Another Year, Another Decline in Employer-Based Coverage

Ezra Klein shows the new Census figures on the uninsured. The long-term trend is absolutely clear: employer-based coverage is declining and public coverage is increasing, but not enough to make up the gap. Looking at the underlying data, we can see that 2008 was the eighth consecutive year in which the proportion of people covered by employer-based health insurance declined.

This is a point I’ve also tried to make before. Not only is employer-based coverage deteriorating, but the reasons for that deterioration imply that it is likely to only accelerate. As health care costs continue to increase, even if the rate of increase stays the same, the rate of deterioration will increase, because each year health care costs become a larger proportion of total costs and therefore harder to absorb. (Put another way, if health care cost inflation remains around 7% per year, each year it will be 7% of a larger proportion of employers’ costs.) Deterioration will take three forms – some employers will drop health coverage altogether, some will increase the share paid by employees, and some will shift toward less-generous plans.

Klein’s point is that it may be dangerous to premise health care reform on the idea that the employer-based system will remain what it is, because it won’t. My point was that because the employer-based system is slowly dying, people with employer-based coverage should not be thinking, “I don’t need health care reform, I’ve got my employer-based plan;” they should be thinking, “I’m afraid of what will happen when my employer drops its plan, so I need health care reform.” Unfortunately, I think both of us are right.

By James Kwak

46 responses to “Another Year, Another Decline in Employer-Based Coverage

  1. What if I am afraid of what will happen when my employer drops its plan, and I am afraid of health care reform?

    OK, serious question from the can opener angle. Are costs still a function of supply and demand? Put another way, if spiraling costs are the problem, shouldn’t any proposed solution have something to do with increasing one or decreasing the other?

  2. I think this decline is due in part to the decline in labor unions.

  3. That is an excellent excellent point James, and superbly written. You’re outdoing yourself today James.

    President Obama, keeping it real.

  4. Agoraphobic Kleptomaniac

    To be vague. Yes.

    T.R. Reid in his coverage of health care systems worldwide came to a several conclusions, one of which was this: To have universal coverage, your best chance is to have a nationwide body set rates and costs for everyone, negotiated by the doctors, pharma, suppliers, patients, etc. for every possible health care item. Sounds daunting, but germany does it every year. Japan wanted cheaper MRI scans, so they set the rates low and helped MRI manufacturers hit that goal. Now, those cheaper MRI machines are being sold to other countries. IIRC, MRI’s in america are $7500 or so, and in Japan they cost less than $100.

    This item will not be addressed by the american system, because it smells like socialism, or even worse, COMMIES!

  5. Are costs still a function of supply and demand?

    Yes. Health care innovation increases demand – people want treatment for the formerly untreatable things *and* treatment for things that were treatable before. That’s one of the major drivers of rising overall costs. But the current reform effort is mainly about distribution.

    Ezra has stated before that the only ways to control health care costs are to need less care, get less of the care we need, or pay less for the care we get.

    The first part can maybe be helped a little with preventive care, different incentives on the food industry, and perhaps some other behaviors impacting health.

    The second is where medical innovation contributes to cost growth (you can’t get care before it is invented, but after, you can, so the basket of goods keeps expanding) and nobody really wants to deny care to people who need it for obvious reasons.

    The third is primarily a supply issue – there’s a lot of intentional scarcity in medical specialties. I don’t think the current bills do much about this.

  6. not sure but the first question sounds like you are doomed. because the first problem will happen. and if the second one doesn’t you will be out of choices.

    are costs a factor of demand and supply? normally yes, but not if you have local monopolies, which we do in health insurance (in most areas, there really is only one insurer, and they have the majority of policies).

    and in most areas, there is a monopoly in providers (to protect them from the insurance monopoly).

    and how is it that other countries have solved this problem and pay less it than we do? and almost all get better much better results that we do?

  7. I have a question, but no answer. The question is this:
    What if health-care costs are self-limiting? What if assuming that 7-12% cost inflation will continue ends up being a ridiculous assumption?

