Murray Tucker: Financing health
May 20, 2007
My mother-in-law loves insurance agents, and they love her. They offer relief from the hassle of deductibles and coinsurance that is most appealing to an 86-year-old. But the hassle-free life is brief. Soon she hears, “We don’t cover that,” or “your doctor did not provide one of our diagnostic codes,” aggravation and an unhealthy rise in her blood pressure follow. Can we eliminate this conundrum that constantly repeats itself?
We’ve tried. In 1947, President Truman presented a plan. The AMA railed against it as “socialized medicine.” In 1971, President Nixon put forth a program to provide for catastrophic occurrences. The insurance industry defeated it. Hillary Clinton oversaw development of a broad coverage plan in 1993. The insurance industry led the attack with support from business because of a proposed increase in employer funding.
Every year financing health care has become increasingly more difficult. More and more Americans are no longer insured (47 million according to the Census). About the same number are considered to have inadequate coverage.
Increasingly the electorate is asking our representatives to do something. But they seem to be stymied between the veritable rock and hard place. The rock is “how do we fund a program that will cost over $1 trillion,” and the hard place is “how do we counter the insurance lobby’s power.”
The largest insurer, Aetna, spends more than 20 cents of each premium dollar for administration. The proportion of an individual premium that goes to administration increases as the number of beneficiaries in an insurance pool decreases. Thus, small employers find that their premium per worker is much higher than larger competitors. Younger workers often opt out of employer plans because they view their share of the premium as unaffordable. They’d rather risk the possibility of a heavy medical expenditure against paying the monthly premium. The loss of this healthy group increases the premium that must be paid to cover the older workers. And we pay for these uninsured when they get sick, $43 billion in 2005.
While the problems are well established, this monster is complex. Lacking has been a viable solution. What are the keys?
To pass a universal plan, the support of business is essential. For employers to accept a plan, financing must be wage-neutral. Adding to the payroll tax will kill any proposal. I propose a nationwide value added tax (VAT). Almost every developed country has adopted VAT, a sales tax that is part of a product’s price. In this plan, the Medicare tax could be eliminated. The reduction would help offset some of the increased price employees would face from a VAT. Businesses would see increased profits as their wage expenditure is reduced.
According to The New England Journal of Medicine, Canada’s single payer plan spends 17 cents of each health care dollar on administration. The comparable U.S figure is 31 cents. The potential saving is 14 cents of each health dollar or $280 billion. The bargaining strength of a universal plan would reduce the price charged for all types of services similar to what Medicare has done, an estimated saving of $200 billion.
Employer and employee premium payments reduce income before tax. This tax advantage, amounting to $200 billion, would end and lead to increased income tax collection. The end of the federally funded Medicaid program would produce a saving of more than $200 billion. Without an income tax increase, general revenues would increase $400 billion.
The current method of financing health care is inefficient. The financing proposed here is both more efficient and more effective in achieving the goal of making health care affordable for everyone.