...there is a novel straightforward way to reduce U.S. healthcare costs and increase choice at the same time: - Require all U.S. Federal & State government agency and employer payments for healthcare to go directly to the beneficiaries of those payments on a per person or per- family basis that is tax-free. - Permit insured persons to decide how and which insurer and providers to pay for healthcare. Doing this alone will bend the cost curve downward, reduce the healthcare bureaucracy and enable folks to freely select their own doctors as so-called conservative thought claim to champion. For persons unable to handle this responsibility on their own, say, due to their medical or mental limitations, the government (e.g., Medicare/Medicaid) would be the decision-making backstop...
By Larry J. Pipes, Ph.D.
Management Strategist and Consulting Professional, Los Angeles, CA
On Reforming U.S. Healthcare
Healthcare is the largest industry in the world, and in the U.S. healthcare absorbs nearly 20% of annual GDP. In 1960, U.S. Healthcare’s take out of our GDP was 5.01%.1 Today other developed countries with which the U.S. companies compete spend less than 13% of their GDP on healthcare. Just think for a moment how better off the U.S. economy would be if U.S. healthcare costs were in line with healthcare spending by other developed nations (i.e., it would mean more money for worker salaries, business investments and shareholder profits to say the least). By this measure the U.S. pays a premium of about 7% of GDP for healthcare. A contributing factor for increases in healthcare consumption by U.S. citizens is subsidies2 by employers and government agencies that arrange/pay-for healthcare service for employees & beneficiaries of government programs. Among other things, these subsidies affect consumers’ consumption choices re healthcare.
Now nowhere in the world has healthcare ever been produced or operated under a free market competitive system, so let’s quickly dismiss notions of capitalism as a sole solution. In 1963, economists Kenneth Arrow who later won a Nobel Prize offered a simple explanation for why free markets won’t work in healthcare:
- Huge information & power mismatch between the buyer and seller.
Although economic theory of competitive markets rightly implies that if a seller, say, wants to sell a particular TV, a buyer can accept, choose another brand or simply walk away. But if physicians order particulars medicines, procedures or operations, patients are far less likely to just walk away thinking about it.
Now there is a novel straightforward way to reduce U.S. healthcare costs and increase choice at the same time:
- Require all U.S. Federal & State government agency and employer payments for healthcare to go directly to the beneficiaries of those payments on a per person or per- family basis that is tax-free.
- Permit insured persons to decide how and which insurer and providers to pay for healthcare.
Doing this alone will bend the cost curve downward, reduce the healthcare bureaucracy and enable folks to freely select their own doctors as so-called conservative thought claim to champion. For persons unable to handle this responsibility on their own, say, due to their medical or mental limitations, the government (e.g., Medicare/Medicaid) would be the decision- making backstop.
This novel idea would require health care suppliers (insurers, providers and product manufacturers) to compete directly for consumers/customers/patients business. For example, life, auto, home insurance markets aren’t dependent on third-parties to direct or limit which insurer consumers can or must select. Third-party interventions into market decisions via subsidies to consumers usually increase prices for not the best reasons.
Letting folks decide how to spend their own money is the sort of freedom actual conservatives and liberals alike should abide — right? Now this idea is not to imply the U.S. should do away with Medicare, Medicaid and employer sponsored healthcare plans as those who work for these government agencies and human resource departments are not trivial actors in the whole scheme of things.
On the other hand, if Americans want the current healthcare system fixed, they have only to elect and unambiguously direct political representatives to do so forthwith. What threatens the health insurance of Americans is stubborn, intractable refusal by one party to make reasonable fixes or improvements to the Affordable Care Act (Obamacare). The nation would be better served if politicians abandoned repeal & replace screeches, and focused their time and attention to fixing/improving Obamacare, including:
- Obamacare’s mandate that large-and medium-sized employers provide insurance to workers applies only to workers employed 30 or more hours a week. Repubs correctly criticized the design of this mandate. It should be corrected.
- Some proposed replacing the 40% excise tax on high-cost health plans, the so-called Cadillac tax, with a requirement that people include the cost of employer-financed health insurance above certain thresholds in their personal taxable income. There is a reasonable compromise to be made re this.
- 19 states have been unwilling to extend Medicaid coverage, partly from a fear that the Fed government will cut payments and leave states holding the bag (like what McConnell’s has proposed doing). Congress should reassure states re this which would help all states regardless of the party in control of legislatures.
- Politicians on both sides have decried the provision of Obamacare authorizing the creation of the Independent Payment Advisory Board, an un-elected group empowered to hold down growth of Medicare spending by proposing cost-reducing changes that would take effect unless both houses of Congress mustered majorities to block them. So, agree to change or eliminate it.
If Congress Republicans proposed these straightforward types of Obamacare repairs or fixes, Democrats would want something in return. For instance, Democrats may well seek to raise, rather than lower, assistance for those who currently face high out-of-pocket medical costs. Now these are the kinds of trade-offs Donald J. Trump, the supposed deal maker supreme, should proudly strike — right?
A major challenge for this generation of US politicians particularly on the right is understanding and accepting the true nature of our democracy and of our politics which involve marrying principle to a political process that means neither the majority nor the minority gets 100% of what they want — ever! For example, Slavery was one of the most divisive issues in U.S. history. Abraham Lincoln didn’t believe in slavery, but his 1st priority as President was keeping the Union intact. Most of Lincoln’s Emancipation Proclamation deals with States and areas where emancipation didn’t apply because those folks were allied with the Union so they were allowed to keep their slaves. Wartime President Lincoln made this compromise around the greatest moral issue that the US faced because he understood that his job was to win the war and maintain the Union.
The U.S. made compromises to get past slavery — one of the most morally divisive issues we faced. Political compromise is the reason why major legislation benefiting the Country is passed by Congresses and signed into Law by Presidents. Those who do not understand and accept this principle of compromise are undeserving of serving in Congress or the Presidency.
1 Healthcare was 5.01% of US GDP in 1960, 6.05% in 1970, 7.88% by 1980, 12.09% in 1990, 13.3% in 2000, 17,3% in 2010, 17.56% in 2015 and 17.73% in 2018 (over 4 times defense spending). https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsHistorical
2 Supply-Side and Demand-Side Cost Sharing in Health Care, Randall P. Ellis and Thomas G. McGuire, American Economic Journal, 1993: https://www.aeaweb.org/articles?id=10.1257/jep.7.4.135