Consumer Driven Health and the Modern Family

The way we pay for health care is based on an industrial-age image of the American family that seldom applies today. Women, whether working or not, are especially hurt by this antiquated system.

The underlying assumption of our system is that a man graduates from high school, goes to work at the local plant, and gets his health insurance coverage as a benefit of his job. He marries his high school sweetheart, has kids, works till he’s 65, and then retires on Medicare. His wife is covered by the policy provided at his job.

If this describes your life, congratulations. Today’s health care system is perfect for you. But if you have ever moved, changed jobs, been unemployed, been divorced, had to pay or receive child support, lived in a two-income family, worked a part-time job, been self-employed, or married to an older spouse, you would do better with a consumer-driven health care system.

In a consumer driven system, individuals choose their own health insurance program and carry it with them from job-to-job. Employers may help with the financing of the coverage, but they do not own the policy. Individuals would get the same tax advantage they have when they get coverage at work.

One example of the problems created by today’s system: A husband and wife both work. The husband’s boss pays 75% of the cost of his HMO coverage. The wife’s boss pays 65% of the cost of her PPO coverage. If they both would like to be on the same plan, one or the other will have to forfeit the benefit he or she has earned. If the husband has slightly better benefits, then the wife sacrifices hers – even though she has earned that benefit as surely as she has earned her wages.

In a consumer-driven system, the money your boss spends on health insurance is your money, not his. If you don’t want the company’s health plan, you could use those funds to buy your own or pay towards your spouse’s coverage.

Another example: A woman is a stay-at-home mom, five years younger than her husband. Her husband retires at age 65 and goes on Medicare. She loses the coverage her husband had on his job and has to go find an individual policy. But she is 60 years old and has no income of her own. Coverage will be very hard to find.

In a consumer-driven system, this would not be a problem. The couple would have owned their own policy instead of being provided one from an employer. The younger wife could keep the same coverage she has always had, but simply drop the husband from the policy now that he is on Medicare.

A third example: The husband has a mid-life crisis and runs off to California to find himself. His wife is stuck at home with the kids, but now they are uninsured because they lost their health insurance coverage when the husband left his job. He gets a new job out West but his new job offers only a local HMO for health insurance coverage. It doesn’t have any providers in his old town, so he can’t put the kids on his new health plan. To keep them covered he pays the premium for a non-group policy for the children. Now the ex-husband has to pay taxes on the money that goes into the kids’ coverage, even though the coverage for them would have been tax-free if they were on his company’s health plan.

In a consumer-driven system, the family would have “owned their own” health insurance policy, and the premiums they pay would have been tax-free. They would not have lost their coverage when the husband took off, and his premium payments would have still been free of taxes.

There are many other examples of how badly the current system serves the modern workforce. The federal government loses over $120 billion a year in taxes because employer-sponsored health insurance is tax-free compensation. But there is no tax break at all if you buy your own coverage or pay directly for health care services. Federal tax policy forces us all to rely on our employers for coverage. If the boss doesn’t come through, we are out of luck.

A consumer driven system would provide the same tax advantage if we buy our own coverage or pay directly for health care services. We wouldn’t have to rely on our employer to fill our needs. That’s the system we need in the 21st Century.


Greg Scandlen is the director of the Galen Institute’s Center for Consumer Driven Health Care in Alexandria, Virginia.

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The way we pay for health care is based on an industrial-age image of the American family that seldom applies today. Women, whether working or not, are especially hurt by this antiquated system.

The underlying assumption of our system is that a man graduates from high school, goes to work at the local plant, and gets his health insurance coverage as a benefit of his job. He marries his high school sweetheart, has kids, works till he’s 65, and then retires on Medicare. His wife is covered by the policy provided at his job.

If this describes your life, congratulations. Today’s health care system is perfect for you. But if you have ever moved, changed jobs, been unemployed, been divorced, had to pay or receive child support, lived in a two-income family, worked a part-time job, been self-employed, or married to an older spouse, you would do better with a consumer-driven health care system.

In a consumer driven system, individuals choose their own health insurance program and carry it with them from job-to-job. Employers may help with the financing of the coverage, but they do not own the policy. Individuals would get the same tax advantage they have when they get coverage at work.

One example of the problems created by today’s system: A husband and wife both work. The husband’s boss pays 75% of the cost of his HMO coverage. The wife’s boss pays 65% of the cost of her PPO coverage. If they both would like to be on the same plan, one or the other will have to forfeit the benefit he or she has earned. If the husband has slightly better benefits, then the wife sacrifices hers – even though she has earned that benefit as surely as she has earned her wages.

In a consumer-driven system, the money your boss spends on health insurance is your money, not his. If you don’t want the company’s health plan, you could use those funds to buy your own or pay towards your spouse’s coverage.

Another example: A woman is a stay-at-home mom, five years younger than her husband. Her husband retires at age 65 and goes on Medicare. She loses the coverage her husband had on his job and has to go find an individual policy. But she is 60 years old and has no income of her own. Coverage will be very hard to find.

In a consumer-driven system, this would not be a problem. The couple would have owned their own policy instead of being provided one from an employer. The younger wife could keep the same coverage she has always had, but simply drop the husband from the policy now that he is on Medicare.

A third example: The husband has a mid-life crisis and runs off to California to find himself. His wife is stuck at home with the kids, but now they are uninsured because they lost their health insurance coverage when the husband left his job. He gets a new job out West but his new job offers only a local HMO for health insurance coverage. It doesn’t have any providers in his old town, so he can’t put the kids on his new health plan. To keep them covered he pays the premium for a non-group policy for the children. Now the ex-husband has to pay taxes on the money that goes into the kids’ coverage, even though the coverage for them would have been tax-free if they were on his company’s health plan.

In a consumer-driven system, the family would have “owned their own” health insurance policy, and the premiums they pay would have been tax-free. They would not have lost their coverage when the husband took off, and his premium payments would have still been free of taxes.

There are many other examples of how badly the current system serves the modern workforce. The federal government loses over $120 billion a year in taxes because employer-sponsored health insurance is tax-free compensation. But there is no tax break at all if you buy your own coverage or pay directly for health care services. Federal tax policy forces us all to rely on our employers for coverage. If the boss doesn’t come through, we are out of luck.

A consumer driven system would provide the same tax advantage if we buy our own coverage or pay directly for health care services. We wouldn’t have to rely on our employer to fill our needs. That’s the system we need in the 21st Century.


Greg Scandlen is the director of the Galen Institute’s Center for Consumer Driven Health Care in Alexandria, Virginia.

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About the author