I am trying to understand this health care mess. For myself. For my younger friends, who cannot take the time to do a deep dive. I have sought help, got it, and have incorporated insights from doctors and professionals. Please help. All non-ideological thoughts are welcomed. The data enclosed are a year or two old. But, I see no inconsistencies between the thoughts here and the debate currently raging in the Country about health care. Perhaps a little time spent on this read may help you formulate an informed point of view. Then you will meet Alexis de Tocqueville’s standard of an educated citizenry.
I have reviewed actuarial reports from the Federal Government for years 2007 and 2016 to try to get a sense of things. The numbers here are free of ideology and as honest as I can make them. This probably puts me in the 90-95% accuracy range, which is good enough. So, let me offer some structure for your thinking.
Last count, we had about 320 million people in the US, and they all need health care.
Consider another fact. Today we have two large payment approaches for health care, each impacting delivery of care. One system sits outside the government; and the other sits inside the government, both Federal and State, namely, Medicare and Medicaid. The care obtained through Medicare and Medicaid is not exactly the same, but it is close enough for this analysis. The government pays for health care through these two single payer programs. Medicare participants may also purchase supplemental programs from private carriers.
There is another difference between the two. There is a trust fund that nominally pays for Medicare (FICA, etc.). Money is saved in advance. There is no such trust fund behind Medicaid. No one pays in advance for Medicaid. Its’ funding is drawn from the general funds of both the Feds and the States.
These two single payer systems, Medicare and Medicaid, are overwhelmingly paid for by the Federal Government. In 2007, or about, there were 44 million people on Medicare (37 million over age 65; and 7.2 million on disability). At the same time, 2007, there were on average, 49 million people continuously on Medicaid. 62 million people used Medicaid during the year, at one time or another.
Here is another factoid for my younger friends. Some folks think that Medicare is free. It is not. As you all know, the FICA supported trust fund provides much of the funding for Medicare. You are aware of that cost. But, folks on Medicare also pay again for Medicare. A monthly payment, which is means tested, and might range from next to nothing to well beyond three hundred dollars per month, is deducted from their Social Security check. There is no choice. Enrolling in Medicare is mandatory. About 30% of folks on Medicare also buy supplemental insurance on top of that to fill in the holes left by Medicare. A typical two-person family might pay $350-400 a month to Medicare and another $500 for supplemental programs. Enrollees also have co-pays, which generally are quite small, unless you have something really wrong and then they can be bigger. Comparatively speaking, Medicare is a great deal. The over 65-year-old crowd is very well served. But it is not all payed in advance, as you can see.
Let’s stop and consider the cost of these programs. Medicare cost $432 billion a year in 2007. In 2016 it cost $647 billion. Medicaid cost $333 billion in 2007 (Feds = $190 billion, States = $142 billion) and in 2016 it cost $554 billion (Feds = $349 billion, States = $204 billion). These costs are rising faster than GDP and consumer cost indexes, by a lot.
So, what happened during the past six years? One of the outcomes of the Affordable Care Act/Obamacare was to increase the number of people/families who qualify for Medicaid. Now you qualify at 138% of the Federal poverty level. The Federal poverty level number varies by State but a general guideline is that the adjustment moves the qualifying number to about $22,000 a year for a family of two or about $33,000 for a family of four. (To make sure you are always guessing, the Act uses a new measure called Modified Adjusted Gross Income as the calculator, which is actually a lower number than that generally used to define poverty levels. It’s confusing, but it is also beside the point.)
We now have roughly 55 million people on Medicare and 70 million on Medicaid. Therefore, 125 million Americans, or 39% of Americans, are now on a single payer system. For 2016, 11.2 million of the folks on Medicaid became eligible through the passage of ACA. So, stripped to its essence, the first thing ADA did was expand the single payer population by 11.2 million people by raising the Medicaid eligibility threshold. Collectively, then, almost 40% of the country lives without great strain regarding the economic side of healthcare. To be sure, Medicare and Medicaid do not provide equal care. Medicare is better. But Medicaid also gets the job done.
