Blog & Reviews

The Original Sin of American Health Care

Jun 24, 2017 | Blog | 0 comments

Max Bloom, an intern at the National Review, wrote an op-ed piece about why single payer will never happen in the US.  I have copied the entire article below and provided my comments (in parentheses).

In 1942, Franklin Delano Roosevelt inadvertently committed the original sin of American health care. Driven by a wartime economy, inflation had risen to an alarming 10 percent. Economic policy was a bit of a simpler game then, so Congress just passed a law — the Stabilization Act of 1942 — instructing the president to stabilize prices and wages. FDR followed up by ruling that businesses could not significantly increase wages or salaries without authorization by the National War Labor Board. Problem solved. Except, as it turned out, businesses still wanted to hire the best workers. They couldn’t attract them by increasing salaries or wages, so they looked elsewhere. Health insurance fell outside the scope of Roosevelt’s executive order, so firms competed with each other by funding increasingly generous health-insurance policies. Around the same time, an administrative ruling held that insurance was non-taxable in many cases, a policy that was broadened and written into the statute books in 1954. (It is hard to ‘blame’ FDR for something that the Eisenhower administration signed into law 10 years after the war, but I agree that providing tax credits to employers to support the purchase of health insurance is the original sin of American healthcare business as usual.  In essence, this policy has made our nation’s large employers the arbiters of our health policy while enriching the health insurance industry.  Health insurance is the most wasteful method ever invented to finance health care, and would have long ago been thrown onto the scrap heap of history, except government at all levels in the US has propped up its lousy business model.)

Over the following decades, private insurance became almost synonymous with employer insurance. Today, 49 percent of Americans get insurance from their employer, with another 34 percent on Medicare or Medicaid and 9 percent uninsured. Only 7 percent participate in the individual market, 4 percent through the Obamacare exchanges. (Another 2 percent get health care from other public sources, such as the VA.) Much that is wrong with the American health-care system can be attributed to this system, which is now financed to the tune of approximately $250 billion a year in federal tax breaks. If you lose your job in America, you typically lose your health insurance too. The system of government-subsidized, employer-provided health care blunts the incentive to keep costs down, which distorts the market. The need to provide health insurance also makes life difficult for small businesses. (Actually, there are unnumbered government programs that provide health care beyond Medicare, Medicaid, and the VA, which include CHIP, IHS, and public health programs for women and children.  Government employees at all levels of government have taxpayer-funded health care benefits, often bought from private sector health insurers.  Adding in the value of the tax credits given to large employers for health benefits, the total government spending for health care per annum in the US is about $2 trillion, which amount by itself would make the US health care system the most expensive in the world.  All of the other health programs came after the original sin because the subsidy to private health insurance left many sections of society without health financing.  The business model of health insurance is to exclude from coverage everyone with actual health care needs, such as the elderly, the poor, and the sick.)

It would seem unbelievable that conservatives should be thankful for such an arrangement, which works counter to all the best workings of the free market. And yet they should be thankful, for this crazy system means that single-payer will never, ever happen.  Now that the GOP health-care reform is dead in all but name, some on both the right and the left are starting to wonder about the unthinkable: that a major Northern European–style health-care reform will finally take root in the United States. Charles Krauthammer has predicted that we will have single-payer health care within seven years — an anxiety not uncommon by now in much of the right. On the left, Democratic politicians seem to be coalescing around the issue, emboldened by Bernie Sanders’s performance in the 2016 primaries and by opinion polling that suggests wide support for single-payer health care among the Democratic base — and sometimes among the broader electorate too. (This is the height of hypocrisy.  Celebrating an original sin that is clearly harming health care delivery is wrong.  Even more wrong is willfully looking the other way instead of carefully examining the real problem of American health care, which is the assumption that market forces could shape a more efficient health care system.  It is time for conservatives to recognize what should be obvious to them-THERE WILL NEVER BE A FREE MARKET IN HEALTH CARE!  Health care is not a commodity efficiently delivered through markets because the prerequisites of a free market do not exist in health care.  Pretending that market forces should apply to health care delivery makes windfall profiteering the norm in American health care business as usual and wastes $1 trillion per year out of a more than $3 trillion annual health care economy.  See this article  for more information about the poor fit of healthcare with the free market model.)

If single-payer did happen, it would be the most momentous event in 50 years of American domestic policy. It would essentially nationalize one-sixth of the American economy, and would be the biggest defeat in the history of the modern conservative movement. It would erase by the far the biggest distinction between rugged, individualist America and the social democracies of northern Europe. One can only imagine what the political implications would be: the leftist movement in America would be emboldened for decades to come, while the Republican party and center-left Democrats would be discredited, perhaps permanently. (I agree that the passage of a single payer system would be the biggest event in 50 years, maybe even 100 years, of American history.  But far from defeating the conservative movement, single payer is the most conservative health policy possible, if done on a state by state basis.  Rather than nationalize health care delivery, state-based single payer health reform would return health policy to its constitutional roots, per the 10th amendment.  Why are conservatives so much in favor of Congress making the final decision about our health system?  Let the states do their job with federal minimum standards and federal funding.  It is not ‘rugged’ to refuse to see how much less expensive because more efficient and higher quality the northern European health systems are.  The center-left Democrats and Republicans have already discredited themselves, including by how they are constantly doing the bidding of the medical industrial complex instead of seeing to the needs of their constituents.)

