Summary: Conservatives’ bold propaganda have made Americans fear the health care systems of our peer nations, systems that produce equivalent care a half the cost (or less) or ours — but cover everybody. America’s march to universal coverage began with Medicare (1965) and Medicaid (1966). Obamacare expanded it, covering more people but at unsustainable cost. Here Ed Dolan looks at the facts and draws the obvious conclusion: single payer insurance will come to America. The longer we wait, the more difficult the transition.
Single Payer Healthcare is Coming.
Stop Fighting It.
Start Figuring Out How to Make It Work.
Guest post by Ed Dolan.
As everyone knows by now, the United States is alone among advanced economies in not having a single payer healthcare system with universal coverage. It is, however, already much closer to such a system than most people realize, and the current round of Republican healthcare reforms, if enacted according to plan, will bring it even closer. Yet there is no reason to fear the single payer future. Read on.
The true scope of government in our healthcare system.
The federal government already operates three large healthcare systems, Medicare, Medicaid, and the Veterans Administration. Each of the first two is comparable in size to the single payer systems of most European countries. If we categorize healthcare expenditures by the type of primary payer, the three big federal programs accounted for roughly a third of all spending in 2015, according to data from the Centers for Medicare and Medicaid Services:
To get a true picture of the government role in healthcare, though, we need a different perspective. If we categorize expenditures by the source of the funds, instead of the type of payer, the government share of spending is much larger. Partly that is because state and local governments account for 17 percent of all healthcare spending, not fully reflected in the chart above. Also, that chart hides the extent to which federal tax expenditures finance much of our ostensibly private health insurance. According to data from the Tax Policy Center, deductions and exclusions of health insurance premiums and related tax breaks cost the federal government some $250 billion in revenue in 2015 — as big a burden on the federal budget as if Uncle Sam wrote a check for that amount.
Deductibility of employer healthcare expenditures account for about three-fifths of total tax expenditures. The remainder come in the form of exclusions of Medicaid benefits from declared income, deductibility of insurance for self-employed individuals, tax breaks for some kinds of out-of-pocket costs, and other items. If we categorize healthcare expenditures according to the ultimate source of funds rather than the primary payer, we find that government budgets account for over half of all spending, as the next chart shows.
Our faltering private insurance system.
Both the Affordable Care Act (ACA or “Obamacare”) and the current Republican repeal-and-replace law, the American Health Care Act (AHCA), attempt to salvage what is left of private healthcare finance. Unfortunately, the two pillars of private healthcare, employer-sponsored insurance and individual insurance plans, are beyond saving.
The individual insurance market is failing because too large a share of health care risks are inherently uninsurable. Two conditions must hold for a real insurance market to work. First, the risks in question must be fortuitous, that is, predictable statistically but not predictable for any particular individual. Second, premiums must be high enough to cover claims and administrative expenses, yet still affordable to the customer.
Neither condition holds for individual health insurance. The principal reason is that a tiny share of the population accounts for the great bulk of all healthcare spending. The next chart, based on data from the Kaiser Family Foundation, shows that the top 10 percent of households account for two-thirds of all personal healthcare spending, and the top 5 percent for half of all spending. The majority of these high spenders have one or more chronic conditions that keep their spending high year after year.
The skewed pattern of spending poses a dilemma for policymakers: If they allow insurance companies to refuse to issue policies to people with pre-existing conditions, the people most in need of medical care will not be able to buy policies. If they insist on guaranteed issue, then the presence of high spenders in the risk pool pushes up premiums for everyone. As that happens, relatively healthy people drop out of the pool, pushing claims and premiums higher still for those who remain. As losses mount, insurers begin to drop out, too, until the system collapses.
Both the ACA and the ACHA opt for guaranteed issue. That sounds good politically, since everyone knows a neighbor or relative with a pre-existing condition even if they don’t have one themselves. Ultimately, though, guaranteed issue is an unsustainable policy that threatens the whole individual insurance market with a “death spiral.” The ACA is already showing early signs of such a spiral, and, as I explained in this earlier post, the ACHA seems designed to make things worse rather than better.
Meanwhile, employer-sponsored health insurance has problems of its own. First, it works much better for large corporations than for small businesses. Most small firms simply do not have enough employees to constitute an affordably insurable risk pool. Second, economists believe that over time, employees end up bearing the cost of healthcare benefits through lower pay. Rising employer healthcare costs are thus a major contributor to the stagnation of wages. Third, the fear of losing insurance coverage makes people reluctant to give up jobs that are otherwise unsuitable — reluctant to try something new or start a business of their own. This “job lock,” in turn, reduces labor mobility and makes the economy less able to respond to shocks from new technologies and changing patterns of trade.
