The following is an essay I wrote for the Charles G Koch Summer Fellow Program.
Public Policy Essay *
Write a 500-word essay on a major issue of public policy. Your essay should address the significance of your chosen issue, the problems with the current policies, and your public policy approach to dealing with it. Please adhere to the word limit.
Reforming America’s health insurance system – and protecting it from the wrong sort of reforms – is critical for the preservation of our welfare and freedom. The modern health care apparatus is a crowning achievement of our era and has played a central role in our historically unparalleled standard of living. Today, health expenditures compose as much as 17% of US GDP. But this strength rests on an unsteady foundation.
The health care industry suffers from man-made maladies –government-induced incentives and regulations have warped the market and prohibited it from delivering its desired equilibrium. Employer-provided health care benefits are excluded from income tax liability, a subsidy that has atrophied the individual health insurance market. This system restricts Americans to the narrow set of options chosen by their employer – prohibiting many from selecting plans that truly match their preferences. Because so many purchase their insurance through employers, employees who are laid off simultaneously lose health insurance – compounding the miseries of the most desperate Americans.
At the same time, the states have slowly ratcheted down the number of options available to consumers. Insurers are required to include increasing number of procedures in their plans, even for those individuals who do not wish to buy them. Limits on deductibles and co-pays have been widely adopted in a misguided effort to “protect” consumers. “Community rating” rules force the young and healthy to subsidize the old and sick through redistributive premium prices. These regulations ensure that most do not get what they want, many pay more than they have to, and some simply decide that they would be better off without insurance.
A few simple reforms could remedy these problems. Individual states, or the federal government through its interstate commerce power, could permit Americans to buy insurance policies licensed under any states’ regulatory regime. This would free Americans from the specific requirements of their state of residence; the states would be forced to compete to deliver a “market equilibrium” bundle of regulations that best fit the needs of consumers and insurers.
The federal government could spur competition in the individual health insurance market by extending income tax exclusion to individual health policies. If Americans were allowed to use pre-tax health savings accounts to pay insurance premiums, they would no longer pay a tax penalty on insurance plans purchased outside their employer’s offerings.
Other proposals seek to “fix” health insurance through tighter government controls. These reforms aim at turning the risk-insurance market into something resembling a privatized welfare system in which all must participate. These reforms purport to “reduce costs”, but they can do so only by arbitrarily prohibiting Americans from seeking certain types of medical attention. Invidiously, those who would bear the redistributive costs of care would be rewarded for their “charity” with the loss of their freedom to make insurance decisions. In the long run, this rationing would reduce rewards to innovation, slowing the technological progress that has made health care so powerful today. We must not institute reforms of this nature.