Tax-penalties to make health care affordable

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With ACA, a tax penalty was utilized to motivated individual tax-payers to enroll in private health insurance so that everyone would be covered for health care. The result was health care providers raising prices to get more money and thus rendering health care more unaffordable for anyone without insurance.

Now, what if a tax-penalty was used to discourage the charging and paying of high health care fees by providers and insurance companies? E.g. what if insurers had to pay taxes on their health care expenditures as well as health care providers paying taxes on their fees?

In this way, different percentages could be charged for different levels of fees, similar to the way different tax brackets are used to charge different tax rates to different income levels.

So, for example, if a health care provider charges up to $500 for a given procedure, they would pay a certain percentage tax, e.g. %10. Then, fees between $500 and $2000 would be taxed %25, and so forth. These are totally random examples. Economists would have to calculate the proper tax bracket amounts to manipulate the markets in the direction of specific affordability objectives.

By discouraging high health care fees and payments with such tax fees/brackets, both providers and insurance companies would be motivated to bring their prices and costs down, in the same way that the trade tariffs are motivating global businesses to change their production and pricing strategies to avoid paying high tariffs.

Is this a good and feasible strategy for motivating greater affordability in health care markets? Why or why not?

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@livinglava,

Well, the whole purpose of private healthcare is so the government can step back and say, "The high price is not our fault, naughty insurers, smack smack"

If the government put that tax in there, then they have to have to take some responsibility for the cost, ... they dont want that!

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@mystikmind,

mystikmind wrote:

Well, the whole purpose of private healthcare is so the government can step back and say, "The high price is not our fault, naughty insurers, smack smack"

If the government put that tax in there, then they have to have to take some responsibility for the cost, ... they dont want that!

The question is whether the taxes/fees would deter the insurance companies and health care providers from higher costs and thus motivate them to lower prices.

Basically it would lower the net benefit of raising health care prices because higher prices would result in higher taxes.

For the insurance companies, they would be motivated to negotiate lower prices with health providers because that would lower their taxes and the health providers would also get lower taxes by reducing what they ask for services.

Probably support industries, such as pharmaceuticals and medical equipment/supply companies should be included in the taxes so those costs come down as well.

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@livinglava,

Ok but all that will happen is the Insurers, they will be able to blame the government why their prices are so high.... whatever is the increased expense in taxes to the insurer, they will probably double that to the end customer..... you gotta realize the type of people you are dealing with here!

Ultimately the reason it wont work is because you cannot create an incentive for improved competition with taxation in an industry that is already resistant to the natural laws of competition to begin with!!

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@mystikmind,

mystikmind wrote:

Ok but all that will happen is the Insurers, they will be able to blame the government why their prices are so high.... whatever is the increased expense in taxes to the insurer, they will probably double that to the end customer..... you gotta realize the type of people you are dealing with here!

Ultimately the reason it wont work is because you cannot create an incentive for improved competition with taxation in an industry that is already resistant to the natural laws of competition to begin with!!

Health care prices are set by supply and demand, but the supply and demand is between insurers and providers, which drives prices up above levels that individuals can afford.

If insurers have to pay higher taxes on higher health care fees, that gives them an incentive to negotiate lower fees/costs with those providers.

If providers then also have to pay higher taxes when they charge higher fees, it isn't worth it to press insurers to pay more as well, because the margins of profit decline as the fees and thus taxes go up.

If they both try to charge higher premiums and fees and blame it on the government, the higher costs will get passed on to employers, which will prompt them to stop offering health coverage as an employment benefit, and then insurers will have to sell individual policies to consumers at rates that can afford.

ACA created problems by mandating individuals to get insurance, which caused health care providers to raise prices knowing that insurance companies would be getting more money to pay them more. Progressive taxation of health care fees/costs would disincentivize raising costs by allowing the companies to keep more of their revenues when they keep prices lower.

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@livinglava,

Ok, that's an interesting perspective.

I suppose it is the pessimistic view i am giving.

I cannot help shaking of the feeling about how the health insurers think.....

