Cost?
a. Leads employees to rely on their employer, rather than themselves.
b. Leads employees to take a larger fraction of their total remuneration (salary) in form of medical care.
Solution:
a. If tax exemption were removed, employees could bargain with their employees for higher take-home pay.
b. This would enable employee to pay medical care directly-->allows government to reduce tax rate on income while raising the same total revenue.
2. Enactment of Medicare and Medicaid
History -
a. Est. ca. 1965 as direct subsidy for medical care for low income and elderly population.
How Does this Account for Rise in Cost?
a. The lower the price, the greater the quantity demanded; at zero price, the quantity demanded becomes infinite. Some method of rationing must be substituted for price, which invariably means administrative rationing.
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