As my regular readers know I am focused primarily on two major national problems:
Speeding up economic growth to create more jobs and better paying jobs, and
Getting our national debt under control by reducing our annual budget deficits so that our debt will shrink over time as a percentage of GDP.
The evidence continues to persuade me that entitlement spending in general and the cost of healthcare in particular will play the biggest role in solving these two problems. My last post points out that healthcare, higher education and housing are all drags on family expenses but that the cost of healthcare has by far the largest negative effect on our economy.
The United States spends 18% of GDP (and climbing) on healthcare, both public and private, twice as much as any other developed country. This enormous expense must be reduced but how will it happen? The Affordable Care Act has increased access to healthcare but has not bent the cost curve.
Now the Republicans (President-elect Trump and Congress) want to repeal the ACA and replace it with something less restrictive and less expensive. A popular alternative is health insurance which has:
High deductibles typical of catastrophic coverage in order to hold down the cost of insurance.
Tax credits to defray the cost of insurance.
Tax preferred health savings accounts to pay for routine expenses below the deductible.
Unfortunately it’s not this simple. Today’s New York Times has a credible Op Ed by Drew Altman, CEO of the Henry Kaiser Family Foundation, “The Health Care Plan Trump Voters Really Want,” which reports on a series of focus groups set up by Kaiser after the election to quiz Trump voters about healthcare. What Kaiser learned about Trump voters is that:
In the pre-ACA market, they liked their ability to buy lower-cost plans which met their needs.
They want lower drug costs and improved access to cheaper drugs.
The very last thing they want in healthcare reform is higher out-of-pocket costs.
Conclusion. What Trump voters are looking for in healthcare reform is quality healthcare at a low cost. This is also the Republican ideal. But the high deductible plus health savings account combination is going to be a hard sell to many Trump voters.
Today’s New York Times reports that “Health Care Costs Climb Moderately, Survey Says”. The average annual insurance premium for a family rose 4% in 2013 compared with a 1.1% overall rate of inflation, according to the Kaiser Family Foundation which conducted the survey. Since 1999 health insurance premiums have increased by almost 300% while consumer prices have increased by 40%. As insurance premiums rise, deductibles are also getting bigger. About 38% of all covered workers now face an annual deductible of $1000 or greater. Dr. Drew Altman, CEO of the Kaiser Foundation, refers to this “quiet revolution” as an attempt by consumers to keep the cost of health insurance from rising even more quickly.
A 4% increase in insurance costs may seem moderate, but at almost four times the rate of inflation, it is really very large. Obama Care is unlikely to have any impact in holding down such a rapid increase and, in fact, is likely to make matters worse because of massive new health care regulations which are coming. The basic problem is that America spends 18% of GDP overall on health care, almost twice as much as any other country.
What can we do about this? One major step would go a long way. We need to remove the tax exemption from employer provided health insurance. Employers could still provide health insurance for their employees, but the cost would be added to an employee’s salary for tax purposes. This can be offset with a lower tax rate, of course. But it would make employees, i.e. all consumers, far more conscious of the cost of healthcare and therefore to have a direct incentive to hold down these costs. For example, Dr. Altman’s “quiet revolution” would pick up steam as employees raise deductibles even higher in order to lower overall costs.
How can we get going in this direction? The Employer Mandate of Obama Care should be repealed, and not just postponed for a year. Ideally, removing the tax exemption for employer provided health insurance would become part of the broad based tax reform which is so badly needed to stimulate the economy.
Our fiscal and economic problems can be addressed with smart leadership. We should insist that our national leaders get going on such badly needed reforms!