    Certainly, those who assumed back in 2006 that house prices would continue to climb 20% per year look like idiots today. But that doesn’t change the fact that the State of Florida passed a huge property tax cut because people were getting squeezed by assessments. So now, we are stuck with a long-term solution to what was a short-term problem.

    We could (as a nation) wind up with the same situation in health=care: a long-term solution to a short-term problem.

    Profs Johnson/Kwak: Care to address this? Other commenters on the blog?

  8. Four things I can think of

    1.) No need for huge staffs to handle billing and insurance companies.
    2.) Less separation of functions. Doctors do a lot of their own testing work, delegating only the non-routine tests that are better done by other doctors.
    3.) The U.S. (and possibly a couple of other countries) are subsidizing drugs and drug development for the rest of the world.
    4.) healthier populations

  9. Of course this is one more argument for single payer health coverage. Only with a single payer, can all costs be controlled. Only with a single payer is everyone guaranteed coverage at reasonable rates. The only other alternative has already been mentioned, that is to have the system set prices and cost of coverage for everything and everyone, and we all know that that can’t possibly happen.

  10. There is nothing wrong in subsidizing drug development. However, it seems that these days the most profitable drugs are the most useless such as Viagra, anti-depressants, cholesterol etc. Then comes the lobbying of doctors, who are more than willing to sacrifice the health of others for a buck, and research to provide the “scientific” need for these.

  11. for those who are interested in a short survey of T.R. Reid’s experiences
    http://www.npr.org/templates/story/story.php?storyId=112172939

  12. Eurocitizen
    maybe you’re right that they come up with no big-deal-drugs but that doesn’t mean the drug companies’ lab personnel isn’t doing their utmost best to come up with the next Aspririn, Penicillin or Insulin. In the meantime they must make a buck to finance research i.e. you might also look at it as if all those users of “useless” drugs voluntarily have themselves taxed to enable the next big thing. (after all as long as you are not in hospital you are perfectly free not to discard the drug via your intestines)

  13. I guess what my doubt is that they won’t be discovering the next Penicillin but Viagra 2.0 or discovering a new personality disorder, which requires more doping for the population.

    Since the funding comes from the society, it’s all the same whether the government would just have a government lab using the same money doing research for borreliosis etc.

  14. Only some of the cost growth is due to innovation. Most of it is pure profit.

    Imagine if the plumber who came to your house had incorporated a special device to clean your drain. Whenever he wanted to clean your drains, he’d refer you to this corporation which you would have to call separately to come to your house. Five plumbers would drive up with this device and you’d get an enormous bill. It would cover their expenses and professional fees, but it would also include a large margin of profit for the original plumber. Now imagine he incorporated nearly every tool he owned except his wrench.

    This is how innovation in health care works.

  15. That’s true, but what would happen to price-gouging patients in desperate straights?

    You don’t expect the people making the ridiculous profits to lay over and play dead while you cut the costs do you?

  16. First of all, with Viagra, scientists did not set out to discover an erectile dysfunction product. The researchers for Viagra were looking for a heart disease medication. It didn’t work for that, but they realized through their research that it helped with ED. Should they have tabled the product instead of use it to help people with ED?

    You may think that anti-depressants and cholesterol drugs are useless, but why? Have you talked to anyone who’s needed an anti-depressant? Most think it’s a much valued lifeline to use during a time of crippling depression.

    Why do you consider cholesterol products to be useless? I’d like to see the research for that. It’s my understanding that they’ve been effective in lowering the need for major, invasive heart surgery. But haven’t really researched it thoroughly, so would love to know your source that shows cholesterol drugs are not worth taking.

    Humira is an interesting product in terms of drug research. It was originally indicated for rheumatoid arthritis (I believe) but the pharma company continued drug development and realized it could be used to treat a number of different auto-immune diseases, including Crohn’s disease, which for years was one of those “orphan” diseases – not enough patients/money in it to go after new drug development.

    Discovering a new pharma product is not like building a new car. There’s a lot of heartache and failure in drug development. Many many many products fail in early trials, and enormous costs go into these failures.

    The idea that the American government should be the sole source of drug development is not something that should be accepted unquestioningly. We saw with the last administration that funding for research can be heavily dependent on a political viewpoint (stem cell research is the example that comes to mind.)

