Brian Dickerson: “Why do I have to pay for Cheetoh-scarfers?”

In today’s Detroit Free Press, columnist Brian Dickerson bemoans the fact that health insurance reimburses individuals for health care on the same terms regardless of whether they adopt healthy or unhealthy lifestyles:

But isn’t the equal treatment of those fortunate enough to enjoy health insurance coverage one of the glaring inequities of our prevailing health care scheme? ... If you are insured, your insurer will continue to reimburse you for your doctor’s visits, prescription medicine and hospitalizations at the same rate whether you have spent the last decade as an abstemious triathlete or a Cheetos-scarfing, beer-swilling coach potato.

Welcome, Brian, to the world of skewed incentives that dominates the current health care market — all the product of various government regulations and impositions. In this case:

1. Because the federal tax code lets employers deduct the cost of health insurance provided to employees from (very high) business taxes, most Americans get coverage from their employers.
2. Federal law also requires insurers to provide coverage to all members of a “group” — the employees of a firm — under the same terms, whether they are triathletes or Cheetoh-scarfers.
3. State law limits the ability of insurers to provide discounts for healthy behaviors.
4. State law imposes price controls that limit how much more an insurer can charge a small employer with more unhealthy employees than one with fewer.

Combine all that and the financial incentive for individuals to adopt healthy behaviors is minimal. (The common sense incentive is strong as ever, but we know how un-common that misnamed commodity can be.)

Let’s look at the first item — people get insurance through their employers, who can deduct the expense. This creates incentives to lard up the coverage with things that people wouldn’t choose if they were buying insurance themselves, like low deductibles and co-pays.

“Insurance” is supposed to protect policy-holders from unlikely, unexpected and potentially very costly events. With low deductibles and co-pays, people use it to pay for routine, predictable health care services. If we got our car insurance this way it would probably cover things like oil changes and new tires every year — which would cause people to consume more of those things and reduce the incentive for providers to innovate and provide better value. Prices for those goods would go higher.

How to fix this? Eliminate or cap the deductibility of employer-provided health insurance, and allow individuals to deduct the cost if they buy their own insurance — something not currently allowed, and one of our tax code’s greatest inequities.

That seems a long way from Brian Dickerson’s ponderings, but imagine what would happen when people bought insurance themselves, and if insurers had more latitude to give discounts for healthy behavior: First, individuals would have an immediate financial incentive to adopt those behaviors. Second, they would not lard up the policies with very expensive “pre-paid health care” add-ons, just as they don’t buy “pre-paid oil-change and new tire” insurance, because such coverages are a lousy value. The incentives on both consumers and providers of health care would change in a healthy direction.

To close the loop, every provision of the proposals currently on the table in Washington makes these pernicious incentives worse, not better.

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