In last Sunday’s New York Times the columnist Ross Douthat makes an excellent case in “A Hidden Consensus on Health Care”, that Obamacare’s employer mandate, recently postponed for one year until January 1, 2015, should be repealed altogether. The reason for delaying its implementation is because of the complexity of the process for the government to gather all the necessary information about a company’s employees and coordinating with IRS tax returns to verify incomes. This is, of course, a mammoth job.
Furthermore, small and medium sized companies, near the 50 employee cutoff for mandatory coverage, will not have to immediately slow down their growth, in order to avoid the health insurance requirement. This could help boost the economy in the short turn.
In addition, as Mr. Douthat points out, it is the tax exemption for employer provided health insurance which is the biggest impediment for getting the cost of healthcare under control. It means that employees are shielded from the true costs involved in receiving care and therefore have little, if any, incentive to hold down the cost of their own care.
If this tax exemption was eliminated, perhaps as part of a broad based tax reform initiative, then employers could still offer an optional health insurance benefit to their employees but it would be taxed as part of their total pay. This would give employees an interest in holding down the cost of their own insurance. And they would also have the option to shop around on the private market, perhaps on the new exchanges, for a better deal.
The Employer Mandate is thus altogether a dead weight on our struggling economy. It’s certainly beneficial to have it postponed for a year. Let’s go the rest of the way and repeal it altogether! This would be a significant step towards true healthcare reform!
Almost everyone agrees that healthcare in the U.S. is way too expensive but how do we change to a better system? Douglas Holtz-Eakin and Avik Roy have laid out a roadmap to do this: “The future of free-market healthcare”. Here is the essence of their plan: 1) start with what we will soon have under Obamacare: subsidized health-insurance exchanges; 2) limit subsidies in the exchanges to incomes up to 300% of the federal poverty level as in Massachusetts and also limit the growth of subsidies to the overall growth rate of the economy; 3) use the exchanges for Medicare reform by raising the eligibility age for Medicare by 3 months each year. Retirees would then gradually migrate into the defined contribution system of the exchanges; 4) gradually shift Medicaid enrollees into the exchanges. The exchanges would allow them to move up the income ladder while maintaining their health insurance.
Eventually all low income and retired Americans would become part of a unified health-insurance system based on the exchanges which would provide subsidies as needed. I would add one additional feature to this system: remove the tax exemption from employer provided insurance. This would, of course, create healthcare cost consciousness amongst employees. Employers could still offer a health insurance package to their employees but it would become part of their taxable compensation. They might decide to join an exchange instead for a better deal.
Such a system as outlined above is based on the Swiss free market model. The Swiss choose their own doctors and have short waiting times for appointments. The cost of healthcare in Switzerland is about half as much per person as in the U.S. so we would achieve a huge savings. We have got to make big changes in the way we deliver and pay for healthcare in the U.S. and here is one way to do it!
Yesterday’s New York Times has an excellent article, “The $2.7 Trillion Medical Bill”, which uses a detailed analysis of the cost of colonoscopies to show why American healthcare is so expensive. In the U.S. an insurance company pays about $3500 – $4000 for a colonoscopy compared with the cost for the procedure in Europe of between $400 – $800. Also the price can vary enormously, from as little as $665 (in Utah) to as much as $8577 (in New York City). There are all sorts of reasons for this huge variation in cost, for example, whether or not an anesthesiologist is used as well as a gastroenterologist, and whether the procedure is performed in a surgical center rather than in a doctor’s office.
The basic problem, of course, is that in the U.S. nobody is sufficiently responsible for the bottom line. The patient isn’t responsible because the bill is paid by the insurance company. The insurance company negotiates with healthcare providers but the insurance premium is paid by the patient’s employer. If the insurance company has to pay too much in claims one year, then it just raises insurance premiums for the following year.
The problem is getting so serious that it will soon have to be dealt with in a comprehensive way. There are essentially two different ways to proceed. One is to have a single payer system like most of Europe and Canada. Healthcare would be tightly controlled by the federal government which would set prices and ration care. The cost of healthcare would be controlled but we’d be giving up a great deal of personal freedom in return. Basically it would amount to expanding Medicare into a rigidly prescribed national healthcare system.