  17. With all this talk of “health care reform” – let’s not take our eyes away from the fact that what we’re really talking about is not reform in the least.

    It’s adding the uninsured to the bloated, inefficient system we have in place.

    And legislating the script docs need to have with dying patients. And including a time table for that.

    And mandating that those who don’t have health insurance now must pay for it.

    And sticking with the employer-based system that’s fading of its own accord.

    For those outside of the employer-based system, we’ll have an exchange that apparently won’t have the power or numbers to negotiate price breaks for its customers. (So what’s the point again?)

    As one who is self-insured, I HOPE that my premiums will come down after reform is signed into law. I HOPE that I’ll no longer be one diagnosis away from no coverage at all. I really hope I never again see another 23% increase in premiums (as I did last year.)

    But I’m really not sure my hopes will be realized at all.

  18. D. Christopher Leonard

    Tying health insurance to employment in the U.S. was the product of peculiar historical circumstances. The possibility of federal health programs (e.g. public clinics, co-ops, or a national plan) was opposed by large corporations in the late 1930s. the Roosevelt administration no longer had sufficient support to push such programs by the ’2nd new deal (1938). Then during the war when unions agreed to a cap on wage increases and a no strike pledge (the ‘little steel pact’), large firms (e.g. steel, autos) offered health coverage and the Federal government made it a tax write-off (for the firm) so it didn’t appear to break the wage cap.
    It is only by ‘convention’ that people obtained health insurance through employment and at its peak, less than 60% of those employed were covered at all.
    So the whole way in which ‘health care’ has been dealt with has been a bad compromise from the outset. It never worked effectively in the first place and all the current evidence is that firms will continue to shed both health and pension obligation (their historical record on pensions is abysmal).
    Only a national risk pool makes sense and with the capacity to bargain over rates, costs of drugs, etc

  19. just heard of an interesting new way to cut cost the Dutch have come up with: (the interviewee was introduced as a Reisemediziner=TravelDoctor – a profession I never knew existed)

    the Dutch put their hip replacement and similar type patients on planes, fly them to South-Asia and fly them back at an appropriate moment. The Dutch health insurance system pays for the whole thing.
    In the same radio piece I have learned that as my German health insurance now allows me to see Dutch doctors on the same terms I consult German ones I may outmaneuver the German system which is not yet that far into global health care that it outsources patients I may travel to the Netherlands and let myself as a German-covered transport of the Dutch to Asia

    Help!!!
    - who is ever supposed to know what he is actually deciding when things get so “free”

    - I now wait for when they’ll come up with palliative end of life care to be given somewhere where nurses work for low-wages and are kind …
    Maybe that would help investors in death insurances to predict end of life in surer ways. Not that I consider Asians to be of a more murderous mind-bend than us Europeans but care homes are already hard enough to keep in line in the home country of the patient with all his relatives looking in at least occasionally …

  20. some guy in a cube

    The corporate-centric for-profit insurance-based American Health Care system is doomed. It cannot be saved in spite of Brother Obama’s best efforts (such as they are) to do so.

    The USA will inevitably go single-payer, as that is the only system that is economically viable. “Reform” will only exacerbate the structural problems of the private insurance system and accelerate its demise.

  21. I don’t doubt that anti-depressants may paralyze persons abilities so that (s)he might not harm anyone and thus be temporarily beneficial. However, anti-depressants are becoming more and more widespread and used continuously, which IMO is a concerning development.

    Now as I mentioned, the research/marketing is funded by the drug industry. The research mostly supports their products. I wonder why. Only when people start dropping dead like flies some alarm bells may go off.

    Also IMO the efficiency of private sector research has been insufficient so far. Lots of treatments, which may or may not help, are available but the same can’t be said for cures. Again it’s my opinion that bringing the government to the game should bring some competition and improve private sectors motivation and results.

    Finally if the American government wishes to ban stem cell research, it can ban it from the private sector too. Americans may not yet know this, but as population grows, so do the tentacles of government. They’ll learn soon enough.

