READING the recent Gallup report on health-care costs was a little like hearing Martin Luther King Jr. give a speech on civil rights. We already knew the message, but we needed something more to inspire us to action.
Gallup found that 91 percent of the chief executive officers of the nation's largest companies believe a fundamental change or complete rebuilding of the health-care system is needed. That is no surprise; the cost of medical care in the United States is 40 percent more per capita than anywhere else in the world, and as much astwice the cost of care in many industrial nations. This hurts the competitiveness of U.S. firms. Yet life expectancy in the United States is below that of 15 other nations and infant mortality is worse than in 22 other countries.
The near-unanimous desire of top executives for fundamental change strikes home to us in a more personal way. Although we both are very healthy and efficient, we still spend at least 20 hours a year on the paperwork required to get reimbursements. We know people who spend much more time, and who have difficulty with the requirement of many providers that the consumer pay up front and then collect from the insurance company.
A change which will help accomplish what the executives want is to stop using insurance to cover many health-care services and substitute a health-care allowance for employees. The tax-sheltering advantage of present insurance benefits could be retained in a reformed system if federal legislation were enacted to permit tax-free health-care allowances as a substitute for part of what currently is covered by insurance. Allowances would be based on family size, not income.
Such a change in the tax law would allow elimination of two disadvantages of using insurance: huge administrative costs and insufficient incentives to reduce overcharging and unnecessary use of health-care providers. Studies indicate that the administration of third-party payments accounts for well over 20 percent of the cost of health care. And that does not include the time and aggravation that consumers spend to get reimbursements. When there are two wage earners, as in most families, there is extra hassle.
Providing most health care through insurance makes about as much sense as having the federal government provide unlimited free food. If food were free of charge to all, starvation and malnutrition would be greatly reduced, but at a much greater cost than by alternatives. People would overeat, increase their consumption of expensive foods and not shop for bargains. But precisely because we do not have such a system, people are cost-conscious, and the food distribution system is very efficient.
The system we are proposing for health-care benefits might work as follows: An employer would allocate the funds now dedicated to employee health benefits to a new plan. Part of this amount would continue to be administered by an insurance company which would cover costs for high illness-related expenses and selected preventive measures.
Encouraging employees to use preventive and early-detection services which are effective in decreasing future costs is worth the administrative expense of making these services available through insurance plans. Consumers otherwise might fail to obtain such important services as dental hygiene, Pap tests, pre-natal care and immunizations. Insurance also would cover -- at least to the same extent as currently -- illness-care costs which exceed a certain level, such as 15 percent of income.
The remainder of the employer contribution would be given directly to the employee as a tax-free health-care allowance. The employee would then pay all expenses, except those covered by the preventive program, unless health-care costs exceeded 15 percent of income in a given year. Thus, most employees would use the insurance company only for the preventive benefits -- and there would be large savings in administrative costs.
The administrative savings alone are sufficient to justify such a system; yet other savings may be even greater. When a physician orders tests, many people paying for the service themselves will compare prices. Some will even question the importance of recommended testing, leading to a decrease in the large amount of unnecessary testing currently done.
Having people directly pay for much of their health care will be a powerful force for more healthy lifestyles. Many studies have shown that individuals exercise significant control over their health. If people pay most of the cost of their health care themselves, they are more likely to be more involved, more knowledgeable -- and ultimately more healthy.
What we have proposed here will not be universally popular. Health-insurance companies view this proposal with the same enthusiasm that defense contractors greet proposed cuts in the military budget. Physicians who own testing laboratories will make less money. The healthy will be winners, but those with consistently high medical expenses will lose. But their losses will be manageable, and the nation will be economically healthier.
Amy B. Hecht is a professor of nursing and acting dean of the 1/2 College of Allied Health Professions at Temple University. James L. Hecht is director of the University of Delaware Project for the Study of the American Future.