THE BLOG
02/17/2012 09:49 am ET | Updated Apr 17, 2012

The Democratization of Health Care: Whose Money Is It?

I hate to say "I told you so" but, as we discussed in my Jan. 31 post, (The Case Against Individual Retail Transactions), with the democratization of health care we can expect moments when we will hear cries of outrage as government in its less-than-delicate way steps on the toes of a few as it seeks to serve the many. It is unfortunate, but it is also necessary and unavoidable.

An immediate case in point is the controversy surrounding the Obama administration's decision to require religious employers to include in their health benefit packages contraceptive services for women. The episode offers a teachable moment.

Employee health benefits are actually wages that are not paid directly to the worker (by worker I mean the 1% as well as the 99%); the dollars are withheld and transferred to an insurer. Government decided in the 1940s not to tax health benefit as income (though from time to time the thought does cross its mind), but they are still wages paid in fulfillment of a work contract.

Some would suggest that both employer and employee make a contribution to health insurance and they view the employer contribution as the employer's money. Rubbish. There has been a practice of lowering compensation to workers by shifting a greater percentage of the insurance burden to them by getting employees to use some of their direct wages as a "copayment" for health benefits. It might appear as if magnanimous employers are providing uncompensated dollars to buy health care for their workers, but that is a shell game. The employer contributions, the term "copayment" notwithstanding, are wages taxable as such when government gets around to it.

Employers do negotiate benefit design with insurers on behalf of workers, but the benefit does not exist until the employee's wages are transferred to the insurer's account. Religious employers are no exception; they are not using their own money to buy medical products and services for their employees. It is their employees who are purchasing the benefit with their own money.

Still some would contend that the federal government is essentially forcing conscientious objectors to proactively engage as intermediaries in actions that are anathema within the dictates of their faith. States have been regulating private insurers and their products since the late 19th century. The federal government has historically left it to the discretion of states to regulate insurers, but in recent years its role has increased. In regulating insurers, states have advanced certain policy objectives, such as: assuring the financial solvency of insurance companies; promoting risk pooling; protecting consumers against fraud; and ensuring that consumers receive the promised benefits. To achieve these ends, states have imposed mandates on health plans, requiring that they cover certain health care providers, benefits and patient populations. While these mandates vary from one state to another, there are states that require all insurers to provide the full range of reproductive services to women. Unless the argument is that state governments can make demands of conscientious objectors mediated through private insurers that the federal government cannot, which government agency issues the mandate should be of little matter.

In the context of American society, individualism, religious freedom, native fears bordering on paranoia of creeping collectivism, and anxieties about wealth redistribution are hot button items that can be manipulated to trigger reflexive popular reactions that are not always well-considered. As it requires insurance pooling, the health care market operates counter to our basic political instincts. It is not built around individual retail transactions. We must form collectives -- insurance pools -- to make medical purchases. When government becomes associated with one of those pools, small government advocates and libertarian voices rise in opposition. Ideologically, they prefer a health care market dominated by individual retail transactions, but accept insurance pools owned and operated by the private sector. The majority of Americans probably support their goal, but to date the small government advocates have failed to devise a workable system where that might be possible.

These collectives include Jews, Muslims, Mormons, Buddhists, atheists, Protestants, Scientologists, Amish, as well as Catholics. Some will want to use their benefits to control the size of their families; others will want to use it to increase the size of theirs. Both should have the right to do so. In all cases, these insurance pools will run into trouble if we lose sight of their heterogeneity and the fact that it is money drawn from diverse populations that supports the pool. Perhaps we should leave it to the conscience of the worker to determine what legal, medical products and services they use without subordination to their employers' faith or personal predilections.

Finally, I do not want to walk away from this subject without noting that in this discussion we have established another market fundamental: workers' wages fund health insurance plans. So now we have two axioms: We must buy health care through the risk pooling effect of insurance and the money for insurance comes from workers. As we will see in due course, these fundamentals are the predicate for a consumer-oriented health care system... but that is the subject of another blog.