  22. It’s true that they must be self-limiting, if only for the fact that at some point no one will be able to afford them–even billionaires. (Assuming low inflation and 10% increases per year and thus a doubling time of 7 years, in 49 years costs will have increased by 2^7=128 times, and in another 49 years they will have increased 16,384 times. So if a procedure costs $20,000 now it will cost $2.56M in 50 years, and $327M in 100.)

    The market is not self-correcting. The insurance companies monopolize their state markets over people who can’t engage in rational consumer decision-making due to their illnesses. (Doctors won’t even treat themselves or their family members for this reason.)

  23. “healthier populations”

    Presumably at least in part as a result of more people receiving appropriate care as needed, which is and always will be the primary point about health care.

  24. In Canada, we have a single payer system. Our health insurance is “socialized” but the delivery is private. Ie, doctors operate as independent businesses and bill their province.

    France and Germany has universal coverage, at about 10% GDP, and 100s of private insurers. This works because their health insurance industries are regulated.

    Another factor is the cost of educating a medical professional. If the United States lowered the cost of training doctors (eg, the difference between graduating with $500,000 debt or little to no debt) there would be justified less entitlement to higher pay.

  25. Canada’s health care system has been compared to that in North Korea and Cuba. I have been utterly mystified by this bizarre comparison that is patently untrue. The Canadian political system and economy are entirely different from these two countries.

    I think I know why now. The comparison — demonizes — Canadian universal health care by recalling American history in the Cold War and the Communist threat.

    No doubt a PR company invented this strategy: Opposing universal health care for America means you are aligned with the forces of good, anti-Communism and patriots.

  26. The cynical part is the messaging is subliminal and irrational.

  27. Sorry to go on here.

    It seems to me the fight against the Communist threat is now directed against universal health care. This is very clever messaging and utterly cynical.

    Universal health care is good for a country as witnessed in Europe, Canada, Taiwan and Japan. Universal health care has virtually nothing to do a Communist threat and everything to do with the health, welfare and safety of a nation and its citizens.

  28. Communism is all about our precious vital bodily fluids. Any lobbyist would tell you that.

  29. Kathrine, people in these countries simply go to the doctor when they feel like they ought to. Imagine that.

    No worries about getting dropped by their insurance company if something is found and they will then be uninsurable. No worries that their premiums will increase. No worries that they’ll go into bankruptcy trying to pay for it.

    As a result, they get far better primary care than Americans.

  30. “General Jack D. Ripper: Mandrake, do you realize that in addition to fluoridating water, why, there are studies underway to fluoridate salt, flour, fruit juices, soup, sugar, milk… ice cream. Ice cream, Mandrake, children’s ice cream.
    Group Capt. Lionel Mandrake: Lord, Jack.
    General Jack D. Ripper: You know when fluoridation first began?
    Group Capt. Lionel Mandrake: I… no, no. I don’t, Jack.
    General Jack D. Ripper: Nineteen hundred and forty-six. Nineteen forty-six, Mandrake. How does that coincide with your post-war Commie conspiracy, huh? It’s incredibly obvious, isn’t it? A foreign substance is introduced into our precious bodily fluids without the knowledge of the individual. Certainly without any choice. That’s the way your hard-core Commie works.
    Group Capt. Lionel Mandrake: Uh, Jack, Jack, listen, tell me, tell me, Jack. When did you first… become… well, develop this theory?
    General Jack D. Ripper: Well, I, uh… I… I… first became aware of it, Mandrake, during the physical act of love.
    Group Capt. Lionel Mandrake: Hmm.
    General Jack D. Ripper: Yes, a uh, a profound sense of fatigue… a feeling of emptiness followed. Luckily I… I was able to interpret these feelings correctly. Loss of essence.
    Group Capt. Lionel Mandrake: Hmm.
    General Jack D. Ripper: I can assure you it has not recurred, Mandrake. Women uh… women sense my power and they seek the life essence. I, uh… I do not avoid women, Mandrake.
    Group Capt. Lionel Mandrake: No.
    General Jack D. Ripper: But I… I do deny them my essence.”

