STYRING: Why health insurance has gotten out of hand

For the first time in decades, the May 2008 Indiana primary election meant something. Hillary Clinton and Barack Obama were still duking it out for the Democratic nomination.

The same thing could well happen on the Republican side this May. Unless Mitt Romney starts running the table, the four Republicans still standing could hit Indiana with no one close to the 1,144 delegates needed for nomination.

All four will claim to be the most fervent repealer-to-be of Obamacare. That’s fine. That abomination must be repealed in 2013, because the really objectionable stuff kicks in in 2014. That’s when we dump 30 million more souls into Medicaid and require everyone else to buy health insurance, or else.

The problem is that, in the era of 30-second sound bites, political campaigns are no longer a good place to explain much. In the case of health insurance (Medicare, Medicaid), lots needs explaining.

The “uninsured problem”—and the whole raison d’etre for Obamacare is the uninsured—are folks who work for a firm without a health plan. Or are very long-term unemployed who have exhausted COBRA. Or the young and healthy who determine their money is better spent on other things.

I give a lot of health care speeches. I always ask the audience the most basic question: Why is health insurance the only major form of insurance predominantly linked to the place of work? We don’t expect our employer to buy our auto insurance. Or homeowner’s. Or, for the most part, life insurance.

No one ever has the right answer. Health insurance via employment is a completely historical accident.

Before World War II, fewer than 20 million Americans had any kind of health insurance (out of 140 million—talk about an “uninsured problem”). By modern standards, it was generally bad health insurance, mostly Blue Cross hospitalization only. No doc or drug coverage.

By 1942, we were at war. German U-boats were sinking our ships faster than we could build them. Britain was within two weeks of starving to death. The Navy was desperately short of escort vessels to fight the Nazi subs.

But we had wage controls. Shipyards building the convoy escorts couldn’t raise wages to hire more workers to build more escorts. They asked for an exception to the wage controls and were told no.

Then someone at Kaiser Shipyards had a bright idea. They went to the War Labor Board and said, “If we raise compensation without raising wages, would that be OK?”

Yep, said the board. So Kaiser bought health insurance for its employees and the idea caught on. The IRS ruled that money an employer spends on an employee’s health insurance isn’t income. That’s largely true today. So employees naturally prefer non-taxed employer-provided health insurance.

A complete accident stemming from World War II wage controls.

And today’s health insurance isn’t even insurance in any sense of the word. It’s more like a partially prepaid health expense account.

Think about it. You don’t buy auto insurance because you know or strongly expect to be in a car crash. You just know it likely won’t happen in a given year, but it might. And if you haven’t spread the risk (bought insurance), the financial consequences will be very bad.

Not so with health insurance. Most of us know or strongly expect to have certain predictable health outlays (annual checkups, prescription meds we’ve been taking for years, etc.). For those, you don’t need insurance. You need a budget.

You don’t buy auto insurance for oil changes. Health insurance as “insurance” should be for large events that are not likely to occur in a given year, but might (stroke, serious heart attack, cancer treatment). In other words, a high-deductible policy. Not the zero- or low-deductible and co-pays we often see.

In an ideal world where pigs have wings, some of these would get a serious airing in our May primary. But I don’t expect oinkers in missing-pig formation to fly by my window.•

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Styring is an economist, a former Indiana Chamber of Commerce lobbyist, and a former senior fellow at the Hudson Institute. Send comments on this column to ibjedit@ibj.com.