What Hunger Insurance Could Teach Us About Health Insurance; J. Bast

Effect on Consumers What effect would hunger insurance have on you, a consumer of food? If you're like me, you will probably start to eat more ... and eat better, more expensive foods. Why eat hamburger when you can have tenderJoseph Bast is President 0/ The Heartland Insti tute in Chicago. loin? Why settle for beer when the finest wines cost you just as little? Why eat at McDonald's when you can eat, for nearly the same price, at Chez Paul? If there were such a thing as hunger insurance, some of us would stop checking prices before we ordered food, just as we don't check prices when we ask for medical treatment. Some of us would order fancy and expensive foods that we wouldn't order if we really had to balance the price against the improved taste . . . just as we order unnecessary and expensive tests to get just a little more peace of mind. And if there were hunger insurance, some of us would overeat until we were so round and fat that our health was endangered, just as we see millions of people in America asking for and receiving unnecessary sur gery and medication that actually endangers their health.

Effect on Providers What effect would hunger insurance have on the providers of food? Put yourself in the shoes of a grocery store manager. You would start stocking more caviar and less Cheese Whiz, wouldn't you? Rather than 431 432 THE FREEMAN • NOVEMBER 1993 lose customers to fancier (and more expen sive) establishments, you would carpet your aisles, hang chandeliers in the lobbies, and have distinguished-looking fellows with white gloves push people's carts down the aisles! Every grocery store would offer an im pressive array of products, from the very finest meat department to the best stocked liquor counter (providing state law allowed it). That the store next door has the same expensive freezers and wine cellar matters not at all: Cost, you understand, is no object. "Overinvesting in new technology, " you ask? Hey, the insurance company pays for it all! And if we don't offer it, customers will cross the street and shop there. You know you would.

What if you were a lousy grocery store manager who just couldn't keep costs down and quality up? Before hunger insurance came along, you would be forced out of the market by stores managed by sharper peo ple able to cut costs without sacrificing quality. Customers wouldn't patronize your establishment, and you'd be out of business. But with hunger insurance, you can pass along your higher costs to the insurer, so the customer never knows how inefficient you are! So you get to stay in business despite your inefficiencies. Out of gratitude, you may even spend a little money lobbying to make sure hunger insurance is always available! If there were such a thing as hunger insurance, the price of food would begin to soar, just as the price of health services has steadily risen faster than the price of other goods and services. Financed by hunger insurance companies, grocers and restaura teurs would sell more food and of a fancier variety than if they faced customers who paid with their own money, just as health care practitioners today are free to overtreat and overprescribe. Food sellers would over invest in expensive and under-utilized equipment and pass the cost along to the insurers, just as hospital administrators to day buy too many MRIs and CAT scanners and pass along the expense to health insur ers. And inefficient, low-quality providers of food would stay in business rather than be forced out by better competitors, just as high-cost providers of health care are toler ated in today's health-care marketplace.

Effect on Insurers What would happen to insurers if hunger insurance were provided? The premiums they charged at first were based on past levels of food consumption and prices. As consumption expands and prices rise, insur ers have to raise their premiums again and again. The exploding number of insurance claims buries them in paperwork. The busi nesses that pay the insurance premiums will, of course, be outraged by all this. "Find a way to control these rising costs!" they will demand. "The rising cost of hunger insurance is making us less competitive with businesses in other countries!" The insurers will hire an army of "man aged-eating" experts who will search the grocery bags of the insured for signs of unnecessary products,just as today's health insurers have hired experts in "managed care" to review health services utilization. People will resent this intrusion into their personal dietary habits, just as they resent the managed care experts second-guessing their health concerns. People with hunger insurance will find ingenious ways to avoid the managed-eating experts, and the even tual results will be higher, not lower spend ing... just as businesses with managed care programs today are discovering.

Effect on the Uninsured Some people in our imaginary world will be uninsured: They won't have hunger in surance because their employers are too small to afford to offer this new benefit, or because they are self-employed or unem ployed. Or, in their effort to control costs and make money, some hunger insurers will refuse to cover people who are high food risks-the hoarders, the people with excep tionally delicate palates, and the bulimics. They will offer cheaper rates to others: beer-drinking football fans, people who can't smell, and anorexics.

WHAT HUNGER INSURANCE COULD TEACH US 433 The uninsured will be hurt the most by hunger insurance because they will see the price offood bid up and out of reach by those lucky enough to have hunger insurance. The foods that were once plentiful and inexpen sive will now be unavailable or high-priced, just as health insurance has replaced inexpensive general practitioners with expen sive specialists, and inexpensive but slow working therapies with expensive but quick surgical procedures. Those who lack hunger insurance will be seen standing with their noses pressed to the windows of our beautifully carpeted and chandelier-lit grocery stores and restau rants, just as millions of Americans today crowd the emergency rooms of state-of-the art hospitals whose beds are between one third and one-quarter empty. Effect on Elected Officials What would happen to our elected offi cials if hunger insurance existed? Civil rights activists and well-meaning people without much understanding of economics would campaign against for-profit hunger insurers, denouncing them for being heart less in their discrimination against people with eating disorders. They would condemn them for profiting from the provision of something so fundamental to human life as food. "Food is a right, not a privilege," they would say. "The high administrative costs of the hunger insurers are what is causing the problem. We should abolish private hunger insurance companies and replace them with a single provider of food. "