So let’s be clear. Here’s what single-payer means: Somewhere north of 150 million Americans get insurance through their employers. Because of the government subsidies, these insurance policies tend to offer generous care, and despite some cost-sharing, most employees pay relatively little. Most Americans (including those who are uninsured or on government plans) like their insurance: 77 percent say the quality of health care they receive is good or excellent; 65 percent say the same about their coverage; 56 percent are even satisfied with the total cost they pay for their health care. Overall, about two-thirds of Americans on employer insurance are satisfied with the U.S. health-care system. Suppose you’re one of those 150 million Americans. Between you and your spouse, you make $76,000, the median for a four-person family. You pay $4,700 a year in premiums for a family plan, the national average, and your employer pays for the other 73 percent. You like your doctor, and your policy allows you to obtain just about any health care you might need, whenever you want it. Your deductibles could be lower and it will always be frustrating to sit in a hospital waiting room, but there are no serious obstacles to obtaining high-quality care. Overall, you’re pretty satisfied with your health care. (This rosy scenario is simply not true.  And all of the trends are in the wrong direction.  The private for-profit health insurers have been raising their rates, and the out-of-pocket costs of beneficiaries for decades.  40 years ago virtually all Americans not on Medicare who were employed had a health benefit.  Now, only half do.  Co-insurance, deductibles, premiums, co-payments, point of service payments are increasingly costly.  Wages are held artificially low because of the employer costs for health care.  Insurers reduce access to health care providers through contractual arrangements, which are arcane, tricky deals that patients commonly misunderstand.  Out of network payments frequently surprise patients.  The most common cause of personal bankruptcy in the US is the cost of care for illness and injury, and 75% of those going bankrupt were insured at the time.  Would be entrepreneurs are kept in jobs with benefits rather than fulfilling the American dream of founding and owning their own business by health care costs.  American employers fail to compete internationally because of the administrative burden of health care, something that they are not good at.  Overall, the current situation is not sustainable.  Health care costs are rising faster than GDP.  We can not spend 100% of GDP on health care.  It is foolish, and very not conservative, to pretend otherwise.)

Now, some politician — maybe Candidate Sanders — offers you the following pitch: You lose your current health care and instead are enrolled in government health care. You do not necessarily get to keep your current doctor. There may be waiting times, as there are in Canada, and there is also a chance that you may be denied access to certain treatments that are considered cost-prohibitive, as currently happens in the U.K.’s NHS. The Democrats promise that quality of care will remain high and perhaps they are right, but no one is entirely sure. Finally, instead of paying $4,700 a year in premiums, your tax rate will go up substantially. It’s not clear how much: One tax plan mooted by Bernie Sanders would have you paying an extra $9,140, but this probably isn’t a reliable measure. On the one hand, the tax plan was designed to fund additional benefits beyond health care, like free higher education; on the other, it dramatically underestimated the amount of revenue that would be needed to finance single-payer. Your salary will probably increase too — perhaps substantially — since your employer will no longer be on the hook for the other three-quarters of your premiums. Regardless, the bottom line is that some Americans will end up paying less and others will end up paying more — with the latter probably including a large portion of upper-middle-class America. From your perspective, particularly if you’re closer to, say, the top 10 or 20 percent of the income distribution than the median, the offer will go something like this: Pay considerably more in taxes than you currently do in premiums, with the vague promise that your salary will go up some undetermined amount. Then, your relatively generous private health care will be swapped out for a government plan that may entail rationing and probably will not let you keep your doctor. Any takers? (Again, a completely false picture, a straw man, about single payer health care.  Americans already pay the world’s highest health care taxes.  Tax revenues for health care, because they are then given to private sector health insurers, are used inefficiently.  Savings of up to $500 billion/year have been documented with single payer health system reform.  All Americans can have health care financing while spending less once single payer reform is in place. There will be no physicians excluded from network under single payer.  Patients will have complete freedom of choice among doctors and hospitals.  Quality of care will improve under single payer.  The American health care system has the poorest quality of care among first world countries.  Poor quality care costs more, not less.  Rationing occurs now in the US, by ability to pay or availability of services.  Tax payers should pay for only those treatments that are safe, proven effective, and are least expensive.  Cosmetic surgery will not be covered, but will be available for private pay, as will other interventions that are not covered benefits under the single payer system.)