Their mindset follows a different pattern, when they see a competitor is more expensive, they dont see it as an opportunity to be more competitive, they see it as an opportunity to be more expensive themselves!

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@mystikmind,

mystikmind wrote:

Ok, that's an interesting perspective.

I suppose it is the pessimistic view i am giving.

I cannot help shaking of the feeling about how the health insurers think.....

Their mindset follows a different pattern, when they see a competitor is more expensive, they dont see it as an opportunity to be more competitive, they see it as an opportunity to be more expensive themselves!

More expensive in what way? Charging higher premiums?

I suppose you could also tax premiums so that both insurers and insured have to pay higher percentages of their premiums as taxes, and that would encourage lower premiums.

It would be interesting to shift more of the tax burden away from income levels generally to health care premiums, provider fees, etc.

Then, people who make more income but keep their health insurance costs lower would pay less taxes than those who pay more for insurance. Likewise, health care providers who charge lower prices could pay lower tax rates as well.

Basically you could encourage affordable health care and insurance by charging lower taxes to those who keep prices and costs down in various ways.

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@livinglava,

More expensive in what way? Charging higher premiums? Yes.

I suppose you could call it 'reverse competition'.

It would be like this, two kids have lemonade stands next to each other, one kid has the price of 49c a cup, the other has his price at 50c.... then the cost of lemons goes up by 5%. kid with the 50c drink increases his price to $1 .... the other kid sees that and immediately increases his price to 99c....
This is fundamentally how the private health insurers operate.... its not about expenses verses profits, no no no, that is just the smoke and mirrors on the surface. What it is really about is the maximum amount of blood they can get away with squeezing from the stone, and competition to them means nothing more than squeezing blood from the stone a fractional bit less than their competitor.

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@mystikmind,

mystikmind wrote:

More expensive in what way? Charging higher premiums? Yes.

I suppose you could call it 'reverse competition'.

It would be like this, two kids have lemonade stands next to each other, one kid has the price of 49c a cup, the other has his price at 50c.... then the cost of lemons goes up by 5%. kid with the 50c drink increases his price to $1 .... the other kid sees that and immediately increases his price to 99c....
This is fundamentally how the private health insurers operate.... its not about expenses verses profits, no no no, that is just the smoke and mirrors on the surface. What it is really about is the maximum amount of blood they can get away with squeezing from the stone, and competition to them means nothing more than squeezing blood from the stone a fractional bit less than their competitor.

What you're describing is a general business strategy where 'competitors' avoid price competition by falling into a stable order behind a price-leader, like a peloton of cyclists who avoid passing each other because they know they can benefit more in the long run if they don't.

Insurers and health providers may be anti-competitive, but if there were progressive tax brackets for the prices and fees they charge and pay, it would create an incentive to do more business at lower prices; rather than setting prices high and cherry-picking the market the best they can.

It's really not that different from progressive income tax, only because the taxes are directly on fees and prices of health care, people can still keep more of their income. They just have to take care of more people to make more income to keep.

So the incentive to work hard and make more money is maintained, but higher prices and fees are discouraged by charging higher taxes the more they charge and pay for procedures.

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We The People do not need another tax. We need the government to butt out and let the free market work things out.

Did you ever wonder how the country got into this mess? It's because the government put a cap on salaries in the 1940s. Companies still had to offer competitive pay to attract employees, so they offered medical insurance. Eventually everybody had to have insurance.

1 Reply

@livinglava,

There are some interesting concepts, it makes me wonder why no one is doing it?
Probably the answer to that is enforcement. If your going to make a tax, it has to be reasonably enforceable, and lets face it the tax department got its plate full trying to enforce the taxation you got now, and still allot of tax evasion happening.

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@Jewels Vern,

Jewels Vern wrote:

We The People do not need another tax. We need the government to butt out and let the free market work things out.

How exactly would that happen with health care and health insurance? Both are protections against competition. Insurance protects against price competition by pooling up money from premiums instead of individuals negotiating payments on a case-by-case basis. That means health care providers can charge whatever the insurance will pay, i.e. because people have been saving up collectively for whoever falls sick.

