Decentralizing tragic choices: pooling health risks with health unions

American Journal of Economics and Sociology, The,  Jan, 1998  by K.K. Fung

• E-mail
• Print
• Link

B. Can We Afford Equal Access?

The idea of health unions is to make the resolution of value conflicts easier and more defensible. But unless there is a ceiling to annual per capita health dollars, there is no need to make any tragic choices. Therefore, to contain health cost explosion, we must cap the national health budget to a fixed percentage of the gross domestic product and tie its growth rate to the growth rate of the GDP. The national per capita health budget is then simply this total national health budget cap divided by the total number of U.S. residents of all ages. The national standard household health budget is simply the per capita budget multiplied by the number of people in the household.

If we have been able to afford a health budget that has been increasing above the growth rate of the GDP, we can certainly afford a health budget that grows no faster than the GDP.

C. Transition from Current Arrangements

Currently, health dollars for covered employees are directly channeled into the hands of insurers by employers without any input from employees. Employees have no say over what benefits are covered or how much their total compensation should go to health benefits. They may not like their health premiums going to fund a third coronary bypass for the same patient in their insurance pool, but they can't veto it.

If funding decisions for life-and-death cases are to be decided on by health consumers, they must first have control over their own health dollars. The only way to do it is to convert their in-kind health benefits into cash payments and deposit them into their health-dollar accounts. To ensure equal votes for everybody, something like the following can be done:

Guarantee an equal per capita amount of dedicated health dollars to all residents regardless of their income, employment, or age. The source of the dollars funding this guarantee, however, does vary with income, employment and age.

First, health benefits are untied from employment. Instead of receiving tax-exempt health benefits, employees' cash income is increased by a dollar-for-dollar conversion of these health benefits. Out of this bigger paycheck, a sum equal to the employees' standard household health budget is withheld and deposited into individual health-dollar accounts to be used for health care only. These dedicated health dollars are tax-exempt. If the converted health benefits exceed this sum, the excess is taxed as ordinary cash income.

For employees whose current employer-paid health benefits fall short of their standard household health budget but whose income is above the medicaid-eligible level, additional tax incentives are offered. Specifically, the government offers dollar-for-dollar matching of additional deposits into their health-dollar accounts that exceed, say, 14 percent of their income. This matching will stop when the standard household health budget is reached. Any employee deposits within this budget are tax-exempt.

Second, medicaid is abolished. For households whose income is low enough for medicaid benefits, the current government budget for medicaid is converted into health dollars on a per household basis and deposited into medicaid recipients' health-dollar accounts. If the amount is less than the standard household health budget, additional government funding makes up the shortfall.