ARCHIVE - APRIL 2017
Issues, News & Views
OXYMORON OF THE UNINFORMED... "FREE HEALTHCARE"
2017/04/20 - Ahhh… healthcare. The issue never seems to leave the headlines. It has been one of the most contentious issues in American politics and policy for decades. The previous Administration’s “solution” only made the controversy worse. And the recent fix proposed by the new Administration would have only broke it even more.
Perhaps the most logical – and the most natural – approach is to start all over, to develop a 21st century solution from the ground up. Recognizing that the most logical and natural process for the delivery of goods and services is, and since the beginning of human civilizations has always been, through free markets.
Let’s stop paying lip service to market-based solutions. Let’s act. Let’s enact a system that enables people, through a combination of their earnings power and sound assistance policies, to make their own choices based on their own needs and preferences about goods and services and prices, without government interference.
Freedom to supply and freedom to choose will always lead to higher quality, and lower prices, and dynamic innovation, all at the same time. Less government in the marketplace always leads to better outcomes for everyone, everyone, that is, except for government bureaucrats. Big Government can only fail to give us better or cheaper healthcare.
Americans are fed up with all the talk from politicians about reducing the size of government, politicians who then deliver the opposite. The federal, state and local bureaucracies continue to grow, they cost more to taxpayers, deliver less to taxpayers, and become a breeding ground for parasites. Big Government is sucking us dry. If this is not another American Century it will be because of Big Government.
As Thomas Jefferson wrote of King George in the Declaration of Independence, “he has erected a multitude of offices and sent hither swarms of officers to harass the people and eat out their substance”. We need to reclaim that spirit of independence.
As our economy becomes ever larger and more complex it continues to develop a scope and scale far beyond the ability of Big Government central planners to efficiently and effectively address public policy issues. This is as true with healthcare as with any other sector of the economy.
The logical starting point for healthcare is to allow people to choose for themselves among a host of competing insurers and products. The key issue is access and affordability. We need to ensure all Americans have access to healthcare – it is a crucial building block in helping individuals build their own, unique, personal American dream.
The government has two roles in the system: ensuring universal access through affordability; and maintaining and enforcing a regulatory framework. Encouraging and enabling players to participate, and arbiting disagreements between participants.
Affordability is not that complicated, it comes in two pillars. First, incentivize Americans to save (yes, save!) for medical expenses by encouraging all individuals to open tax deductible health savings accounts, from which all – but only – healthcare expenses of the taxpayers and his/her dependents can be paid. Monthly insurance premiums would be charged directly to the account. Accountholders would be provided with a debit card which can be used to pay for copays and other designated expenses such as, perhaps, gym memberships, or possibly sports equipment like, bicycles.
Health Savings Accounts are at the core of the system. Note that everyone who wants healthcare assistance must open an HSA. Personal and/or employer contributions would be tax deductible, thus reducing the burden for middle income taxpayers. No HSA, no tax deduction.
The second pillar of affordability is subsidies for low income individuals. Lower income people would open an HSA just like everyone else, and would receive their subsidy in the form of a periodic direct deposit to their HSA. No HSA, no subsidy.
Note that subsidies would go to individuals, not insurers. Each individual would have access to the same insurance options as everyone else. For people with no income, their subsidy would approximately cover the full cost of the average policy that someone in similar "Age and Wage" circumstances would generally face. From there the subsidy would slide down the scale to zero at some point in the general vicinity of the median income.
In this way everyone would pay their healthcare expenses through their HSA, which would be funded through a combination of tax deductible contributions and government subsidies. If you want a subsidy, you must file a tax return, and supply the IRS with your HSA account number. This incentivizes people to get out of the shadows and participate in the visible economy. The IRS calculates the subsidy you are eligible for based upon your return and makes a periodic deposit to your account.
If you were reading between the lines and thinking ahead, yes, you are correct. Everyone needing to obtain coverage regardless of age or wage participates in the same system. There is no more Medicaid or Medicare. Everyone buys quality, market insurance at efficient, market prices. The societal benefits to this change are enormous.
Massive federal and state entitlement bureaucracies would be eliminated. Even if they were well run, these bureaucracies still cost the taxpayers billions annually, and perform a completely useless non-service. But they are much worse than merely massive tax sink holes, they are fraught with waste and fraud which cost the taxpayer billions more. But in our plan, the bureaucracy is gone. And all the waste, fraud and crime that goes along with it? Gone.
Even the Veterans Affairs bureaucracy would be slashed – not veterans’ benefits, just the VA bureaucracy. Veterans who are eligible for healthcare would have their HSA’s funded by the VA so that they would be able to obtain, at no cost, the same commercial insurance as all other Americans.
Instead the VA’s direct healthcare mission would be streamlined and focused on the core responsibility of combat care - the physical and emotional traumas experienced by our veterans as a direct consequence of warfare. This would greatly reduce the scandals that have plagued the VA for decades, and provide a more effective and efficient delivery system of the healthcare needs unique to our servicemen and women.
Further, and this is a problem ignored far too often, government is currently participating financially in the system. They are a player. They have skin in the game. Their gain is someone else's loss. They are the referee, and a player. Government is the pitcher, and the umpire. It call balls and (mostly) strikes on its own pitches. Who, that has their thumb on the scale, can resist the urge to press down? Guess who wins? Yes, the government and its influence peddlers; and who strikes out? Yes, everyone else. Such as doctors, and taxpayers.