In terms of supply-side competition, there are simply huge barriers to entry for health care markets. Strict licensing and long, expensive education means that the people going through medical training end up with mountains of debt. Then, to repay the debt they have to work for hospitals or other employers that pay high wages so they can repay their loans.

If someone wanted to get medical/dental training so they could provide low-cost services, it would be almost impossible to do so. Just about the only option to provide affordable health care is to join the military, and then you can only take patients who work(ed) for the military; so there is really no way to just devote yourself to gaining medical/dental skills and helping lower-income people at affordable rates.

Quote:

Did you ever wonder how the country got into this mess? It's because the government put a cap on salaries in the 1940s. Companies still had to offer competitive pay to attract employees, so they offered medical insurance. Eventually everybody had to have insurance.

I didn't know that, but it doesn't surprise me. The bottom line is that if you want to provide more health care to more people, who can't afford health care at current prices, you have to have some lower-cost path to getting the training needed to perform medical/dental services.

As long as educational institutions and providers are licensed in a certain way, then it is simply illegal to practice medicine/dentistry without going through these expensive toll-gates. No party should claim to be working on the problem of health care affordability unless they are addressing the problems of medical/dental training and licensing for people who are willing to enter the profession and work for less in order to serve the part of the market that can't afford much.

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@mystikmind,

mystikmind wrote:

There are some interesting concepts, it makes me wonder why no one is doing it?
Probably the answer to that is enforcement. If your going to make a tax, it has to be reasonably enforceable, and lets face it the tax department got its plate full trying to enforce the taxation you got now, and still allot of tax evasion happening.

There could just be a hotline for reporting price-gauging. When someone calls to complain about a high medical/dental bill, that would trigger an audit and if the provider/insurance was evading the taxes, they would get a fine that was worse than if they had just paid the taxes.

I would be surprised if they actually maintained the high fees and paid the high taxes on them. More likely they will just lower their fees and payments to affordable rates and hire on more people to provide more services.

What's going to happen if more people can get health care at affordable prices, though, is that providers are going to look for ways to exclude certain people from care, based on failure to put in sufficient effort to prevention and/or self-care. No one wants to be working more than necessary to take care of people who destroy their own health with irresponsible behavior. That would be like offering affordable rental property to people who smash up the building constantly and demand repairs for all the damage they do.

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@livinglava,

Personal health and fitness is an area that can potentially have a huge impact. I have thought about that as well.

I was thinking along the lines of having fitness categories.... you go to the doctor and do a fitness test and based on the results you get your fitness category. The higher your fitness category, the less you pay on the insurance.

But no point in messing around with small differences, the differences have to be substantial, so people will smell the money and have that incentive to get fit. As they say, 'money talks and bulshit walks' (or in this case bulshit stays on the couch) lol

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@mystikmind,

mystikmind wrote:

Personal health and fitness is an area that can potentially have a huge impact. I have thought about that as well.

I was thinking along the lines of having fitness categories.... you go to the doctor and do a fitness test and based on the results you get your fitness category. The higher your fitness category, the less you pay on the insurance.

But no point in messing around with small differences, the differences have to be substantial, so people will smell the money and have that incentive to get fit. As they say, 'money talks and bulshit walks' (or in this case bulshit stays on the couch) lol

Well, if there's no guarantee for insurance, then people are going to have to either achieve the criteria for membership in the more affordable health plans or they're going to only be able to enroll in much more expensive plans that they may not be able to afford at all.

The ACA was built on the principle that everyone should get coverage, subsidized if necessary, regardless of how much of a bill they can create by utilizing health care. That is surely part of the reason the 'death spiral' was immanent.

To have a more reasonable approach to affordability, you have to allow health insurers/providers set conditions for affordable pricing. E.g. people who go through screenings that prove they are managing their own diets, exercise, etc. adequately can reasonably expect to minimize utilization and thus keep their costs down.