Much of the debate about Obamacare is about the Federal Government passing a law that, in time, directly affects State budgets. Medicaid is not free to the States. While State’s have degrees of flexibility, they will feel tremendous political pressure to support Obamacare, namely, because the voters have spoken.
Obamacare expands the single payer world in other more hybrid ways, and in very specific ways. In effect, it says, hey, if your family income is less than 250% of the poverty measure, and if you buy your policy from an exchange, and apply in advance, we’ll help you out by sharing some of these costs. Moreover, we’ll work through the insurance carrier to do this. In effect, the carrier charges you a little less and the Feds reimburse the carrier. There’s only one problem. Congress does not believe it has appropriated the money to fund this program. There is a debate. Pure politics. Uncertainty. In the end, insurers are not going to play if they are uncertain about what they will be paid. This is one of the areas that has created great confusion.
Finally, if your family income is equal to or less than 400% of the poverty measure, more or less about $100,000 per year, you can apply for premium tax credits to offset your health insurance cost. So, Medicaid, Medicaid expansion, cost sharing, and premium tax credits are the levels of the ACA. I am presuming that the cost estimate shown above for Medicaid include, in some fashion, these additional costs.
Now, let’s return to the point that 40% of the Country now lives under a single payer health care delivery system. Oh, I forgot, there is one other area we must mention. The government spends north of $50 billion a year providing single payer health support for over ten million people tied to the military. So, perhaps that moves the single payer population up closer to 43%.
So, who’s left? Easily put, 57% of the people in the Country. Let me categorize the Nation’s population into four groups. Frist, the very near poor, folks in four person households making $33,000 to the median income of about $50,000. (50% of the country are in this group and the group below them.) Second, the middle class, those with HH income between $50,000 and, let’s say, $100,000. (This makes up another 28%.) Third, the near affluent and affluent, those making between $100,000 and $200,000. (At $200,000, your family is in the upper 6% of families.) Finally, the near rich to super rich, those making north of $200,000. The upper 1 percentile starts at $388,000.
The first question is: how did expanding Medicaid affect these different groups? How did other dimensions of the ACA affect these groups? The short answer is that the ACA got the government involved, wholly (Medicaid expansion) or partially (cost sharing and tax credits), with about 78% of the Country, not counting folks on Medicare who happen to have a household income greater than $100,000 per year.
As I wrote above, my numbers are an honest estimate. Why an estimate? Because it is near impossible to get clear and simple data on any of this. Taxes and costs are added up over, let’s say, 10 years, and you are shown the ten-year number. This is called a forecast. This means that at any time this number could go higher or lower depending on controllable and non-controllable events. Also, any time a plan calls for reducing a rate of increase it is reported as a hard reduction from the current amount. Got that?
The average cost per year for a person on Medicare is $11,800. The average cost for a person on Medicaid is $7,900. These differences are not necessarily about quality of care. The Medicare sick are old. A huge percentage, probably over 80%, of a person’s lifetime cost of health care is spent during the last six months of their lives. (Interestingly, the United State spends about $10,000 per capita per year on health care.)
Now, Medicaid expanded by 11.2 million people. The Federal Government announced a wide set of taxes to pay for this; but of course, they gave us the ten-year estimates, which are somewhere below $500 billion. These taxes – there are twenty material ones – fade in an accumulate over ten years. So, a yearly average might help us think about this but it won’t be very accurate, just as accurate as we can make it. Dividing through, the tax collected per new individual is $4,200 per year, well below the $7,900 that it cost to cover a person through Medicaid. (Not known is the tax increases the States will need to make to cover their share. For several years, the Feds are covering this. But, Fed support runs out after a while.)
It would seem that the Federal Government has no intention of paying for this increase on a pay as you go basis. So, if that is true – help me here – the insolvency of Medicaid just moved closer in time.
The commentary today is filled with words about who pays for all of this? I tried a judgment call on this, looking at a list of the twenty different taxes, the largest being an excise tax on investment income, and this is how it seems: 53% of the total amount collected over ten years will be paid by people with incomes above the 2012 FICA limit, and incomes and wealth beyond that, and way beyond that. 35% will be paid by businesses. 12% will be paid by all individuals, assuming they have FICA taxable income and enough income to do a little bit of saving. This is not exact, but it is fair. Certainly the group between $100k and $200k will feel a good deal of bite. The group between $50k and $100k will feel some bite. The very wealthy will pay the largest part of the tax but a very small percentage of their income. This is just the way it is.
