A Modest Healthcare Proposal by Jeffrey Borrowdale (December 2, 2008)

Health care costs have risen dramatically since the turn of the millennium, moving from 13.2% to 15.2% of GDP between 2000 and 2005.¹ In 2007, we spent 16% of GDP or $2.3 trillion on health care, $7600 per person. That number is expected to be $4.2 trillion or 20% of GDP by 2016², the amount we currently spend for all Federal, State and Local Government. Between 2000 and 2006, health insurance premiums went up 78%, with wages rising only 20%.³ The average cost of health insurance for an employee was $4,400 and $12,100 for a family of four. Clearly we are in a cost crisis.

Why does health care cost so much? In part, we're victim of our own success. Our highly developed economy, birth control and government retirement program has led to people having fewer or no children, and putting off child bearing until later in life. Sophisticated medical technology and a peaceful, prosperous nation have led to people living longer. For example, take Larry King. In 1987 he suffered a heart attack, underwent quintuple bypass surgery and made some lifestyle changes. Now, over 20 years later, he continues to host his nightly interview program on CNN at age 75.⁴ But heart bypass operations and cancer treatment are not cheap, and these are diseases which primarily affect the elderly. As demographics have shifted, costs have risen.

However, much of our current problems stem from how health care is funded. The current cost crisis begin in the 1940s when businesses began looking for a way around government wage controls. They discovered that they could offer fringe benefits to attract the best employees, including health insurance. The Federal Government then made health expenses for employees deductible for businesses, providing further incentive for them to provide health care for their employees. In 1965 the Federal Government itself got into the health care business, creating Medicare, a social insurance program for the aged to go along with Social Security and Medicaid, an insurance program for the poor. Together, these programs account for 23% of the Federal Budget⁵ with Medicare outlays alone exceeding income in 2012, representing $68 trillion in unfunded liability over the next 75 years.⁶

Next came the Health Maintenance Organization Act of 1973, which requires all businesses with 25 or more employees to offer their workers either HMO coverage or insurance, as well as providing Federal subsidies and regulating coverage. Although the HMO provision expired in 1995, the current government-created system of funding health care through mandates on employers along with government provided health insurance or insurance funding is primarily responsible for driving up prices, because end-users are so divorced from the costs they incur. Moreover, mandates and benefits continue to be added, with no consideration of cost. Recently Barbara Boxer was able to attach a mandate all employer-provided health plans cover "mental health" to the $700 billion Financial Bailout Bill. Even so-called "conservative" President Bush added a prescription drug plan to Medicare in 2003, which was estimated to cost only $534 billion over 10 years. A year and a half later that estimate had more than doubled, to $1.2 trillion.⁷ The program has no means-testing. The first Medicare recipient is was President Harry S. Truman.

This hodge-podge of government mandates and subsidies plus private insurance is an inefficient system. This has led some to support a "single-payer" plan. Since the government is already funding 60% of our health system through Medicare, Medicaid and other programs, why not have the government fund it all? Paul Hochfeld estimates a cost savings of 25% in administrative costs alone.⁸ Doctors and hospitals would no longer have to deal with an array differing and complicated rules from the myriad of HMOs and insurance carriers and plans, made worse by a highly mobile work force and employers switching plans to save on costs. Moreover, eliminating private insurance would bring down cost through eliminating insurance middlemen, who, after all, need to make a profit. People without insurance clog emergency rooms, where the cost of care is significantly higher, or put off the treatment of conditions which could be treated more cheaply or prevented altogether with proper care. The quality of care would also improve, with health and the judgment of a doctor, not the profit motive of an HMO or insurance company, driving treatment decisions. In countries like Great Britain, government health care costs $3500 per person, less than half of what it costs in the U.S., and less than what a typical employee pays for health insurance.

As attractive as this sounds, socialized medicine is an unworkable solution. Though there may be some administrative savings by not having to deal with insurance and HMO paperwork, ever increasing government regulations and mandates are likely to fill the gap. Medicare will be insolvent in 2012 and politicians continue to tax, borrow and inflate to expand benefits to win reelection.⁹ Europeans and Canadian health care systems keep down costs by rationing care and limiting access to specialists. Long waits for tests or procedures are often the difference life and death. Instead of having a HMOs or insurance companies deny coverage for procedures, government policy and budgetary limitations do. This takes the choice out of the hands of patients and doctors and puts it into those of bureaucrats.

The real solution is in putting choice back in the hands of health care consumers. I therefore propose a free market, fee for service model, supplemented by private catastrophic insurance. There is no reason routine care should be covered by insurance. A Rand study showed that people who paid most of their medical bills out of pocket spent 30% less than those whose health care costs were covered by insurance, with little or no difference in health outcomes.¹⁰ Universal private catastrophic insurance could be funded by the Medicare payroll deduction plus 1.5% diverted from Social Security deductions. The difference could be offset by putting the remainder of Social Security deductions into individual retirement accounts, invested in top-rated, conservative funds. This would provide additional retirement income for workers, including the resources to cover the non-catastrophic, routine medical expenses of an aged person. Employees could be encouraged to invest the money they would ordinarily be putting towards insurance premiums into tax-free medical savings accounts, to be drawn upon when needed, or an IRA with an increased contribution cap. Unburdened by an unsustainable medical and pension scheme, which taxes an increasingly smaller numbers of younger workers to care for increasingly larger numbers of retirees, the Federal Government could expand Medicaid coverage. The reform I propose would thus introduce market forces to both lower prices and improve care, encourage savings, boost economic growth through increased investments and savings, and still provide a safety net for the truly needy.

ENDNOTES

1 http://www.who.int/whosis/whostat/EN_WHS08_Table4_HSR.pdf, p. 16

2 Poisal, J.A., et al, "Health Spending Projections Through 2016: Modest Changes Obscure Part D’s Impact," Health Affairs (21 February 2007): W242-253.

3 "Health insurance jumps twice inflation rate; Study: Smallest increase since 1999, but costs up 78 percent since 2000," Associated Press, Updated 8:37 a.m. PT, Tues., Sept. 26, 2006, http://www.msnbc.msn.com/id/15014332/.

4 Larry King, Mr. King, You're Having a Heart Attack: How a Heart Attack and Bypass Surgery Changed My Life (Delacourte Press, 1989).

5 "Financing Medicare: An issue Brief," The Henry J. Kaiser Family Foundation, Prepared by Lisa Potetz, Health Policy Alternatives, Inc., http://www.kff.org/medicare/upload/7731.pdf, p. 1.

6 Testimony of Tommy G. Thompson, Secretary of Health and Human Services, 2001-2005, “Seizing the New Opportunity for Health Reform," Testimony before the Senate Finance Committee, May 6, 2008, p.4. http://finance.senate.gov/hearings/testimony/2008test/050608tttest.pdf.

7. Ceci Connolly and Mike Allen, "Medicare Drug Benefit May Cost $1.2 Trillion: Estimate Dwarfs Bush's Original Price Tag," The Washington Post, http://www.washingtonpost.com/wp-dyn/articles/A9328-2005Feb8.html.

8 Paul Hochfeld, Producer, "Health, Money and Fear," Video Documentary (Heron Productions, 2007) http://www.ourailinghealthcare.com/.

9 Advocates point to studies that show that countries with socialized medicine have longer-lived populations than the U.S., better infant mortality rates and rates of overall health. This may be true, but many other factors affect longevity and health care besides health care including diet, levels of stress, automobile accidents, and violent crime rates.

10 The High Cost of Health Care, The New York Times, November 25, 2007, http://www.nytimes.com/2007/11/25/opinion/25sun1.html?pagewanted=3&_r=1.