The phrase “bend the cost curve” is code for “screwing doctors”. Cutting reimbursements to doctors creates positive short term “cost savings” headlines and photo-ops, but will have detrimental long term consequences to the quality of healthcare. Government needs to be dedicated to its rightful place as an umpire alone, and not compromising its authority and impartiality by picking up a bat or glove and taking a position against some players. When you hear the phrase “bend the cost curve” you can assume you are being lied to. If policymakers were serious about "bending the cost curve" we would already have be tort reform. If you want to blame a profession for out-of-control costs it's the lawyers, not the doctors.
And how do we pay for this? This is a question that no one wants to face. But we need to face the fact that healthcare is expensive. Think about the terms “civil war” or “jumbo shrimp” – they are classic oxymorons. So is “free healthcare” - there is simply no such thing, it’s not logically possible. One way or another we pay, and pay we do.
Healthcare is extremely expensive – it represents over one-sixth of our entire economy. That means Americans spend nearly $3 Trillion per year on healthcare. Even if we think we are getting “free healthcare” from our employers, we are not – our employer reduces our salary. It all comes out of the same pool of money that they set aside for employee compensation.
Unfortunately, the tendency to hide and bury healthcare costs – such as in Medicaid, Medicare, or employer programs – adds to the inefficiency of our system. If people don’t know how much something costs, how can they make rational choices about how much to consume? Bringing healthcare costs out of the shadows, and into the light, will make the system more efficient. The truth is ugly but we need to face it. Can we handle the truth?
Presently Medicare receives funding through payroll taxes, levied on both employees and employers at a combined rate of 2.9%. Most people know they pay a Medicare tax, however, far fewer people realize that employers are also paying that tax, that's actually tax on hiring and paying wages!
Our plan phases out these economically perverse payroll taxes. We should seek to eliminate payroll taxes to the fullest extent possible as they represent a disincentive for individuals to seek and maintain employment, and a disincentive for employers to hire and retain workers. Eliminating this tax cuts payment and administration costs to employers, and increases employee take-home pay. It will stimulate employment and job creation.
The healthcare subsidy pool should be funded by taxes directly connected to the delivery of healthcare, rather than being buried in general income tax revenues. The bad news is that the taxes will be hefty, but there are at least three pieces of good news: first, people will get a better grasp of how much healthcare actually costs; second, we can more directly connect unhealthy behavior with the cost of healthcare; and third, Medicare and Medicaid would no longer exist so taxes and expenditures for these programs would be reduced and/or eliminated.
The upside of replacing government bureaucracies like CMS, Medicaid and Medicare with private insurance would dramatically improve federal and state fiscal positions, and would reduce disincentives to hiring and employment
Funding streams for the subsidy pool could take on a number of forms, and could be conducted at the federal level and augmented at the state level. For example, a sales tax on healthcare expenditures, including premiums and out-of-pocket costs could be levied at the federal level and distributed nationally. States could augment the federal subsidy to their resident’s HSA’s by distributing taxes on liquor, tobacco and unhealthy foods.
The importance of funding the pool with “sin taxes” cannot be overemphasized. Tobacco products cost us so much in increased healthcare costs, it only makes sense to place a surcharge on tobacco products and use the revenue to fund the healthcare system. Ditto sugary snacks and fried foods. Obesity and diabetes are major drivers of our healthcare costs, it only makes sense to tax the causes and fund the system with those taxes.
It’s a very simple program. Everyone participates without obtrusive mandates of dubious constitutional validity. Upper income people will participate because even if they don’t buy insurance and instead choose to pay cash to a top-tier doctor, the doctor will still be required to collect the healthcare tax and fund the subsidy system; middle-income people will want to participate so that they can tax-deduct their HSA contributions, a benefit that would more than offset the healthcare subsidy funding tax; and lower income people will participate in order to collect the subsidy.
Individual HSA contribution limits would be quite high – ideally we would want individuals to accumulate substantial balances in their HSA over the long term to ensure they have resources in case of future difficulties.
Hey, why can’t we buy health insurance the way we buy car insurance? Why do we need a government website? We don’t need a government website. Everybody buys airline tickets from websites. Rich people and educated people, for sure, but also old people, poor people… everyone from all walks of life from all demographics from all over the world manage to buy airline tickets. Some people deal directly with airlines, some people go through travel websites like Priceline or Kayak or Expedia. It can be done.
There is no reason why Silicon Valley entrepreneurs can’t develop healthcare websites far better than anything the government came up with. Really, healthcare.gov – whose idea was that??
The mechanics are simple. Individuals report their HSA account number to the IRS. The IRS collects the various taxes and accumulates the funds in a segregated account. The IRS periodically transfers a calculated amount to taxpayers' HSAs based upon their prior year returns and the size of the pool. Because the subsidy transfer is based on prior year actuals rather than current year estimates, the IRS has no recourse for its errors, it has no “claw back” powers, and there is no “honor system” such as the one that relentlessly haunts Obamacare enrollees.
And save the best for last? This is a defined-contribution subsidy system that replaces our current defined-benefit system. We cannot afford our current system and it is dragging us toward federal, state and municipal debt catastrophes. The American taxpayer simply cannot afford the promises American governments at all levels have made to their people. We need to change. This is the change we need.
This proposal is a good, market-based system. It is simple, and cuts out most of the bureaucracy that adds so much useless bloat to the final cost of healthcare in America. It keeps the government out of the physician/patient relationship. It allows supply and demand to determine price, quality and innovation. It gives employees and employers the freedom and ability to make advantageous choices, rather than mandating behavior. It's a good system. It's as good as it gets.
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