  31. I like your style of thinking, considering something a little off the beaten track. You deserve kudos for that.

    But look at someone like Ted Kennedy. He had a type of brain cancer which basically wraps itself around your brain like tentacles and is impossible to take out by surgery. It’s like pancreatic cancer. Basically it’s a death sentence. But do you think when he got the prognosis the Kennedy family spared ANY expense to cure him or lengthen life????

    What you’re saying IS POSSIBLE but based on the graphs of cost inflation and human nature, I think most people don’t want to wait to find out.

  32. As James and Ezra point out major trend in health insurance is employers dropping or weakening health care benefits. The costs threaten to bankrupt businesses (including very big ones) too, even with their tax breaks.

    A few years ago commentator were talking about microinsurance i.e. insurance that is barely there. Everyone has this kind of insurance now. It’s perfectly possible to get good plans now where total out-of-pocket expenses are $20,000 to $30,000 per year on top of the cost of the insurance itself after the deductible is satisfied–for covered expenses. The sky’s the limit for uncovered expenses.

    Given that 90% of the country grosses less than $75,000 per year; that they will be dropped from their insurance as soon as they get sick and that they will most likely lose their job in a major illness, no one is safe.

    As it stands, working Americans in the bottom 95% should be stashing away at the very minimum at least a few hundred thousand dollars to use as a reserve for such occasions. Don’t worry about driving the consumer economy Americans…save all your money because your life depends on it.

  33. CBS from the West

    I think anti-depressants are fairly typical of the problem created by drug innovation. There is a disease, major depression, which is incapacitating and can be life-threatening. Don’t confuse it with ordinary unhappiness. The recently developed class of drugs, selective serontonin re-uptake inhibitors (SSRIs) are a huge improvement over earlier treatments (in terms of far fewer side effects, effectiveness is probably just the same). And part of the cost of bringing those drugs into existence is the cost of the early development of lots of other would-be drugs that went nowhere. They’re great drugs, and though the brand-name patented ones are expensive, one might well consider them worth it for these patients.

    BUT, I have read in the lay press that 25% of all college students in the US are taking an SSRI drug. If true, that is so typical of what is wrong with US health care. It is inconceivable that 25% of all college students are actually depressed. (Or if that _is_ the case, then there is some massive social problem that needs to be dealt with by other means, not by drugging its victims.) Yes, no doubt many of them are unhappy, transiently, due to social or academic or other circumstances. But that’s not what these drugs are for. Nobody has ever tested to see if they are safe and effective for the treatment of garden variety life discontents. And it is far from clear that drug treatment of ordinary life problems is appropriate even if it can be done safely and effectively. But these drugs are just handed out routinely when college students show up at the student health service feeling sad.

    Many factors are at work. Its a lot quicker way for a psychiatrist or primary care doctor to make a buck prescribing a pill than to do serious counseling or talk therapy for people with adjustment problems or other normal life discontents. It’s certainly profitable for the drug companies who market these products relentlessly both directly to patients and to doctors. Then there are the “consultancies” that drug companies give to doctors as a reward for prescribing a lot of their product–thinly veiled kickbacks. And the “speakers bureaus” of doctors, upon whom the drug companies lavish gifts, who go around promoting these drugs. (These are especially pernicious because they are not legally considered drug company marketing and, hence, they are not restricted to the safety and effectiveness claims that the FDA has verified. All sorts of outlandish pseudo-science and nonsense can take place during these talks.) Then there is the scientific fraud whereby studies of drugs with negative results tend to be suppressed–whereas the ones that come out favorably get massively publicized. Then there is the underlying aspect of American culture that believes that every problem can and should be solved by taking a pill and that anything that is called “health care” is good for you.

    These same problems affect many of the innovations of health care. The anti-depressants just demonstrate these problems more clearly and on a larger scale than most. But the fundamental problem is that when a really good treatment comes out, it is quickly disseminated far beyond its realm of usefulness resulting in waste, unnecessary side effects and deaths (think Vioxx–not the worst example but the easiest to remember), and huge profits for the various parts of the health care system. Meanwhile the public, in general, thinks it is getting good, even necessary, life-saving care, and there is no public voice presenting the counter-message.