The alternative is to adopt a new payment system which makes each of us directly responsible for the cost of our own healthcare. The best way to accomplish this is to remove the tax exemption from employer provided health insurance. Health insurance could still be provided by an employer but it would be considered a part of total salary and be taxed as such. Then the employee, as well as any self-employed person, would have a direct personal stake in setting up an efficient health insurance plan to keep the cost of healthcare under control.
Americans put great emphasis on personal freedom and responsibility and I believe that most of us would prefer this latter free market approach to healthcare rather than a single payer system like what most of the rest of the world has!
The current issue (May 25, 2013) of the Economist has an excellent article “Entitlements in America”, which tackles the broad issues of entitlement spending and health care inflation in America. There are many aspects of this whole problem but let’s focus here on “Medicare, the hardest part of the budget”, as the Economist says and with which I totally agree. We cannot get government spending under control, i.e. deficits on a steep downward path, until we figure out how to control the cost of Medicare.
The Economist makes some standard recommendations, such as increasing the eligibility age from 65 to 67 (as for Social Security) and raising premiums on the well-to-do (means testing). These are good ideas but not large enough in scope to make a significant dent on the problem. Somehow or other we need to convert Medicare from a defined benefit program (with no cap on expenses) to the same kind of limited defined contribution program which everyone else has through private insurance. But how can we accomplish this within our political process? Republican House Budget Chair Paul Ryan has taken an enormous amount of heat for proposing to make this switch with a premium support or “voucher” plan. It is much too easy for Democrats to accuse him of trying to destroy Medicare when he’s really just trying to save it by making it financially sound.
The Economist proposes converting the Federal Employee Health Benefits program into a voucher system as an experiment to see if it saves money. Right now FEHB offers unlimited benefits with federal employees paying 35% of the cost. This makes FEHB open ended with no constraint on overall spending, which is exactly the problem with Medicare. Each federal employee would have an annual health benefit amount and would have to decide on what kind of health insurance benefit to purchase with the fixed amount, supplementing with personal funds if desired. If a voucher program for federal employees saves money for the federal government, as it undoubtedly would, then we could confidently convert Medicare to a similarly system.
We have to make big changes in our current Medicare program and here is an excellent suggestion for one possible way to do it!
In the May 5, 2013, New York Times columnist Ross Douthat “What Health Insurance Doesn’t Do”, discusses a recent Oregon Medicaid experiment which shows that the Medicaid program improves health outcomes only slightly even though it does help people avoid huge medical bills. As Mr. Douthat goes on to explain, the Oregon result offers a valuable suggestion for how to make American health care overall much more efficient and less costly.
The problem is that our health insurance system does not function like any other type of insurance. All other types of insurance such as for house or car protect only against actual disasters like a house burning down and not routine maintenance repairs which affect all of us on a regular basis. In other words, health insurance could and should be restricted to very expensive treatments such as for cancer, for example. Routine health problems, which affect everyone over a lifetime, even including end of life care, can and should be paid for with mechanisms such as health savings accounts, which can be rolled over from one year to the next.
A more elaborate discussion of the inefficiency of American health insurance, and how to fix it, is provided by David Goldhill in the NYT on February 17, 2013 “The Health Benefits that Cut Your Pay”, and also in his new book on health care referenced therein.
Clearly the cost of health care is a huge fiscal and economic issue for our country. Health care entitlements, such as Medicare and Medicaid, are the main drivers of the national debt. The rapidly growing cost of Medicaid is also a huge problem at the state level because it is crowding out support for other essential major programs such as education and infrastructure improvements. The cost of private health care paid by employers holds back wage gains and is a major factor in the growing income inequality in American society.
It is time for Americans to demand action on health care costs from our national political leaders. It is a problem which affects almost all of us and therefore should be amenable to a bipartisan solution in Congress. We need to get this message out much more strongly!