And since experience will have so con vincingly shown that the current hunger insurance system is inefficient and unjust, our enlightened elected officialswould even tually yield to the public's demands and pass "play or pay," forcing businesses to buy hunger insurance for all their employees, or "national hunger insurance," where gov ernment acts as the single payer of all hunger insurance claims. The nation will face a difficult choice: Either abandon the idea that all food should be paid for by hunger insurance, or impose draconian rationing measures, price con trols, and restrictions on new investments in food processing and delivery technologies. If we can judge by what is happening today in the health-care arena, the advocates of rationing will dominate the debate. Commissions will spring up everywhere to determine whether a carrot is more valu able to the community's welfare than a grape, and a grape more valuable than a banana; just as commissions are being cre ated at this very moment to decide whether capping 1,000 teeth is "worth more" than extending a person's life for one week by kidney dialysis. The issue will be addressed as ifjustice and virtue, rather than econom ics and incentives, were at the heart of the issue.

The Lessons What if there were such a thing as hunger insurance? This little exercise in imagina tion teaches us quite a bit about why we spend too much on health care. In its sim plest form, the lesson is that we rely too much on insurance to pay for our health care expenses. This reliance makes us poor consumers, encourages health care provid ers to provide too much, and allows and even encourages inefficiency and waste. Sometimes things that should be obvious just aren't. Ninety-five percent of all hospi tal bills, for example, are paid for by private or government insurance. Can the same be said of any other industry? Is it merely coincidence that costs are rising so much more rapidly in health care than in other industries? The solution to the nation's health-care crisis is not, of course, to abolish health insurance. Health expenses are an insurable risk, and because they can be substantial it certainly makes sense for people to buy insurance. But insurance should not be simply pre-payment for routine medical ex penses. When insurance is used for this purpose, it leads to overuse and all the problems we saw with hunger insurance.

Insurance, instead, should be limited to protecting us from what are now called 434 THE FREEMAN • NOVEMBER 1993 catastrophic risks. We should self-insure against small and routine health expenses, and ask our insurance coverage to "kick in" only for large and unpredicted expenses. These are the kinds of expenses true in surance is designed to cover. And because such expenses are only seldom incurred, the administrative costs and paperwork in volved with "real" insurance are far less than that involved with insurance as pre payment. The policy questions, then, are these: How can we wean our nation off its "ad diction" to health insurance? And how can we replace insurance provided by an insur ance company with self-insurance from our own savings? The answers lie in changing a public policy responsible for creating our addiction in the first place. Medical Savings Accounts We rely so heavily on insurance to pay our medical bills because the tax code rewards employer-paid insurance and penalizes self insurance. Employer-paid health insurance premiums are tax-deductible business ex penses for our employers, so they don't count as taxable income at the end of the year. Money spent paying medical bills directly, in contrast, is not tax-deductible.

We must pay out-of-pocket medical ex penses with what is left of our paychecks after Uncle Sam has taken his tax share. The tax code has a dramatic effect on our decision to buy health insurance, and on the deductibles and copayments our insurance policies contain. Employer and employee Social Security taxes (15.3 percent), federal income taxes (15-36 percent), and state and local income taxes (approximately 8 percent) can reduce one dollar of pre-tax income to 43 cents or less of post-tax income. Paying for health care with post-tax dollars, then, requires earning one dollar to buy 43 cents' worth of service. Having an employer pur chase a health insurance policy, on the other hand, means a dollar's worth of earnings buys an entire dollar's worth of insurance. The way to correct this situation is to follow the path blazed by Individual Retirement Accounts, or IRAs. IRAs encourage us to put away money for retirement by allowing us to deduct the amount of our contributions from our income when calcu lating our income taxes. Medical Savings Accounts, or MSAs, would operate the same way, but money deposited into the accounts could be withdrawn only for med ical expenses.

By giving the same favorable tax treat ment to self-insurance as is now given to employer-paid health insurance, we can be gin to break our national addiction to health insurance. Many of us would choose to purchase insurance policies with much higher deductibles-perhaps as high as $4,000 a year-if the premium savings achieved by switching policies were routed into our personal savings account and al lowed to accumulate over time. Two organizations have designed MSA plans that are fair and affordable for all Americans. They are the National Center for Policy Analysis, in Dallas, Texas, and the Council for Affordable Health Care, in Washington, D.C. Several bills now pending in Washington would create MSAs. Conclusion Enabling people to self-insure against small and routine medical expenses may not sound as exciting and promising as "nation al health insurance" or "play or pay." But MSAs offer the best way to control spending without life-threatening rationing, ineffec tual price controls, and all the other non solutions being discussed by politicians to day.

Our fictitious world with hunger insur ance reveals how over-reliance on health insurance is at the very root of our nation's health-care problems. The solution to these problems is not to pass price controls or impose more regulation on health-care pro viders. All that is required is a change in the tax code encouraging people to pay for their own health care out of personal savings. Isn't it nice to know that, sometimes, complicated problems really do have simple solutions? D THEFREEMAN IDEASON LIBERTY THE FREEWAY TO SERFDOM by Jane M. Orient, M.D. W ouldn't it be wonderful to have all the medical care you needed or wanted, without ever worrying about the bill? And wouldn't it be wonderful to drive to work every day without ever paying a toll or stopping at a red light? The second question usually provokes much more critical thought than the first. Before people vote the money to build a freeway through their downtown, a lot of inconvenient objections are raised.