People quite often confuse the concepts of healthcare and health insurance. Healthcare is is the diagnosis, treatment, and prevention of disease, illness, injury, and other physical and mental impairments in humans. Health insurance is insurance against the risk of incurring medical expenses among individuals. These are two entirely different concepts that are too often used interchangeably.
When people say that the government should institute a universal healthcare system, they usually mean to say that everyone the government should institute a universal insurance system so that everyone can get “cheap, affordable” healthcare.
The U.S. health insurance system obviously needs reform – just not the reform that many people think it needs. Most people are familiar with life insurance and auto insurance, and how they work. In the case of life insurance, you pay a monthly premium so that in the event of your unfortunate death, your family has a financial safety net; your loved ones are insured against your death. In the case of auto insurance, you pay a monthly premium so that if you get into an automobile accident, you have a financial safety net; you don’t have to pay for the other person’s totaled car. How are life insurance and auto insurance similar? They financially protect someone in case of an emergency. Health insurance in the U.S. doesn’t work this way. While health insurance covers emergency care, it also covers medical expenses that it shouldn’t. For example, if you get a mild cold, you might go to the pharmacy and buy cold medicine that you wouldn’t have otherwise because your insurance covers it. Regardless of whether you buy the medicine or not, your insurance premiums stay about the same every month, so why not buy it?
This is the biggest problem with health insurance in the U.S. It creates too many moral hazard problems. In other words, it leads you to do something that you normally would not do. In the case of the cough medicine, if you’re in the middle or upper class, then you might purchase the cough medicine even if it wasn’t covered by insurance – which is perfectly fine. But if you’re in the lower class, then maybe you’d just make yourself a bowl of hot soup and wait the cold out. The problem that occurs when insurance covers that unnecessary cold medicine is that because it covers it, everyone has to pay higher premiums for it – even people who wouldn’t normally want it; insurance plans are for the masses, not for the individuals. Then because it’s already covered, people buy too much of it simply because their insurance covers it. As more and more plans cover medicines and medical treatments that many people don’t need or even want, insurance costs rise. Then, as people begin to use those medicines and seek medical treatments that they didn’t really need in the first place, costs rise even further. Then the costs get so high that some people simply drop coverage. This leads to some people dropping their coverage because they are either: A) too poor to afford insurance, or B) feel that they are too healthy to pay so much money for something that they don’t need. Some people end up underinsured (or not insured at all), while those who remain in the insurance pool have to pay higher premiums because there are now fewer healthy people in the pool who drive the cost of insurance down.
To summarize what I just wrote more succinctly, health insurance is not designed for the individuals, but rather for the masses. This causes many people to have too much insurance – coverage of unneeded services. This drives the overall price of insurance up, resulting in other people not having enough insurance.
As another example, would it make sense for auto insurance to cover oil changes? No. After all, an oil change isn’t much of a financial emergency.
Sometimes people argue that government run healthcare will save the government money because fewer people without any insurance will end up being treated at the taxpayer’s expense. While intuitive, this isn’t true. Preventive care actually ends up costing more money than it’s worth. The reason being that the costs of the preventive care add up.
Democrats tend to promote the idea of a universal “free” healthcare system, such as the one in Canada or Great Britain. But those systems are even worse than ours! Everyone certainly has insurance but it’s not even free. People pay for it through taxes. Naturally when something is made “free,” the demand for it rises, but supply remains the same, resulting in a shortage of that good. In the case of Canada, that shortage is healthcare. For example in Canada, unless you have private insurance, you have to wait months for a simple MRI scan. Then there are cases of people simply not being able to get alternative treatments to what is considered “the norm.” It’s no wonder that people from countries with universal healthcare tend to come to the U.S. for treatment. The United States definitely has problems with its healthcare system, but even someone who is covered by Medicaid doesn’t have to wait months for an MRI.
Proponents of universal health insurance love to say that there are currently over 40 million uninsured Americans – 40 million Americans without healthcare. But this number is grossly exaggerated because it includes 9.7 million illegal immigrants, 18.3 million people who don’t want to purchase insurance because they are young and at a far lower risk for health problems than older Americans, those who qualify for Medicaid and Medicare but don’t fill out the necessary paperwork, and 17.6 million middle class Americans who choose not to purchase insurance. If you take all of factors into account, then the number of people who cannot afford insurance, but earn too much for government assistance is 8 million, or less than 3%. Maybe if the government’s pharmaceutical monopoly was dissolved, which would decrease the price of medicines, and insurance only covered emergencies, then everyone would be able to afford a health insurance that does what it’s actually supposed to do.
A public option, such as the one proposed by Democrats a few years ago, wouldn’t make anything better – in fact, it would only make things worse. If it competes with private insurance, then it will drive the private insurance companies out of the market by settings its premiums to sub-market levels. Then we’d have a single payer system and all of the problems that come along with it; namely long waits and few medical alternatives. If it doesn’t compete with private insurance, then what will it do? Will it just be another version of Medicaid? If so, then what’s the point? Why not just take all the paperwork out of Medicaid so that more doctors have a higher incentive to deal with it? Given that government healthcare systems in other countries are even more bureaucratic than Medicaid is, government run healthcare is a poor alternative. Just extending Medicaid benefits to those 8 million who really can’t afford insurance would be a lot cheaper, and far less bureaucratic. Or maybe, if the current healthcare system could somehow be overhauled for one where health insurance only covers emergencies, the poor can be provided with healthcare that only covers emergencies free of charge.
The beauty of health insurance acting like actual insurance is that this would only help everyone. How often do you get sick? Not very. Yet you have to pay premiums that are significantly higher than they should be because your insurance covers medicines that you hadn’t even thought about using. If you really needed those medicines, you’d be able to pay for them rather than paying higher premiums. If you didn’t really need them that much, then you’d save money. The point of insurance is to alleviate financial risk, which is the only function that health insurance should serve to have.
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There’s no refund per se for heltah insurance premiums (unless McCain gets elected and has his way). The way it works now is, if you are self employed, you can offset your income with the amount of heltah insurance premiums paid. So if you made $ 50,000 at your business and paid $ 5,000 in premiums, you would reduce your taxable income by the $ 5,000, which in turn reduces your income tax. (It doesn’t reduce self employment tax however.)If you’re not self-employed, you can deduct your heltah insurance premiums on Schedule A, Itemized deductions. This is a lousy deal for most people because (1) unless you have a home mortgage or tons of medical expense, you’re probably better off with the standard deduction rather than itemizing and (2) you can only deduct medical expense to the extent that they exceed 7.5% of your adjusted gross income. So if you made $ 50,000 in wages, you could deduct medical expenses in excess of $ 3,750 (that’s $ 50,000 x 7.5%). In this scenario, if you had $ 5,000 in heltah insurance premiums as your only medical expense, you could only deduct $ 1,250. And unless you had more itemized deductions like mortgage interest or lots of charitable contributions, you’d still be better off taking the $ 5,450 (for 2008) standard deduction. In this scenario, your heltah insurance premiums would do you no good at all on your taxes.