If, on the other hand, you can't meet such criteria, then you would have to pay more for access to more expensive health care. If everyone has to pay for anyone who wants to run up as much of a bill as they can, that drives up everyone's costs.

Then the question is what to do about things that happen regardless of how well people take care of themselves. That is tricky because there will be debate over whether certain health problems are preventable and/or how preventable they are. That is already a major issue where sexual health issues such as pregnancy, birth control, STIs, etc. are concerned.

Some people are saying that it's discrimination against women to exclude birth control, charge more for pregnancy care, etc. while others would say that women have the choice to abstain from sex as do men. Then their critics will say that men who fail to abstain shouldn't shift the burdens of pregnancy and birth control to women who fail to abstain. So the simplest solution to that is to just sell premium health insurance to sexually active people of both genders and those who can't afford that level of coverage just have to abstain from sex or deal with the consequences.

There have been various attempts to provide more affordable health care for pregnancy and other sexual issues, but midwifery, for example, gets attacked as sub-standard medicine, which forces people back into medicalized pregnancy care, which in turn drives up the costs of health care.

Fortunately, the courts have set a few precedents allowing insurers to limit their exposure to such cost drivers, and that is a big part of why there is such furious debate over excluding birth control and female care. I.e. women are blocked from traditional affordable midwifery that allows them to provide their own health care, and as a result they are forced into paying unnecessarily high costs, which then causes their health care to be more of a burden to employers and others paying for insurance. Since (heterosexual) intercourse isn't possible without male partners, it is wrong to blame women for the costs of sex-related care, but if both partners don't cooperate to abstain, the costs are borne by others beyond just the consenting partners.

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@livinglava,

Allot of interesting things going on...

It is my firm belief that the way to improve general health is through positive incentives.
Somehow connect with that basic human nature, the inner drive to obtain something desirable if it is dangled in front of their face, if you can tap into that, and i am not saying it is necessarily easy to do that, but if you can tap into that, then that's going to be the biggest driver of change you will ever see in your lifetime!

You see... many people dont perceive something such as losing weight as being something that is realistic.... but you dangle a wad of money in front of their nose, and all of a sudden that's something real!

"oh i want that, but i have to lose a bit of weight, to get it, well, ok that's possible, its possible i can do that and its possible i can get that money, i can do that!"

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@mystikmind,

mystikmind wrote:

It is my firm belief that the way to improve general health is through positive incentives.

Positive incentive require spending. If you're trying to reduce costs, inflation, etc. incentives may need to come in the form of penalty-avoidance. Avoiding higher premiums, costs, and/or loss of coverage is an incentive, even if you don't view it as a positive one.

If you give everyone the option of getting something for doing nothing if they fail to pursue the incentive, you are going to have people who don't bother with incentives and just take what they can get. That can drive up costs for everyone else.

Quote:

Somehow connect with that basic human nature, the inner drive to obtain something desirable if it is dangled in front of their face, if you can tap into that, and i am not saying it is necessarily easy to do that, but if you can tap into that, then that's going to be the biggest driver of change you will ever see in your lifetime!

In a free market, incentives/deterrents aren't produced by intentional design. If prices rise beyond what you can afford, that is a de facto penalty. If they fall to levels that are affordable, that is a de facto incentive to buy in.

In the absence of subsidies or other market-controlling interventions, prices simply reflect interaction between supply and demand. If suppliers can provide a good or service at low cost/risk to themselves, they can make money by selling it at a low price. If, however, demand is competitive, it can push prices up because supplier have more leeway in how much they can charge while still making money. If suppliers realize they can make more money by lowering their prices, they will do so and the market price will come down to the benefit of buyers.

Quote:

You see... many people dont perceive something such as losing weight as being something that is realistic.... but you dangle a wad of money in front of their nose, and all of a sudden that's something real!

A penny saved is a penny earned. If you can only qualify for low cost health insurance by achieving a certain target weight, along with other criteria; then that is an incentive. Even in the absence of insurance, achieving health saves you money, though people may be oblivious to it.

