The recent proposal of the President's Advisory Panel on Federal Tax Reform, discussed in today's New York Times, set off the latest round of debates on who should pay for what share of nation's healthcare.

It is not a secret that our runaway healthcare cost spiral is greatly instigated by the fact that no one has real incentives to hold the cost down. Here is how the roles of the stakeholders stack up:

• Consumers: For most of them, someone else pays the bill. If it does not come out of your pocket, why not go for the first class all the time?
• Providers: With current pay-by-volume model, every incentive is to provide more services, not focus on quality and cost-effectiveness.
• Payors: Insurance, whether private or government-operated, takes the total cost and divides it up into premiums/taxes. They do not care.
• Employers: They care a lot about cost control, but have few meaningful tools to change the system by themselves.

Enter the latest proposal. Dubbed a "political non-starter" it seeks to cap employer's tax deductions for insurance premiums. The problem with this idea is focus on the symptoms of health care inflation, without confronting the root causes. This is a blunt instrument that most likely will cause employers to drop or reduce coverage.

The total cost adds from the bottom up with every decision made in the healthcare lifecycle. Do I take preventive measures or not? Do I take a more or less expensive drug? Do I really need this test or surgery? Nowdays, consumer is kept insulated of these choices' cost. Until the coverage limit is blown. Then we get bankruptcies.

Consumer-directed health plans have gotten a lot of bad rap lately, but there is no alternative to controlling the cost. Consumer has to be directly involved in paying. The key is getting the provider incentives aligned and smoothing out the consumer's cost curve.

The NYT article can be found here.