    By the way, with regard to cholesterol lowering drugs, there is excellent evidence that they markedly lower the risk of cardiovascular disease and have a relatively favorable side-effects profile. One particular drug has even been shown to save lives, and it is widely believed that others of the same class do so as well (but they have not been tested for that). The only sense in which, in my opinion, they are used inappropriately, is that some fraction of the people who are taking these drugs could achieve the same results through better diet and physical activity habits. But there are still plenty of people who, even with the best eating and exercise behaviors, remain at increased risk of cardiovascular disease and benefit substantially from these drugs.

  34. Many factors are at work. Its a lot quicker way for a psychiatrist or primary care doctor to make a buck prescribing a pill than to do serious counseling or talk therapy for people with adjustment problems or other normal life discontents.

    Another factor is that some time ago the insurance industry stopped paying for extended psychotherapy. Health care reform should also address mental health care reform, so that psychiatric illnesses are covered. There is a mistaken prejudice against psychiatry built into the current health care system; however psychiatric illnesses like other illnesses are debilitating and can often be successfully treated.

    What college students often have used to be called “adolescent adjustment disorder” requiring little or no medication. The only thing that’s changed about college students is that they work much more while going to school (added stress and loss of sleep), and there are far more of them from lower income backgrounds.

  35. CBS from the West

    Your post made me wonder what the students are up to with those pills. Long ago when it was told over here that Janis Jopline thrived and died on Mandrax plus alcohol having sleeping-troubles became fashionable not with the burghers but with the wanting to seem hip ones.

    Valium and its siblings were once considered harmless and effective- so whenever one showed up at the doctor having a pain that wasn’t easily diagnosable let alone treatable a pack of valium was added to the prescription. When a bad boss took over the bottles spread in circles through the company like water does after you throw a stone. I hated the stuff it made you not only stop crying but laughing also but it was quite effective against a lot of issues from stomach to back pain (and I never ever experienced even the slightest withdrawal symptoms.

    So today its other stuff considered harmless and effective for whatever. There must be some benefit to society in having so many of its members drugged. For example the elderly: Doctors say they keep a tight lid on Valium but the pharmacist tells me that it is still in high demand in substantial quantities. As the insurers by now refuse to pay for the stuff because of its addictive potential doctors must write “private” prescriptions for it and so the scale of it flies under the radar. Even when some “trouble-maker” raise the issue of sedating the elderly who would benefit from it? Newly to be established clinics for getting seniors to kick the habit? but maybe waking them up could get them to consume more heavily … ;-)

    And one just has to keep in mind: if people would take only strictly necessary stuff there would be a market slump of heretofore unimaginable magnitude

    (btw at the time no doctor seemed to have heard of Mandrax for pleasure)

  36. just to be really mean
    - Let me tell you that I just received a letter from my health insurer telling me that the premium has been LOWERED to 14,9 %
    and no benefits were cut at least none that I noticed which means the vital stuff remains unaltered

    oh and btw one remark for all of you who like preventive care
    - in a system like ours all that constant reminding that one should go and have all those check-ups is likely to make one have severe bouts of hypochondria.

  37. To CBS from the West…

    Thank you for the thoughtful response. One factor to consider, with the rise in prescriptions of SSRI products – mental health receives no compensation through insurance (generally) and most insurance plans have prescription drug plans.

    How much money does a doc make by prescribing a product? Do they really get to collect $$ for every script written? That’s appalling!

    The people I’ve known who’ve taking SSRIs really valued the product. But that doesn’t mean that 25 % of the college kid in America should utilize them to handle the stress of college.

    (I would not rule out thatsystemic social issues within our culture that could bring serious depression to teenagers. And not sure the teens have a social fabric around to catch them, thus they turn to meds.)

  38. More on this matter:

    By comparing the Canadian health system to Cuba and North Korea, the PR message is Canadian-style universal health care means a loss of human rights and freedom. — This is nonsense. — According to the Heritage foundation’s Index of Economic Freedom Canada ranks 7th of 179 countries indexed. While Cuba and North Korea are ranked at the very bottom.