Quote:

"oh i want that, but i have to lose a bit of weight, to get it, well, ok that's possible, its possible i can do that and its possible i can get that money, i can do that!"

Being overweight is an intrinsic penalty for not losing weight. Some people may just not care if they are heavy. There is perennial discussion over how to deal with obesity, and ultimately people are free to choose how to deal with their own diet/exercise/weight/health, but socializing/insuring care shifts the burden for the negative health effects of bad choices to others, so people should be able to pay more for health care that caters to their choices, if the market is willing to provide that service.

Another problem that can arise is that healthy, fit people may require so little care that there is no incentive for health providers to cater to them. They may only want to cater to unhealthy, sick people because there's more money in that. That is part of the reason why ACA was counterproductive in achieving affordability; i.e. because it gives sick people and their health care providers more power to extract more money from a wider funding base to provide expensive care to those who fail to take preventive action to reduce their health care expenses.

Ironically, there was a focus on preventive care, which was incentivized as you like, but incentives don't require people to take preventive action, so people could still shirk responsibility and be entitled to expensive care, which some people prefer because they feel more valued when they are receiving expensive care than when they are putting in personal effort to preventing the need for care.

1 Reply

@livinglava,

"Positive incentive require spending. If you're trying to reduce costs, inflation, etc. incentives may need to come in the form of penalty-avoidance. Avoiding higher premiums, costs, and/or loss of coverage is an incentive, even if you don't view it as a positive one."

Rebates could be redirected to incentive payments?

Real money is perceived differently by the human brain than expense avoidance. But naturally people who are better with money are more observant of expense avoidance.

My brother in law started a second small business. He hired his electrician friend as the supervisor to run the business. The first question i asked him was "how much money is he putting in?" my brother in law said 'none' ..."he will make sure the business works because if he does not, he will lose his job.
". A few years later the business failed.

The key point is, if that electrician had invested some of his own money, it is human nature to do everything you can to protect what is yours - that is the recipe for success. Since he did not invest any of his own money, the incentive to protect the business and make it work is lost. Loosing a job 'should' be a good incentive, but it is not. The way human nature works, it is deep in the human psyche to protect or seek a tangible asset, losses are simply not perceived by the brain in the same way.

EDIT: "Rebates could be redirected to incentive payments?"

Just wanted to expand on that... so lets say your currently obese and have health insurance. Now whatever money the government is investing to make my insurance cheaper currently does not go to me. Then i improve my health, as a reward, some of the money the government is investing to make my insurance cheaper, is now redirected to my hand! The premium wont go up, because i improved my health.

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@mystikmind,

mystikmind wrote:

Rebates could be redirected to incentive payments?

Real money is perceived differently by the human brain than expense avoidance. But naturally people who are better with money are more observant of expense avoidance.

Creating unnecessary transactions is red tape and generates confusion and waste.

Sorry that human brains are fickle, but it is not that hard to learn to perceive savings as an incentive. How do you think Ben Franklin popularized the phrase, "a penny saved is a penny earned?"

Quote:

My brother in law started a second small business. He hired his electrician friend as the supervisor to run the business. The first question i asked him was "how much money is he putting in?" my brother in law said 'none' ..."he will make sure the business works because if he does not, he will lose his job.
". A few years later the business failed.

The key point is, if that electrician had invested some of his own money, it is human nature to do everything you can to protect what is yours - that is the recipe for success. Since he did not invest any of his own money, the incentive to protect the business and make it work is lost. Loosing a job 'should' be a good incentive, but it is not. The way human nature works, it is deep in the human psyche to protect or seek a tangible asset, losses are simply not perceived by the brain in the same way.

Everything you're talking about here is using business and commerce transactions to control people.

Why not just simplify business and commerce so people pay for what they use and not for what they don't use?

A penny saved is a penny earned.

1 Reply

@livinglava,

Not really sure what your saying in your last post?

But in case i have not made it clear so far, i think you make some very good points in most of your posts, its well thought out. What i am doing, is just adding a few extra thoughts on the side.

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