For these reasons, job-linked health insurance has been gradually dying for some time now. According to another report from the Kaiser Family Foundation, from 1999 to 2014, the share of the nonelderly population covered by employer-sponsored insurance fell from 67 percent to 56 percent. If the ACHA, as planned, repeals the ACA’s employer mandate, the downward trend will pick up speed. The Congressional Budget Office estimates that over ten years, 7 million employees will lose employer-sponsored insurance as a result of the AHCA. Republican plans for sharp reductions in corporate tax rates would produce an unintended blow to employer-sponsored insurance, since the incentive of tax deductibility would suddenly be worth less.
We can do this.
What lies ahead?
Despite the best of intentions, the ACA has been unable to save private-sector health insurance in either its individual or employer-sponsored form, and the AHCA, if enacted, will only accelerate the decline. That leaves two possibilities. Either the share of the population without effective access to the healthcare system will begin to rise again, or the government share of the national healthcare budget will continue to grow.
In the short run, Republicans may opt for reduced coverage, but I doubt if that will prove politically acceptable, once it actually starts to hit home. Looking at CBO projection of decreased coverage is one thing; waking up in the morning to find that Aunt Sally can’t get her chemo or Uncle John can’t get his bypass surgery is another thing altogether. At that point, some kind of single payer system will be the only option left.
And really, it is not such a bad alternative. A revealing report from the Commonwealth Fund ranks US healthcare eleventh out of eleven against those of ten ten high-income countries, all with single payer systems. US healthcare is at the top in terms of cost, and at the bottom in terms of efficiency and equity. And no, contrary to the scare stories, other countries do not use death panels or endless waiting periods to ration care. The United States ranks in the middle of the pack on measures of timeliness of care, although it is the worst of the eleven in terms of cost-related limitations on access.
So get used to it. We, too, could free up a good chunk of our national income on healthcare, reduce medical insecurity, and cut the high administrative costs of our fragmented and overlapping healthcare systems. Single payer healthcare is coming. Stop fighting it and start figuring out how to make it work here, as it does elsewhere.
About the author
Edwin G. Dolan holds a PhD in economics from Yale. He has taught in the United States at Dartmouth, the University of Chicago, George Mason University and Gettysburg College. From 1990 to 2001, he taught in Moscow, Russia, where he and his wife founded the American Institute of Business and Economics (AIBEc), an independent, not-for-profit MBA program. After 2001, he taught economics in several European countries, including Central European University in Budapest, the University of Economics in Prague, and 15 years of annual courses at the Stockholm School of Economics in Riga.
He is currently a Senior Fellow at the Niskanen Center and lives in Northwest Lower Michigan.
For more about his views, see his book TANSTAAFL: A Libertarian Perspective on Environmental Policy. Also see his website, his posts at Economonitor, and his other posts here…
- Ed Dolan talks to us about modern monetary theory. Can it save us?
- What Does it Mean for Fiscal Policy to be “Sustainable”? MMT and Other Perspectives.
- A powerful defense of free trade by Ed Dolan, before Trump attacks it.
For More Information
- Hidden truths about American health care.
- The core truth about our health care system — It’s quite mad.
- What does the health care debate reveal about us, and our future?
- Why do so many new-born babies die unnecessarily in America, the City on a Hill?
A new book explaining this vital issue.
Crisis in U.S. Health Care: Corporate Power vs. The Common Good by Dr. John Geyman (professor emeritus of family medicine at the U of Washington School of Medicine). See his website, with bio and articles about health care. From the publisher…
“The debate over U.S. health care — where to go next to rein in costs and improve access to quality health care — has become bitterly partisan, with distorted rhetoric largely uninformed by history, evidence, or health policy science. Based on present trends, our expensive dysfunctional system threatens patients, families, the government, and taxpayers with future bankruptcy.
“This book takes a 60-year view of our health care system, from 1956 to 2016, from the perspective of a family physician who has lived through these years as a practitioner in two rural communities, a professor and administrator of family medicine in medical schools, a journal editor for 30 years, and a researcher and writer on health care for more than four decades. There has been a complete transformation of health care and medical practice over that time from physicians in solo or small group practice and community hospitals to an enormous, largely corporatized industry that has left behind many of the traditions of personalized health care.
“This is an objective, non-partisan look at the major trends changing U. S. health care over these years, ranging from increasing technology and uncontrollable costs to depersonalization and changing ethics in medicine and health care. This book points out some of the highs — and lows — of these changes over the years, which may surprise some readers. It also compares the three basic alternatives for health care reform currently being debated.”