  39. CBS from the West,

    Your posts are a valuable and sensible contribution to this blog. What I hear you saying is medical innovation is good. But there are innovations that are not properly evaluated for medical usefulness before they are marketed. (Sometimes, eg Viox and HRT, these innovations create billions and billions of dollars in profit before being withdrawn.) This is partly driving the dire warnings of escalating and unstainable health care costs in all advanced countries.

  40. It appears that a single-payer non-profit health insurance company is not in our future, which in many respects would be a good solution to the problem. It also appears that a non-profit public option will not pass Congress. This seems to reflect that Congress is simply not liberal or progressive enough for these “solutions” to become reality.

    There is one issue in this health care debate that has gotten almost no press. When the issue of the HIGH COST of health insurance and the high cost of health care and drugs are discussed there is never any mention of the employer tax deduction for employee health insurance. My understanding of the effects of this tax deduction is that this is the primary cause of the high cost of insurance and care. The fundamental reason is that the individual citizen (i.e. the employee) is separated from his health care dollars. Each employee is not allowed to “vote” with his dollars for the most cost-effective health insurance, and indirectly health care, that meets his/her needs. Because of this there is no market place for health insurance. Instead the health insurance companies have complete control of the health insurance market through employer paid health insurance, which is subsidized by taxpayers through this tax deduction. Health insurance companies, and American Big Business in general, do not want an active, critical, citizen/employee-based, market place. Health insurance companies want a market place they can control and this tax deduction makes that possible. When someone else (i.e. taxpayers) is paying part of the bill there is no reason for the purchaser (i.e. the employer) to strike the very best bargain.

    Without this tax deduction there would be no reason for employers to provide health insurance. Without this tax deduction we would have a true health insurance market place at the citizen level. As long as this tax deduction is in place there will be no significant improvement in the cost of insurance and care. I do wonder why economists do not focus on this tax deduction in their many analyses of the economics and cost of health care. My speculation is that conservative economists don’t mention it because they believe eliminating this tax deduction would be bad for profits of the health insurance companies, and American Big Business in general, while liberal or progressive economists don’t mention it because they believe that eliminating this tax deduction would work against the individual employee/citizen because they believe the employer would not increase wages by their current cost of health insurance. So what I suggest we have here is a case of a very unhealthy co-dependency on a tax deduction that has driven health insurance and care costs to their highest possible levels. A co-dependency not unlike a drug-centered co-dependency. And of course there is the co-dependency between members of Congress and the health insurance industry.

    This tax deduction also emanates overtones of “tyranny of the majority.” As has been noted the majority are happy with their employer-paid, taxpayer-subsidized, high-cost health insurance. Congress does not even consider eliminating this tax deduction because they know the majority are in favor of it. So, in a rather indirect fashion the insured majority is basically saying is that I’ve got mine and that is what is important, I’d like to help the uninsured minority, but that is secondary. And Congress panders to this. And what the minority should be concerned about is that they are subsidizing health insurance for the majority, with no benefit for themselves.

    I’m well aware this is not a trivial issue. The employer tax deduction for employee health insurance is the single largest tax deduction, significantly larger than the tax deduction for home mortgages. A solution would be for Congress to eliminate this tax deduction by reducing the deduction by an equal amount over five years. This would allow employers, health insurance companies, and employees/citizens to develop a new cost-benefit equilibrium over the next five years. Of course members of Congress currently receive considerable sums from the health insurance industry. Eliminating this tax deduction would serve to reduce those campaign contributions and lobbying efforts considerably since the health insurance industry would no longer have to “protect’ this tax deduction. In summary, we currently have high cost health insurance and care and drugs because Congress has given away, and continues to give away, tax-payer dollars via a tax deduction. This would constitute REAL CHANGE in our political and corporate cultures.

  41. It is fascinating how hard they have tried to connect this idea with Communism. In fact the way Obama is initiating this is closely tied together with competition.

    The problem with the system now is you have many states where only 1 to 3 private insurers control the game.

    For example in Senator Chuck Grassley’s state of Iowa, MORE THAN HALF of those covered by private insurance are covered by ONE company—-Wellmark Blue Cross and Blue Shield. ONE company controlling OVER HALF the private health insurance market of Iowa. Yet Senator Grassley will go on TV, telling people how important he thinks choice is. In fact if you live in Grassley’s state, you don’t have a choice.

