THE ADMINISTRATION'S 1984 health budget proposals proceed from the commonsense observation that when people are not directly confronted with the cost of what they buy, neither they nor the people selling to them have much incentive to worry about whether they get good value for their money. This, of course, is the environment in which, thanks to health insurance, most health care purchases are made. Ultimately the costs of unnecessary and inefficient health care show up in the soaring costs of private health insurance and the ever larger share of the federal budget that goes for Medicare and other health programs.
The administration proposes several measures that would encourage both patients and doctors to be more cost-conscious about their health care decisions. Doctors would face a one-year freeze on Medicare-paid fees. High-cost hospitals would face a lid on Medicare reimbursements for the treatment of specific illnesses. These changes won't be popular with the health industry, but they would provide much-needed pressure for more efficent health care.
Social Security recipients would have to pay more of the cost of shorter-term hospital care and higher premiums for Medicare doctor-bill insurance. But in return they would receive full Medicare coverage for catastrophically expensive long-term hospital stays. This would mean higher out-of-pocket costs for the average recipient, but it would shift coverage toward the sort of cost for which insurance is most suited: expenses that are disastrously high.
The boldest part of the plan would extend these incentives to the far larger number of people covered by private health insurance financed by employers. In recent years, ever more costly and elaborate health insurance plans have been a major reason why fringe benefits have outpaced wage costs. The most generous plans now cover a wide variety of routine expenditures--such as eyeglasses, ordinary dental and medical care and drugs--that workers could easily cover in their household budgets.
Covering such items by insurance is costly for everyone concerned because it encourages people to consume more than they really need and because processing insurance claims is very expensive. But it looks like a good deal--especially to higher tax-bracket employees--because employer-paid health benefits are now tax-free to workers. The administration would discourage this tendency by making workers pay income tax on employer contributions that exceed $2,100 a year for a family and $840 for an individual.
That limit is high enough to allow very complete coverage for the high-cost items for which insurance is suitable. By the same token, it wouldn't affect many workers. The administration estimates that 30 percent of workers with employer-subsidized coverage might be affected, but that--and the associated savings-- are probably overstated. If the plan encourages employers to introduce more efficient health insurance plans and use the savings to pay higher wages, few workers will end up paying higher taxes, and many workers will find themselves better off. Stronger measures could easily be justified, but within the limits of the politically possible, this is a good start.