Adumbration

I have previously written briefly on how one size does not fit all in the domain of non-wage benefits, and on the downsides to insistence on pension schemes.  I will focus a little here on health insurance benefits.  While the professional unit of the union agreed on the recent contract proposal, questions remain about how the technical unit will end up resolving terms, so these benefits remain in debate at some level, and because of the large and growing costs associated with health care, the related  contract terms will continue to be so in future contract intervals.

The interests of the company are to retain, sustain and improve their competitiveness with respect to the value demands of their customers.  Labor costs are a large enough fraction of this to make it matter how the terms of labor contracts turn out.  Medical costs are increasing faster than other labor costs, so medical insurance provisions are greater drivers to that competitiveness. The company is trying to protect themselves from uncontrolled growth in these expenses, so they are trying to push that cost growth risk on to the employees.  If the union believed that these risks were negligible, then they should be leaping at the opportunity to allow employees to take control of those expenses, and get from the company as large a compensating wage increase as possible.  It would essentially be a gain based on what they thought was a mis-appraisal of risk by the company. 

The economy surrounding health care is complex and worth extensive discussion, which this entry will only touch upon.  There are other factors affecting the economy surrounding health care, but the main thing is the same as in every other part of the economy - people make their economic decisions on the basis of cost and benefit, and obscuring the cost side of that balance distorts the result.  For health care it is a particularly tragic result, since we don't get to reap the benefits of cheap access to health care, which seems to be what everyone wants. 

Historically, distortions in the health care market picked up during World War 2, when wage and price controls were imposed across the economy.  One effect of that policy was that employers found they could attract good employees by offering non-wage benefits such as health insurance (and pensions, for that matter).  Those recipients were among the first people to stop considering health care costs, but the problem was expanded across the economy during the 1950's, when congress legislated that such benefits would not be included in income tax calculations.  This made labor (union and non-union) lean towards the non-taxed benefits in their compensation negotiations.  It's the same cost to employers either way, so of course they went along, creating the tax treatment situation mentioned above.  While the preferential tax treatment has changed slightly in very recent years, in the mean time we have had 60 years of people thinking it is normal for a third party to make decisions about a critical area of our lives. 

When people don't see the costs of something they start to act as if it is free (whether or not they understand it isn't free); I think this is part of what leads to agitation for public health insurance such as the (so-called) affordable care act, a.k.a. Obamney-care.   The current dominance of third party payer schemes has effectively separated most health care consumers from directly facing the costs of their health care decisions.   It is no wonder that health care costs rise faster than inflation. 

The irony is that if we restored employee control of health care decisions, so that we directly see the cost and benefits, then economic forces would actually begin driving those costs down and increase health care accessibility to everyone.   When we buy food in the grocery store or in restaurants, part of the decision process is considering the costs, and we adjust our buying habits when that costs is in excess of how much we like the food.  The same thing would happen in health care services if the market were not so distorted, and does now work that way for health care services that are not typically paid through insurance schemes - look at the history of laser eye surgery, which has not had routine insurance coverage and which services have radically improved in quality while coming in at progressively lower costs.  Cost conscious consumers would drive the service providers to find more efficient means of providing their procedures and consultations. 

I have encountered objections to this that people don't plan for the future, but I don't think this gives people enough credit to think about the long term.  Besides being condescending, it presumes that political motivations can do a better job of satisfying our individual objectives.  Additionally, that objection must face the fact that even now there are people who make all these plans on their own - self employed, for example - and there's no reason to think we others would not figure it out if the third party payer schemes were not so dominant.  Insurance would look different, likely not including provisions for breast pumps and eye-glasses, but instead focusing on the truly catastrophic conditions, in a manner similar to how our auto insurance does not cover oil changes and our home insurance does not cover painting expenses.

For employees who are now covered by health care benefits, if the value of those benefits were converted into cash for them to dedicate to their own priorities, in the current policy regime there could be second order effects of this that are due to the different tax treatment of wage and non-wage compensation.  But the problem is the differential tax treatment, which has significant deleterious effects on the overall economy and should be abolished; it has separated us from direct control of costs and benefits with the introduction of third party payers, which contributes to the problems of spiraling health care costs. These issues are bigger than SPEEA and must be addressed by change to Federal government policy, but as individuals living in this system we have to open our eyes to see what is effects of these policies, and not support thier propagation.

Obviously there are other factors and complexities that adversely affect the quality and cost of health care, including long term patent restrictions that preclude competition, treatment approval restrictions by the FDA that ignore the Type 2 errors (i.e. they are so focused on making things "safe", that effectiveness is given relatively short shrift and people die for lack of potential treatment), practitioner liability, and limitations on access to transplantable organs.  For other reference, this episode of econtalk discusses some of the other regulatory burdens on the system, one part of which keeps hospitals from competing on the basis of costs, or even publishing their costs for people to review.  A little less directly relevant, this link discusses fallacies in those widely quoted statistics about how poor US health care compares to that of other nations. 

If we want health care to be accessible then we have to think about why it is that health care costs are so high, such as lack of visibility of those costs for health care consumers.  While much of this problem we can lay at the feet of government tax policy, the union promotion of health care services in worker contracts is a contributing factor and should be discontinued.