    Certain words like “Death panels” and “communism” are thrown around by radio hosts and NON-college graduates like Glen Beck to scare people.

  42. Thanks for the Kudos. I basically agree the bias toward action in this case, for all the reasons mentioned in this blog and others.
    I am just surprised that no one seems to be asking this very obvious (to me, at any rate) question. I thought it would be just the thing that economists such as Simon Johnson might wish to address.

  43. CBS from the West

    @anne: I did not mean to imply that doctors are paid for each prescription written, and I apologize to anybody who understood it that way. That would be illegal and it isn’t done. But what happens is this: the drug companies purchase information about the prescribing patterns of every doctor–they get this from pharmacy, insurance company, and sometimes even government databases. They identify the doctors who write large numbers of prescriptions for their products and then offer some of them “consultancies.” The consultancies typically require little or no real work and are compensated lavishly with cash, travel, entertainment and the like. There is no explicit quid pro quo about prescribing, but everybody involved understands how it works. Now, this practice has become more widely publicized in the past year or so and it has, appropriately, been regarded as scandalous. So the drug companies say they are going to stop it. I don’t doubt that they will stop it–but I wonder what will replace it!

    @Sillke: I’m not familiar with Mandrax. Perhaps it is a European brand name for a product I might recognize by its generic name. In any case, Valium is a very old drug, and it is not related to the SSRIs. It remains something of a drug of abuse to this day, though it has been largely superseded in that role by other drugs with similar effects, at least here in the US. You are quite right in pointing out that Valium was initially thought to be totally safe, and only later were its dangerous interactions with alcohol and other drugs, and potential for addiction and abuse recognized. Should we be similarly worried about the SSRIs ultimately being found to be similarly problematic? Perhaps, although the first SSRI, fluoxetine, hit the market back around 1990, I think–so we have a pretty long history with it. Of course, it could still turn out to cause as yet unrecognized problems after many years of continuing use–things like cancer or the like. But one has that worry with any drug, and we can’t require that drugs be tested for 5 decades before letting them on the market. Still, I agree that in principle, the drug that is thought to be safe today, may turn out not to be later on.

    I think you are quite right about a huge slump in drug sales if only truly necessary drugs were taken.

    @tippygolden: Thank you. And I follow your ongoing commentary with interest, too. You have quite concisely and eloquently summarized my message.

    @Yakkis: I quite agree.

  44. @CBS from the West

    re Mandrax … and Wikipeadia even knows about its “recreational” use and sorry maybe your students are all sufferers but remembering my own youth well I would not be amazed if it was found one day that have likewise come up with some creative way to use the stuff of today
    http://en.wikipedia.org/wiki/Methaqualone

    I am not criticizing the potential of drugs to show their down-sides later on, I consider that terrible as it may be the price we pay for a lot of wonderful stuff. I am bristling at the fact that drugs are promoted again and again and again as completely safe and harmless, totally trustworthy and nothing to think even twice about before popping them pills. And I mistrust the figures that claim that all users of psycho-pills are sufferers.

    - while any picture like this one http://www.diepfeifers.de/mediac/400_0/media/DIR_50860/07110003.jpg
    could teach one the simple but way to obvious? truth that there can be no effect without a counter- or balancing effect – the question to be asked is whether the risk is worth the benefit
    that Valium/Librium is not in use anymore is the public story over here also and even though insurers refuse to pay for it except in very well defined cases chats with pharmacists bring up a different story

  45. CBS from the West

    @Sillke:

    Ah, methaqualone! Yes, we had a huge epidemic of recreational use of that drug here in the US as well, and many young people died from overdoses or drug-durg and drug-alcohol interactions. Here it went by the name Qualudes, or sometimes just “ludes” for short. I believe the drug was also one of the first to be used for “date rape” (though we didn’t use that term back then.)

  46. @CBS
    what a “nice” wordplay one could come up with the combination of lude and date rape (we had thing called petty rape under discussion then which meant probably the same thing) http://de.thefreedictionary.com/Lude