Even as I pen these words it seems impossible. We are, after all, talking about John McCain here. The self-described "maverick" John Mccain; the McCain-Feingold, limit your free speech John McCain; the John McCain I spent all primary season lambasting for having the nerve to call himself a Reagan-conservative, and hailing from the great state of AuH2O, no less. Yet, incredible as it seems, here we are. John McCain (deep preparatory breath) gets it on healthcare.
I recently wrote a piece questioning Sen. Obama's credentials as the candidate of any real change when it comes to healthcare. The piece was not flattering.
When it comes down to the nitty gritty of the Senator's health policy Rx's, there is nothing new there, save for the repackaging of tried and tired liberal posturing asserting that the government exists as the answer to all problems, if only we had the bravery and benevolence to grant it the requisite power and resources.
The problem, it seems to Obama and his ilk, is that there are far too many people uninsured in this country. The obvious solution therefore would be to get more people insured, either by enrolling them in expanded government programs, or mandating that all employers pay for coverage on behalf of their employees. Of course, the notion that employers pay anything extra under this arrangement is economic nonsense. More on this later.
It was Obama himself who famously told Hillary Clinton during the primaries that "the reason people don't have health insurance isn't because they don't want it, but because they can't afford it." This is as true for businesses as it is for individuals. Thus, it would seem, from Sen. Obama's line of reasoning, that cost is the real culprit in our dilemma, with the uninsured being a mere symptom of a broader problem.
I would agree.
Unfortunately, this same logic is not applied to the Senator's policy proposals, and his reliance on the third-party payer system would do nothing to control escalating costs. In all likelihood, his plans would exacerbate our current problems, that is in the absence of draconian controls on supply.
The reason for this is simple, and can be summed up by one of Milton Friedman's most famous axioms: no one spends someone else's money as wisely as they spend their own. This is as true for medical care as it is for every other good or service we purchase. It is, at it's most basic level, the entire reason that the concept of supply and demand works. When patients pay their own bills, they tend to be far more conservative (and demanding) consumers, desiring more bang for their proverbial buck. The problem, however, is that over the last half century or so, Americans have paid less and less of their healthcare costs out of pocket, paradoxically leading to higher costs. Fifty years ago, patients paid on average 60 cents on the dollar for care, today they pay 14 cents, which is less than individuals pay in the explicitly socialist Canadian system.
Consequently, over the past half century, healthcare costs have risen roughly in proportion to the percent increase paid by third parties. Prior to the creation of the Medicare/Medicaid programs in 1965, healthcare spending never exceeded 6% of GDP. Today, that figure stands closer to 17%, and it is steadily growing. According to a recent MIT study, at least half of this growth can be directly attributed to the Medicare program itself.
These massive public programs, while highly contributory to the escalation of healthcare spending, are but one culprit among others, and there is a growing consensus among experts who are pointing their fingers towards the tax treatment of healthcare as one of the primary actors in cost growth.
Since a ruling by the Internal Revenue Service in 1943, the result of wartime wage and price controls, there has been a massive increase in tax-subsidized employer spending on healthcare, whereby health insurance purchased by an employer is excluded from taxable income, ushering more and more people into third party payer arrangements for routine medical care.
At first glance, this might seem to be a good thing, but the tax-exclusion is extremely regressive, often encourages over-insurance, retards salary growth, and encourages over-utilization of medical services, not to mention an insatiable pressure for healthcare prices to rise steadily. It might be noted, however, that between 1995 and 2005, while the real price of healthcare paid for by third parties rose, the real price of self-pay medicine actually declined. The theory behind the discriminating consumer gains credence. Consider laser-eye, or breast-augmentation surgery as examples. They are both safer and more affordable than ever.
This is, in all likelihood, due to the absence of third-party payers in these sectors, and top economists would agree. On July 31st, the Senate Finance Committee heard from three prominent economists who were in agreement on this score, that the tax exclusion, and thus the third-party payer apparatus, lays at the heart of our health care woes.
