The Health Insurance Dilemma: 1 Vs. 100

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According to Bob Graboyes, senior health care advisor to the National Federation of Independent Business, the NFIB has no desire to " 'push people away from employer coverage' but, rather, [wants] to offer individuals a level playing field on which to choose employer or individual coverage." (He's quoting me there.) In our conversation last week, Bob elaborated on one of the NFIB's favorite leveling ideas: allow individuals to deduct all of their health care costs from their income taxes. Currently, only employers who provide insurance can deduct the expense from their income. "The current tax treatment of health insurance benefits creates a bias for providing health care through employers and, in some cases, encourages businesses to purchase lavish plans because the benefits are not taxed as ordinary income would be," Bob said. " A more level market ought to lower the price for individual policies and for employer-based policies. The difference between costs of individual and employer-based policies would almost certainly narrow."

But I'm still not sure that the NFIB wants a level playing field -- or even if individual and group insurance could exist on a level playing field. Bob, for his part, could have done more to clear things up. I asked him, for instance, if the NFIB supported two tax deductions, one for individuals and one for employers, side by side, or if they'd prefer that an individual deduction replace the business deduction. John McCain, for one, proposes ending the employer deduction and shifting it over to employees -- a move that clearly favors the individual market over the group. Bob, however, didn't answer my question, not even when I gave him a second chance to do so.

This, however, may be beside the point. Critics of the individual tax deduction make a simple argument: it will siphon off young and healthy employees from employer plans, leaving behind groups that cost more to insure. When individual premiums are community-rated -- that is, based on the health and demographics of a broader community, or group -- they're an average. Young and healthy people pay more than they otherwise would, and effectively subsidize the premiums of the older and sicker members of the group. For community-rated insurance to succeed, however, the group has to be diverse, and as big as possible. As more young and hardy people opt out, the economics of insuring the group become untenable.

At base, the debate resolves itself to a fundamental philosophical question: should risk be shouldered individually, or by the community? Individually rated insurance is cheaper for the young and healthy, but more expensive for the older and sicker. And not just a little more expensive, but much more expensive -- particularly when treating a chronic or life-threatening disease. And I'd be willing to wager that the people can least afford insurance are the ones who pay the most for it when it's individually rated. Which, of course, puts universal coverage (or "access," if you prefer) further out of reach. Universal coverage is simply incompatible with individual insurance.

Perhaps Bob, though, can reconcile the two. (And I offered him that opportunity.) Presumably he'd propose lowering the underlying cost of health. But as we saw last week, the remedies the NFIB has offered are mostly unspecified and notional -- for now.

Our conversation will resume later this week -- the topic will be the role of government in health care reform.