Health Care’s True Cost

The vote last week by Transport Workers Union members to reject the contract deal with the Metropolitan Transportation Authority was largely motivated, it now is clear, by the contentious issue of health insurance, and how much union members would have to contribute to its cost. As this plays out, the dispute has devolved into charges of disinformation and internal union conflict. Time will tell what impact this has on negotiations.Curiously, though, what has been consistently absent from the discussion so far has been a clear-headed recognition that in the case of dollars and cents, it makes little difference how the cost of health insurance is divided between employer and employee. Money that goes to pay for health insurance simply becomes money that is no longer available to pay for salary increases or other benefits. All forms of compensation come from the same source, which in the case of the MTA is a combination of tax subsidies and the fares that transit riders pay on a daily basis.Why, then, should a dispute that lacks a meaningful economic rationale lead to so much confusion and, as we go forward, possibly more conflict? The simple answer, as Mallory Factor discussed on these pages last week, stems from the accidental and odd way that we pay for health insurance in America.In order to sidestep wage controls imposed during World War II, companies offered health insurance in order to attract new workers. Crucially, Congress then institutionalized the practice, by allowing companies to deduct the cost of health insurance from their taxes, creating an incentive to offer health insurance as a benefit of employment. In this way, health insurance became very different from other forms of insurance, such as auto or homeowners insurance, which people buy directly and on their own.Employees often fail to recognize the cost of health insurance, because unlike those who work for themselves, they do not actually write the check to their insurance company. The employer does. And that causes problems. The most obvious, and the one that elected officials have rightly recognized as the biggest public concern, is what happens when a person becomes unemployed. Not only does that person suffer the loss of a paycheck, he or she must also contend with the sticker shock that comes with buying health insurance out-of-pocket. In a state like New York, where health insurance is very expensive, that can be economically devastating.There is also a subtler problem caused by employer-financed health insurance. Because employees do not know the true value of their health insurance, they have little incentive to demand less expensive alternatives, which would put pressure on health care providers to control costs. Yes, companies can shop around, but since they are paying in part with Uncle Sam’s dollars, they too have less incentive to demand full value for the money they spend.A common sense, first step in reforming how we finance health care would be a requirement – or even just an encouragement – that employers include the real cost of health insurance on employee pay stubs, not just the amount the employee has to contribute. Instead of the relatively small figure that is usually printed there, employees would then see the full cost, which in New York State, based on 2003 data, would average $363 per family for each two-week pay period. This would have several positive consequences.In the case of the MTA, it would help demonstrate that there is nothing particularly ill-willed or even significant about asking employees to contribute to the cost of health insurance. Money is money and can be accounted for in different ways. More importantly, it would begin the process of weaning employees from the notion that, somehow, health insurance is an economic freebie. Obviously, that is not the case.Acknowledging the real cost of health insurance would give consumers a better understanding of how their hard earned dollars are being spent. This would make for a more informed and empowered consumer, a key factor in establishing market efficiency, while also ensuring that patients would be in a strong position to demand treatment that is compassionate and technologically advanced. That, I am confident, would improve health care for all New Yorkers.Mr. Daniels is the former Secretary of State in New York.

Health Care’s True Cost

Health Care’s True Cost

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