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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