Consumer-Driven Health Care and the Modern Family

Published April 1, 2004

The way we pay for health care is based on an industrial-age image of the American family that seldom applies today. Women, whether working or not, are especially hurt by this antiquated system.

The underlying assumption of our system is that a man graduates from high school, goes to work at the local plant, and gets his health insurance coverage as a benefit of his job. He marries his high school sweetheart, has kids, works until he’s 65, and then retires on Medicare. His wife and family are covered by the policy provided at his job.

If this describes your life, congratulations: Today’s health care system is perfect for you.

But if you have ever moved, changed jobs, been unemployed, been divorced, had to pay or receive child support, lived in a two-income family, worked a part-time job, been self-employed, or married an older spouse, you would do better with a consumer-driven health care system.

In a consumer-driven system, individuals would choose their health insurance program and carry it with them from job to job. Employers may help with the financing of the coverage, but they do not own the policy. Individuals would get the same tax advantage they have when they get coverage at work.

Doesn’t Work for All

One example of the problems created by today’s system:

A husband and wife both work. The husband’s employer pays 75 percent of the cost of his HMO coverage. The wife’s employer pays 65 percent of the cost of her PPO coverage. If they both would like to be on the same plan, one or the other will have to forfeit the benefit he or she has earned. If the husband has slightly better benefits, then the wife sacrifices hers–even though she has earned that benefit as surely as she has earned her wages.

In a consumer-driven system, the money your employer spends on health insurance is your money, not the company’s. If you don’t want the company’s health plan, you could use those funds to buy your own or pay towards your spouse’s coverage.

Another example:

A woman is a stay-at-home mom, five years younger than her husband. Her husband retires at age 65 and goes on Medicare. She loses the coverage her husband had on his job and has to find an individual policy. But she is 60 years old and has no income of her own. Coverage will be very difficult to find–and even more difficult to pay for.

In a consumer-driven system, this would not be a problem. The couple would have owned their own policy instead of being provided one by an employer. The younger wife could keep the same coverage she has always had, but simply drop the husband from the policy once he is covered by Medicare.

A third example:

The husband has a mid-life crisis, quits his job, and runs off to California to find himself. His wife is stuck at home with the kids, but now they are uninsured because they lost their health insurance coverage when the husband left his job. He gets a new job out West, but his employer offers only a local HMO for health insurance coverage. It doesn’t have any providers in his old town, so he can’t put the kids on his new health plan. To keep them covered he pays the premium for a non-group policy for the children. Now the ex-husband has to pay taxes on the money that goes into the kids’ coverage, even though the coverage for them would have been tax-free if they were on his company’s health plan.

In a consumer-driven system, the family would have owned their own health insurance policy, and the premiums they pay would have been tax-free. They would not have lost their coverage when the husband took off, and his premium payments would have still been free of taxes.

There are many other examples of how badly the current system serves the modern workforce. The federal government loses more than $120 billion a year in taxes because employer-sponsored health insurance is tax-free compensation. But there is no tax break at all if you buy your own coverage or pay directly for health care services. Federal tax policy forces us all to rely on our employers for coverage. If the employer doesn’t come through, we are out of luck.

A consumer-driven system would provide the same tax advantage if we buy our own coverage or pay directly for health care services. We wouldn’t have to rely on our employer to fill our needs. That’s the system we need in the twenty-first century.

Greg Scandlen is director of the Galen Institute’s Center for Consumer Driven Health Care and assistant editor of Health Care News. His email address is [email protected].