Some countries are okay with this deal. Taxes in northern Europe are higher but less progressive than in the United States, a reality far too often overlooked by leftists wishing to emulate countries like Denmark and Sweden. This is because social democracies are incredibly expensive: There simply aren’t enough rich people to carry the entire burden of the welfare state, so everyone ends up paying a lot. All income above 1.2 times the average Danish income is taxed at 60 percent. In America, that would mean a 60 percent marginal tax rate on all income over $60,000. There are also hefty value-added taxes — 25 percent in Denmark — that apply with few exceptions to goods sold in the country. These are actually regressive, since lower-income households spend a greater portion of their income on consumption. As a result of all this taxation, the Danes get the sort of policies floated by candidates like Bernie Sanders — free education, universal health care, expansive public sectors. The Danes, the Norwegians, and the Swedes are all okay with this: It’s their version of the social contract (no doubt in part because, unlike America, they have a well-deserved reputation for highly efficient and well-run government programs). (There is nothing inherently American about inefficient government.  We can and should do better.  Government is not always the problem, sometimes it is the only solution.  Taxes are higher overall in social democracies than in the US, but US taxpayers already pay more for health care than do other first world taxpayers.  Just because we accept single payer health care does not mean that all public benefits of social democracies will or should likewise come to pass in America.)

Poll after poll has found support for single-payer — up until the moment that people are told it will increase their taxes. But it’s not ours. Poll after poll has found support for single-payer — up until the moment that people are told it will increase their taxes. It turns out that while everyone is very happy with the idea of universal health care, paying for universal health care is divisive. Now, some might say that support for the tax hikes will grow once Americans are suitably enlightened of the virtues of a single-payer system. Maybe. But the evidence suggests otherwise. Vermont is perhaps the state where single-payer would be most likely to work: It is the state that elected Bernie Sanders to the Senate, it is one of the most consistently liberal states in the nation, and it has the high levels of trust and social cohesion associated with Scandinavia. But even Vermont found that single-payer was too expensive: Governor Shumlin abandoned the idea in 2014 after realizing that it would require unacceptable increases in payroll taxes. (The difficulty with singel payer in Vermont was principally the obstruction of the federal government which prevents states from truly establishing a single payer health system.  Get the federal government out of the way of states really taking on health system reform.  That is a conservative principle.)

Then there’s the disruption. Think of how acrimonious the debate over Obamacare was, when the disruption to existing health-care plans was relatively minor: Obama’s dishonest promise that “you’ll be able to keep your health-care plan” was not mere bluster; it was critical to the defense of his bill. Now imagine what the debate would look like when every single American with some form of private insurance knew that they would not be able to keep their health-care plan. The Tea Party, Sarah Palin, the town-hall meetings of 2009: That would be nothing compared to the public outcry against a policy of universal government health care financed by massive tax hikes. Obamacare cost the Democrats 63 seats in the House and 680 in state legislatures. The exchanges enroll 4 percent of America. Imagine what the repercussions of a universal-health-care bill would be. If there’s one thing we can learn from the Republican health-care catastrophe, it is that it’s far easier to talk about health-care reform when you’re in the opposition and everything is theoretical. But suppose that it’s 2021. Suppose that Sanders is president, and that the Democrats have just over 60 seats in the Senate and a majority in the House. For a moment, single-payer would seem tantalizingly possible. What will happen when upper-middle-class liberals start to worry about tax hikes larger than they have ever seen? What will happen when they realize that the end result of these sacrifices will be the loss of the health-care programs that have always proved sufficient in times of need? How many senators and how many representatives will be willing to stand by Sanders once they realize that it would mean electoral defeat on a scale far beyond 2010? Those are the stakes arrayed against single-payer. They are simply insurmountable. Indeed, given the basic outlines of the problem — Americans are not likely to tolerate large tax hikes on the middle class and most Americans do not want to lose their current insurance — it is hard to imagine any transformative left-wing health reform. Any realistic health-care proposal would have to leave 85 percent of America alone — those on employer plans and those on Medicare or Medicaid. That leaves those on the Obamacare exchanges and the approximately 10 percent or so of America that is still uninsured. There are certainly plausible center-left proposals that involve this 15 percent of America, such as some sort of public option, and conservatives do have reason to fear an expansion of government’s role in health care. But a public option enrolling 20 million Americans, or a further expansion of Medicaid, would be a far cry from the enormous government intervention entailed by single-payer, and would preserve the crucial distinction between the American approach to health care and the approach favored in the Nordic democracies. For all this, conservatives can thank FDR.   (Disruption on this vast scale will not exist with the passage of federal legislation that truly enables each state to opt into a single payer system, or to opt to stay with Obamacare instead.  This is legislation that both democrats and republicans could and should support.  Stop making a federal case out of health system reform.  Let the states take it on!)