So, that’s how Obamacare affected the 40% on single payer status (not counting the military), and how at least part of it was to be funded. Part of it. But, what else happened? Well, the law inserted the Federal Government into private sector pricing. Now, may we pause again. This is not a moral issue. This is an efficiency issue. The pricing system defines the economic relationship between providers of goods and buyers of goods. An efficient price is dependent on three factors: cost to produce, value, and competition. An efficient price must cover cost, including appropriate profits to fund ownership or there will be no private companies. A price can rise to a zone of excess profits if the value is high – think Apple iPhones – and the competition is weak. But, over time, in free markets, competition will force the price back down toward the efficient number. This is how it works. The government’s role in free markets is to assure a free and rich competitive environment. The rest takes care of itself. This is how you maximize economic efficiency. This is how you create the largest pie. And if your society does not like how these profits got distributed, then it can pass laws to redistribute, what is in fact the excess over efficient profits, to even things out.
But, what if the government takes a different approach and enters the market as a buyer and/or starts telling private companies what to charge, who to charge, who to sell to and so forth? Why would the government ever muck up private markets this way? If the political class steering the government, at any time, does not like how money is distributed it can step in and redistribute the distribution that resulted from free markets. Or, it could step into the market and, in effect, become a direct competitor with the private sector. Why does it screw with a non-person, inanimate tool, called the pricing system? Well, the truth, to quote Jack Nicholson, is “you don’t want to know the truth.” The government needs to pretend that all of this is staying in the private sector because you don’t want these services fully in the public sector.
But, when the government tells a buyer that it must buy something from a supplier; when it tells the supplier who it must sell to; when it tells the supplier what it must charge; and when the government throws a huge chunk of cash onto the table to make this work the pricing system is deeply damaged and that means that economic efficiency is near impossible; and that means, in street language, that an enormous amount of money is being wasted. As an old senator during the Lyndon Johnson years, Everett Dirkson, once said “a billion here, and a billion there, pretty soon adds up to real money”.
But, because 57% of Americans are not getting most of their health care costs covered by the Government, the politicians felt they had to do something. So, first they dumped a lot of cash on the table, cash probably not covered by the twenty taxes they created. These were the subsidies that they offered folks above the $33,000 four-person household number, folks who did not make it into the Medicare expansion, the cost sharing and the tax credits. Obviously, the goal was to stretch even further, without paying for it now, the number of people having some of their health care covered by the government. If you are a four person HH, making Between $50,000 to $55,000 a year, the government will put between $4900 and $4200 respectively against your health insurance premiums. The subsidies stop at about $100,000, at which point they are several hundred dollars. But, that means that the government is involved financially in health care financing for up to 78% of the families in America. Now, while the 40% number for folks on Medicare and Medicaid is pretty exact, this is not so for the 78%. Simply put, there are many folks between the 30 percentile and the 78 percentile that get no government help, probably mostly because they do not take advantage of it, or because we are over lapping with folks who qualify for Medicare, and they are already covered. We do know this. The most recent data showed that about 12% of families still have no health insurance.
In the end, and this is an educated guess, if you are making an income of $75,000 to $200,000, and your family has normal health for adults and children, you are carrying the greatest burden for the goodness created by Obamacare. You are forced to buy insurance, or pay a tax of now up to $600 per year ($30B over ten years of the new taxes, with in fact, $3.0 billion paid actually last year). You are forced to buy a policy which includes government mandated coverage rules that may not apply to you but which has pushed up the price of your policy. In other words, middle America – solvent, relatively healthy, hard working, consistent income, mainstay of the Country (so we are told) – is bearing the greatest obligation for the inexorable movement into a single payer system. It is not the rich. They can afford it. So, yes, they pay more in taxes, but they can afford it. This redistribution of income through direct income taxes does not violate economic efficiency. The money is gathered after the chips have fallen. But the upper middle to lower affluent group get hit with all of the government market interference.
