Oh, what tangled webs we weave, when first we micromanage human behavior with tax breaks, A recent report by a Minnesota union raises an interesting behavioral question: Will people make sound medical decisions if forgoing treatment puts money in their pockets? Or, to put it another way: Can we trust people to know when to go to the doctor?
The report, issued by a local unit of the Service Employees International Union, argues that if people can save their own money by not buying medical care, society will be worse off. The study was prompted by the Minnesota Legislature’s consideration of whether the state should give a tax break for health savings accounts.
The report argues that people may put off getting diagnostic tests in a timely manner if doing so will put a dent in their pocketbooks. They may therefore fail to learn that they have diabetes, cancer or other diseases for which early treatment is important.
By extension, then, any savings to society from reduced spending on medical services would be more than offset by poorer health and shorter lives. Thus, the union concludes that giving tax breaks to health savings accounts would be counterproductive.
Most health economists would advise that we’d be better off with greater awareness of the costs of health care, not less. They say that our system of employer-paid, tax-subsidized private health insurance keeps consumers too insulated from the costs of treatment. Decisions to order or not order another test or procedure usually do not have much financial effect on either patient or doctor. If the marginal cost of health care is zero, economics says, the quantity demanded will be infinite. That is the rationale for deductibles and co-payments.
Libertarians and other advocates of individual responsibility would see this report’s arguments against health savings accounts as more bricks in F.A. Hayek’s “Road to Serfdom.” Mistrusting people’s ability to make sound decisions for themselves is the beginning of destructive collectivism, they would say.
Yet the SEIU’s reasoning echoes that of a very popular U.S. program, Social Security. As a compulsory insurance plan, its premise is that, left to their own devices, people will not provide adequately for their own old age, for their survivors, or possible disability. If we tax 15.3 percent of earnings to counteract humans’ inability to plan well for themselves, why should we enact tax breaks for a program based on a contrary assumption?
In fact, we already subsidize traditional employer-paid health coverage by excluding such benefits from employees’ taxable income. So if taxpayers already pick up sizeable costs for traditional programs that do not produce very satisfactory results, why should we discriminate against innovative new approaches?
Once again, the tax incentives that interpose employers between health-care consumers and providers are the root of many problems. Getting rid of them would be a useful step.
© 2005 Edward Lotterman
Chanarambie Consulting, Inc.