Selecting health insurance requires free choice for individuals

by William Bayer

Buying health insurance across state lines and health savings accounts are good – but they do not resolve the core issue.

The core issue is that the employer is making the main choice for the employees, leaving them essentially with a choice between small, medium or large. That may satisfy the most important needs, but it does not encourage competition because the consumer is far from “free” in his choice, and even less free in choosing to drop coverage in favor of another provider.

Employer-independent health insurance could be offered by using institutions such as banks to provide the administrative services, rather than employers. We trust banks with our savings, it seems reasonable that they would be able to handle accounts to cover our health care expenses. An individual would go to the bank to enroll in a plan. He would be able to keep it when he switches employers and he would be able to drop it to get a new plan when he is dissatisfied with his existing one.

Banks seem to be in the best position to offer such a service because they have the infrastructure to handle many different types of accounts, they have staff qualified to explain options, means of electronic communication, and experience with compliance of legal requirements.

The employer, in return, would be relieved of its responsibility to administer any health insurance for employees, meaning that they will not have to perform a business activity that, in most cases, is totally foreign to their “real” business. Say for example, the employer is a small business farmer who is not skilled in health care, insurance plans, administration, compliance issues, explaining the options to his employees and so on. In most cases he hires a lady to perform these tasks (and they give a book to the new employee) but in order to be able to make relevant decisions, the owner-farmer has to try to become educated in these fields. If he is not required to offer health insurance all of these head-aches will go away for him, as well as the need to hire an employee just for this task. Without doubt, the bank would benefit from economies of scale and be able to offer the same services for a significantly smaller overall cost.

The employer would pay for health insurance the same way it pays withholding taxes to the IRS and, in many cases, his employees’ salaries: electronically through bank transfer, to the bank health-account designated by the individual employee.

In a system like this, banks may offer not three choices (small, medium and large) but Chase could offer dozens of different insurance companies, Bank of America would have dozens of others, including from out-of-state, and the local Credit Union may offer some plans specifically focused on their clientele (for example a rural area that focuses on the needs of farmers).

Banks would have to segregate a health account from a checking account and a savings account, which they do already. But if a person pays a doctor bill that is not covered by insurance it could be paid out of the health account. People would feel more comfortable making health-related requests to a health-account manager at the bank than to the “Human Resources” employee who can “leak” personal information to the boss. Just imagine, having to disclose financial information to the boss would be equally uncomfortable for most people.

How many prospective employees look at the health insurance offered by a company prior to employment, with all the details about deductibles and co-pays and life time coverage and so on? If that information is even disclosed. And how many people make their employment decision based on these details? Clearly most employees end up with coverage that, while decent, was not their choice. It therefore does not encourage competition between insurers.

Since this concept only requires a simple money transfer on the part of the employer, all employers, even small businesses could now be required to offer health insurance. Small businesses are exempted under the current system only because it would be uneconomical for them to do so. As a result, everybody who is employed would now have health insurance.

To avoid the proverbial “crack”, insurance companies could be required to provide one month free coverage in case the person qualifies for unemployment benefits. Undocumented workers would not be disqualified from having health insurance accounts. Some insurance plans may allow children up to age 30 if they so choose. Many plans would charge X amount per parent and X amount per child. Once enrolled the insurance company cannot drop a member without due cause.

If a patient will be able to pay his emergency-room bill will only depend on whether he is employed, not on whether he is here legally. Most likely, under this system, he will go to a doctor because it now comes out of his pocket/account. Thus, undocumented workers are given a choice, too, and one that everybody benefits from, even the taxpayer.

This concept would require hardly any government employees at all. The lesson to be learned here is, that private enterprise free market must be “framed” through a legislative framework that allows – and forces – the enterprises to offer free choice. (With regard to executive compensation, for example, it does not enforce competition). When other people (in the company or in the government) make choices on your behalf, your needs will be met worse than if you can use your own free choice.

William Bayer is a small business owner.

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  • Sheri

    I can not agree more that health insurance choice needs to be removed from the employer and I am always surprised that this topic is not explored more often in the health insurance reform debate.

    I have personally had to change insurance companies four times in the last two years due to layoffs, new employment and mergers. This meant that each time I had to either verify that my doctor was covered. One insurance company did not include one of my doctors and I had to try to get an exception to cover them for a short period of time as the change occured in the middle of an illness and I did not want to have to start all over with a new doctor.

    It meant learning new co-pays, deductibles and restrictions. It entailed a considerable amount of time to manage each change not only on my part, but on my doctor’s part who was very understanding with me through all the insurance changes.

    Why should getting laid off mean I have to change my health insurance? Why should chosing to find new employment mean I have to change my health insurance? Why should the merger of two companies mean I have to change my health insurance?

  • gzuckier

    Between workers changing jobs and employers changing insurers, the median tenure of a particular member with an insurance company (not even a particular plan, but any plan offered by the company) was two years, and that was before the current unemployment epidemic. Makes continuity of care difficult.

  • Terry Brand

    All insurance can be very good, but the important and fundamental is covering diseases that are more difficult, since that one acquires health for their own health care insurance.

  • Vox Rusticus

    Why banks particularly? They are hardly experts in medical insurance. There is already an industry that sells insurance lines for many other risks: independent insurance agents. They are equipped to handle transactions involving insurance, at least as much as any bank, and the independent agents do not work for a specific insurance company, but usually handle lines from several competing companies.

    At this point in time, handing such a large portion of the retail end of the health insurance market to the banking industry does not seem like a very good idea at all. I would rather the insurance companies themselves provide the retail transactional services themselves.

    • William Bayer

      My reasoning was to remove the commission motive for agents who sell. But I don’t care, I don’t have a vested interest with banks.

      We could let both, maybe even Doctors’ offices and Walmart offer coverage.

      There is no need for them to know about medical issues, they sell home loans without knowing about construction or termite control.

  • SarahW

    Home loans. :cough:

  • Andrew Holtz

    The Wyden-Bennett Act (also known as the Healthy Americans Act) proposed taking employers out of the health insurance system. It was introduced last year, but went nowhere.
    http://thomas.loc.gov/cgi-bin/query/z?c111:S.391:

  • SarahW

    REAL choice should completely strip the association of health care insurance from employment, or at least extend to private individuals the option to take the same tax breaks on income for purchase of health insurance that employers get.

    The purchaser does his own research, and contracts directly with and insurer, or through an agent If he prefers. The end.

  • SarahW

    That is, no “banks” no employer transfers to government or banks. If tax breaks remain for employers they should not remain exclusively with employers.

    It might make sense for the to continue to offer some plan they have a special relationship with – but the employee must “purchase” it, and is free to contract for insurance on their own.

  • Pharmer Joshua

    This can only work if Medicare is voucherized and not allowed to establish price controls along with AMA. You also have to break apart the monopoly physicians have on primary care and end unfair subsidizing of their education that raises the price of medical school and causes them to complain even more for more assistance. You won’t get costs down until you have more efficient differentiation of labor along with patient choice. Right now physicians don’t have to compete at all because government and licensing allows poor physicians to practice without having to compete with better ones. We have nothing resembling a free market healthcare system with such heavy Medicaid, Medicare, and AMA involvement. Free market solutions have not been tried or given a chance with gov controlling over 65% of healthcare spending in the US.

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