So, here is what we know, or know as best we can. 40% of non-military Americans are on a single payer system, and that cost $1.2 trillion a year. Another 3.5% of the population was added to Medicaid, at a cost of $48 billion a year, a cost which is already in the number just written. But, we also have X number of families that are collecting $4000+ subsidies per year and I cannot find hard numbers to define how many. So, let’s try back of the envelope. Let’s estimate that most families up to the median individual income (about $50,000) or HH income (about $57,000), who are not in Medicaid, take advantage of the subsidy. We have 125 million HHs in the US. About 63 million of those HHs are living under $57,000 per year. Let’s assume 2.5 persons per HH. That’s about 157 million people. 70 million of those are on Medicaid. So the unknown factor is how much government support is provided to the remaining 87 million. Backtracking to earlier judgments, let’s call that 35 million families. Some of those people are already on Medicare, let’s say 40%. Let’s say 80% of the remaining collect the subsidy and that it averages about $3000 per year per family. This adds up to another $50.0 billion per year. (I don’t have better data. This is why I need your help. Just trying to be fair and reasonable.) So, now the annual spend is up to $1.250 trillion a year. My guess is that I am underestimating the number. And, now we have about 142 million either fully covered or partially covered by the government, or 44% of the population, not counting the military. Where do you think this is heading? Especially given that most would observe that a real change in American attitudes about health care is absolutely upon us, relative to, let’s say, a couple of decades ago. Today, Americans view health care as a social right. Today it is becoming popular to talk about “Medicare for All”. When I was a young person, we called this socialized medicine, one step away from communism. Most people today would think that such a description was pure lunacy.
So, what’s all the fuss about? Several things. (1) The government has expanded its role in health care, but we are only willing to raise taxes enough to cover part of that cost. This is actually a serious fiscal problem. In addition, (2) more than half of the people in the country are in a confused state. They get no health care benefits from the government. Or, they get some benefits, but only if they buy their insurance from providers selected by the government, and buy it when the government wants you to buy it. Worse, this upper 50% group overwhelmingly pays the costs for government supported health care. Gee, I wonder why the country is divided? (Yes, there are society wide secondary benefits. But who actually calculates such things when they look at their own checkbook.) (3) The efficiency of the private sector market for health care has been seriously undermined by government interference in that market – forced buying, forced selling, price controls, etc. This means that a lot of money is being wasted to accomplish a social purpose and that the burden for this inefficiency is being loaded onto only about 55% of the population, of which only a very small number are rich people. (4) The private sector pricing of health care insurance has been greatly inflated by the entry of the government as a cash payer for insurance, i.e., the subsidies. (Think about what $1.2 trillion in Federal college loans have done to the price for a four-year college education. Think it caused a bit of inflation?) (5) Once it all sorts out, insurance companies will probably enjoy excess profits because of the huge amount of new money being put into the system. (6) We have put another nail into the coffin of just plain breaking the pricing system for health care delivery in the United States. Your medical bill is either irrelevant or terribly unfair. If you have insurance of any kind, the number on your bill is nonsense. Typical example: your bill is $2000; the insurance provider (public or private) decides that the procedure is actually worth $800; and then the insurance provider decides to discount the price and pay the health care deliver $200. But, if you don’t have insurance the provider is actually – that is, seriously – willing to send you a bill for $2000 and take some of you into collections if you won’t pay it. And you thought the $600 tax for not buying health insurance was your only economic problem? Think again. When the pricing system is broken it is no longer the case that the delivery of health care is taking place in a true private market. What is going on here is an ungainly hybrid that is confusing, unfair and deeply wasteful.
So, how to fix it?
Well, I need to bring in one other subject that might shock you. The California progressives want to provide health care for all Californians, legal or illegal. After reading the above you might say, why not, let’s cut the bull shit and attack this problem directly. The progressive move in California has stalled. Many say, the discussion is over. I doubt it. Again, let’s look at the tape. (Sorry, couldn’t resist the sports analogy.)
