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On the eve of the SCOTUS decision as to the fate of the so-called Obamacare health plan, I would like to suggest an alternative solution to our current healthcare cost crisis.

The principle complaint against Obamacare is the “individual mandate” that forces everyone to buy some form of health insurance. Young, healthy people feel this will be a waste of their money. The same argument was made when Social Security was instituted, that the benefit you will collect in your old age will not be worth what you put into it. Like Social Security, Obamacare does not have enough money in the “pot” to work unless younger workers contribute. Indeed, if Social Security were being proposed today, it would not stand a chance of passing.

So we need to give young workers a better reason to buy health insurance, beyond just the obvious benefit of avoiding financial ruin in the case of a major accident or illness. I propose the government use its best and strongest tool: fiscal policy.


Health care costs are rising faster than anything else for two major reasons. One is the astonishing profits drug companies are allowed to reap from health care.  We need to find a way to give companies a reason to invest in research other than the potential of gigantic payoffs for successful products. But that’s a different discussion.

The other one, that we can address, is how the demand for medical services far outstrips the supply. That is, the number of uninsured sick people far outweighs the insurance dollars available to pay for the services they need.  So the price all the paying users have to pay, both for medical services and insurance, keeps going up.

If more healthy people, who do not use that much of the healthcare resource pool, were to buy insurance, then the insurance companies could afford to pay the claims they get without raising prices.

So how does the government use fiscal policy to encourage people to spend their money in ways the government deems good for the common good?  Tax breaks.


The IRS Code already allows workers to contribute to Health Care Reimbursement Accounts (HCRA) on a before-tax basis. But the limits on such plans makes it impractical for a healthy person to see any benefit. You have to put in a set amount of money each month, against which you can draw to pay medical bills. But at the end of each year, any money you haven’t drawn out is lost. The IRS Code is just too stingy to be practical for most people.

If the government is serious about fixing health care, then let go of these restrictions.  Let people deduct every dollar they put into HCRAs, and let people draw from them to pay insurance premiums and deductibles in addition to just actual medical bills.  Let people use interest-bearing accounts for HCRAs, and let all the interest those accounts make also be tax-free.  If people can pay their health insurance premiums and deductibles tax-free, and make some money off the balances they maintain in those accounts, then buying health insurance will suddenly be attractive and more people will buy it.

The states along the shore of the Gulf of Mexico and up the eastern seaboard have begun allowing people to contribute to savings accounts for the specified purpose of paying for deductibles on insurance against storm damage. These states want folks to leave the money in those accounts so it is there when a hurricane hits.  So the states are letting the money grow tax free. If states can mold spending behavior for the public good with a simple tax structure, surely the federal government can achieve even greater effect given its greater scale.


Yes, the government will see a loss of some tax income by letting people stash money away before they have paid taxes on it, and then by letting interest grow tax-free. I dare say, the amount of taxes lost will be a small price to pay for relieving our ERs (which the uninsured use as a GP) and finally putting a lid on skyrocketing health care costs.

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