On December 13th, the Wall Street Journal¹ examined consumer-driven healthcare (CDHC) in the last of a series of three online debates on topics in American public policy. (CDHC is the broad name for the trend in which consumers take more control of, and more responsibility for, their own health care spending. Health savings accounts, through which people receive favorable tax treatment by saving for healthcare expenses, are a prominent and increasingly popular component of CDHC.) The online debate was more like a small group discussion than a debate, but some interesting points still arose.

One of the three participants, John C. Goodman, founder and president of the National Center for Policy Analysis, has been a strong advocate of free market medicine for decades. Goodman said:

Consumer driven health care is not about shifting costs to employees. It is instead about shifting money from employers to employees, so that employees can manage their own healthcare dollars.

This costs/money distinction is something that is almost always conflated by critics of CDHC. Every benefit, whether it be health insurance, dental insurance, vacation time, tuition reimbursement, or whatever, must be paid for out of some per-employee allocation (a "total compensation package"), of which salary and wages are just a part. These benefits can increase and decrease depending on the profitability of the firm, the productivity of the employee, and the labor market—they are not static, and they have nothing to do with "the greed of the firm," which is a callow accusation. The switch from a traditional insurance plan to a high-deductible, mostly-self-funded HSA-type arrangement is a way for employees to receive a greater portion of their total compensation in money that they can manage for themselves—even if an employee's total compensation shrinks.

In other words, the determination of an employee's total compensation comes before the decision of how it will be apportioned over various benefits. Only a tax incentive can make that into more of a simultaneous determination, but in the case of HSAs, even that benefit goes to the employees.

Many employees do experience a compensation reduction at one point or another in their career. It is a rare but occasional result of participating a competitive and dynamic economy. And when such a change is accompanied by a switch to an HSA plan, it is easy to connect the wrong dots. In such cases, consumer driven healthcare options are often the reason that such employees can continue to have coverage at all, not the reason their new coverage appears to cost more than their previous one.

Since the benefits of HSAs depend on the fickle permissions of the legislature and the Internal Revenue Service, the consumer driven healthcare trend can hardly be considered a harbinger of capitalism in American medicine. Still, it is a promising "capitalistic" measure. For the time being, CDHC is gaining acceptance, it is better than the alternatives (yesterday's systems, and the single-payer system), and it ought to be supported.

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¹ "Consumer Choice: Can It Cure The Nation's Health-Care Ills?" Wall Street Journal, December 13 2006

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