The way we finance medical care is probably the worst obstacle we face to developing a real ownership culture.
If Republicans are serious about making capital ownership and entrepreneurship available to middle-income Americans then we have to find ways to decouple insurance from employment and make it affordable on an individual basis.
There are three primary problems with our current system. First, by financing health care through employers we create serious structural obstacles for anyone looking to earn a living through something other than formal, full-time employment. In an economy straining to break away from traditional definitions of employment, this is a serious drag on innovation.
Second, our system is spectacularly inefficient, the most expensive in the world by a vast margin, while delivering unimpressive outcomes. This means that anyone wishing to obtain reasonable coverage on their own faces astronomical costs. For a family of four, even a high-deductible plan ($4-6K deductible) carries roughly the same cost as an average mortgage.
Third, due to the first two factors, we fail to provide effective health care for a huge portion of our population. That’s not just the uninsured (more than a quarter of Texans), but also those the large and growing ranks of marginally insured who face crippling costs if they get sick. They tend to delay or avoid preventative care, only seeking attention when an advanced condition makes it unavoidable (and far more expensive).
All of these problems rise from the structure of our system. We finance medicine primarily through employer subsidized insurance. The federal tax break for employer-provided health insurance costs about $180bn a year. For those of you keeping score at home, that’s more than double the $80bn we spend on food stamps. If you have health insurance through a private employer, welcome to the 47%.
This structure means that conven
tional employment is the only economically viable channel through which a family can get solid, reliable care. If health insurance were even somewhat affordable on a personal basis this might not be such a problem, but our system is so badly distorted that only the very affluent can afford access to the kind of care that most full-time workers take for granted.
A glance at box DD on your 2012 W-2 will tell you how much your company-provided healthcare actually costs your employer (prior to the tax subsidy). For most families that figure will range between $14,000-21,000 a year ($16K is the average). That comes on top of family premiums usually ranging between $2,500-$5,000 a year.
Purchasing a plan on your own is so prohibitive that few households (only 6%) attempt it. Independent contractors or entrepreneurs who are forced to purchase health insurance on their own generally choose very high-deductible plans that cover only a few basic preventative items and still come with a hefty price tag. A family plan with a $15,000 annual deductible can still cost $4-5K a year in premiums – if you are healthy.
Basically, our system forces potential entrepreneurs or anyone who wants to experiment with an alternative to full-time employment to gamble on their family’s health. That creates enormous headwinds for a burgeoning ownership culture.
It’s been almost twenty years since the GOP assembled a full, credible proposal to update our health care system. Republicans are locked in a bizarre fantasy, imagining that we face a simple choice between free market health care and “Socialized Medicine.”
In reality we began abandoning a free market in health care a century ago because it doesn’t work. The version of socialized medicine that we now live under costs a fortune, produces mediocre results, and fails to cover a large percentage of our citizens. Ironically, the greatest policy obstacle to a far freer, more entrepreneurial society rises from conservative fantasies about socialism.
In place of a real plan, Republicans have been pretending that we could fix medical finance by simply shifting the tax subsidy from corporations to individuals. It sounds great, but in reality it would destroy the incentive for employers to provide health insurance without making insurance any more affordable for families.
A family of four earning $75,000 and making modest contributions to a retirement account pays a little over $3,000 a year in federal income taxes, an effective rate of about 4%. Even a 100% tax deduction for healthcare (extremely expensive and entirely unlikely) would only give them an extra $3,000 to help replace their $20,000 health insurance plan. For about 85% of American households, the current Republican proposals would be a cruel joke.
The debate over medical finance is not just about compassion for the less fortunate. Our health finance system is so poorly structured it is even a burden to the affluent, to corporations, and to government.
U.S. businesses spend a whopping $500bn a year on medical care. In America, every business must become an expert at health finance in addition to whatever it is they do for a living. That is a particular burden on the most fragile and critical segment of our business ecosystem – small business.
The effects on local government are perhaps even more serious. Local governments spend $400bn providing medical care, about the same amount they spend on K-12 education.
People one day will look back at the way we finance health care in much the same way we view 19th century industrial meat-packing. It’s worth remembering that it was a Republican President who cleaned up our food system. Republicans now have a comparable opportunity to help forge a middle way in health care between state control and anarchic cruelty. There has to be a way to establish a tax-funded system that still preserves individual choices and incorporates the efficiencies of market forces where possible.
Before describing some of our options, we need to understand why, exactly, the Affordable Care Act fails to accomplish to accomplish this goal.
More: A Libertarian Looks at French Health Care
ABOUT THE AUTHOR: Chris Ladd is a Texan who is now living in the Chicago area. He is the founder of Building a Better GOP and has served for several years as a Republican Precinct Committeeman in DuPage County, IL, and was active in state and local Republican campaigns in Texas for many years. (Email: chrladd AT gmail DOT com)