The California model says it would cost $400 billion a year to provide universal care to the citizens of this fine state. That number exceeds the current state budget. It also assumes that the Feds will continue the Medicaid support, and perhaps expand it. Now, California is about 13% of the US population (40 million over 320 million). If we use that as a proxy, and apply the $400 B number to the whole country, the California model would provide a cost estimate of over $3.0 trillion to cover the entire country. You want to know something else that is interesting? If you extend out the single payer costs today, as shown earlier ($1.250 trillion for 44%) for the entire population your number is surprisingly close to $3.0 trillion. I bet you did not expect that. Seems like there are a lot of folks who are inexorably moving the country toward a single payer solution.
So what should we as citizens be thinking about?
• The debate in Congress will end up with rules and regulations that are just going to screw things up more. That is, more inefficiency and more unfairness. Why? Because they are trying to extend a hybrid model that is terribly broken. Garbage in, garbage out. Remember that old fashion term? Still has meaning.
• Americans seem to have decided that health care is a social right. Seriously, how can the 60% of us, not to mention the super-rich, sit by and watch 40% of us really suffer. In fact, we have not been willing to accept this unhappiness. We voted for Medicare and Medicaid, then Prescription Drug coverage, and then the ACA. Opponents need to get over it. The ship has sailed.
• By trying to get this done, while satisfying all of these competing values – goodness, competition, private sector pricing, fairness, efficiency, low waste – we are only making things worse; we are only shifting pain from one part of our society to another.
• If it might cost $3.0 trillion to cover everyone, might it cost a fair bit less if we managed a good deal of the inefficiency out of the model? We spend $10,000 per capita. Canada, France, and Britain are, plus or minus, 50% of that. Everything I read suggests that our healthcare outcomes are no better than other providers in the first world. In short, we don’t get our money’s worth.
• If we are going to send to the government a much larger pot of money to, more or less, evenly distribute over our population’s health care, and if the government comes to the table as the buyer with all of the cash, then there must be involvement on the pricing side. Just admit it. An analogy to think about is electric utilities. We need to at least raise the question: why shouldn’t health care be a regulated utility? I am not suggesting that it should be. I am stating that it is an interesting question. You must do something if there is only one buyer. Rather than have the government decide on its own what thousands of procedures ought to cost, as in Medicare, or leaving pricing largely to the private sector, as Medicare does for prescription drugs, perhaps the government ought to be more concerned about what the investment return ought to be for the multiple players in health care delivery, and focus on regulating return rather than unit pricing? Why not think about it?
• The rich can always buy premium programs to supplement health care. Why not?
In short, I fear the current debate and turmoil will go nowhere good because, for whatever reason, our politics does not permit a serious discussion of the issues. Maybe the politics of it needs to completely break down before our politicians will get serious and start addressing the big questions:
• $10,000 per capita spent for health care in America is outrageous.
• The government forecasts that this cost is going up by 5.8% per year. (Official documents)
• The pricing system is broken. It no longer defines the relationship between usage and value. Thus, health care isn’t really being delivered in a private market because a true private market cannot operate this way.
• This quasi private, quasi-public, quasi “you name it” system is deeply, morally unfair for most Americans. (Hey, when you do not know what you will need to pay when you are buying, and you are pretty much forced to buy before you know – hey, that’s unfair.)
• Our overall health care outcomes are no better than in countries which spend half as much money.
• The overall system is remarkably inefficient. In some cases, supply determines demand. For example, after a hospital spends a couple million on scanning equipment (MRI, CT, PET, etc.), there is enormous pressure on staff to use the equipment. Think about that for a moment. Supply determines demand – in many areas of health care delivery.
• We have a health care delivery system which has evolved to a point where its secondary mission is to protect the interests of a wide array of players – hospitals, equipment manufacturers, lawyers, insurance companies, real estate developers, drug companies – interests which much of the time come before those of the patients.
• The pricing for drugs. If the government is going to supply most of the cash it must be able to regulate the price, otherwise all that cash simply pushes up prices to levels that have no relationship with free markets. Again, we do not have a free market for health care delivery. Recognize that. So, that being the case, the government must get more involved on the pricing side, or get the hell out, which is not going to happen.
In the end, Medicare for all, a single payer system, will inexorably grow in America, under the cover of one name or another. Let’s just hope we can get there with our values intact. We have much to work out. And we have many different players with whom we must fairly deal.