One of those to testify, MIT economist Jonathan Gruber, explained the issue as such:
When MIT pays me in cash wages, I am taxed on those wages. But the roughly $10,000 that MIT will spend this year on my health insurance is not taxed, amounting to a tax break of about $4,000 to me. To be clear, this is a tax break to individuals, not to firms; firms are indifferent between paying me in wages and in health insurance. But I am not indifferent about getting paid in wages or health insurance; I pay taxes on the former but not the latter.
This would seem to be a sweet deal, unfortunately it makes health services artificially cheap at the margin and leads to perverse over-utilization, driving up costs which we are insulated from thanks to the fact that the money to pay for it has been removed from our paychecks before we even get them, with the correlated consequence of suppressing salary growth.
So why don't we just remove the tax break?
Critics, like those in the Obama camp, maintain that this would lead to the erosion of employer-sponsored insurance [ESI] (as if it were already settled that this is the best way to finance healthcare), and the removal of "employer dollars" from the coverage pool. Economic evidence suggests however that these fears are largely unfounded and, in point of fact, there are no employer dollars as such: the money that employers spend on insurance for their workers would otherwise just be spent on worker wages. As Prof. Gruben explains: "[t]he notion of 'shared responsibility' or 'keeping employers in the game' are political notions, not economic ones."
This conclusion is in sync with those drawn by a consensus group petition circulated by the Galen Institute back in 1994, which noted, in part, that "employment-based health benefits are actually part of employee compensation. However these benefits are not counted as income for tax purposes. This tax policy distorts the healthcare marketplace. It undermines cost consciousness by disguising the true cost of insurance and medical care to employees. It artificially supports increased demand for medical services and more costly insurance. As a result, inefficient healthcare delivery is subsidized at the expense of efficient delivery, and cash wages are suppressed." Further, the current tax law discriminates against the self-employed, the unemployed, and those whose employers do not offer health insurance.
A very real concern, however, if one is worried about the erosion of ESI, is Sen. Obama's insistence on a new public insurance option combined with a Federal Health Board and National Insurance Exchange (See Obama’s Health Plan: Path to Government Takeover).
As employers realize that they can relieve themselves of the growing burden of employee health insurance costs merely by dumping them onto the public dime and paying the corresponding tax, which will very likely be less than the cost of private insurance, once nation-wide benefit mandates are set, more and more will realize they can do the same thing, and job-based benefit programs really will start to erode. This isn't conjecture, this is cause and effect.
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So, where does John McCain fit in all this? Why is he the real candidate of change and not, as so many assume, Barack Obama?
As I have tried to make clear, perhaps the most elemental problem with American healthcare is how it is paid for and consumed. Well, as Michael Tanner of the Cato Institute, no friend of Conservative politics, says: "McCain wants to change not only who pays for healthcare, but how they pay for it." The Senator from the AuH2O state challenges the way we've done healthcare for decades; Obama wants to entrench us deeper into the beast that has led us to this impasse.
As McCain notes on his website, "[b]ringing costs under control is the only way to stop the erosion of affordable health insurance." An aide of his continues in a similar vein when he says that so many people "worry about the uninsured, but they are a symptom of a larger problem. Unless you do something about cost, you are chasing your proverbial tail."
Recognizing that the tax break for ESI is both a historical accident and highly discriminatory to low-income individuals, the self-employed, small businesses, and those who do not receive insurance through their place of business, McCain proposes the elimination of this distortionary quirk. Instead, he maintains that the tax break be finally divorced from employment through a universal refundable tax credit, $2,500 for individuals and $5,000 for families. This credit would be available to all, regardless of how one purchases their insurance or whether they pay any income taxes at all, as the poorest of us no longer do after the Bush tax cuts.
It may seem unremarkable and a bit wonkish, but this is actually a uniquely radical proposal for the paradigm of American health insurance purchasing. For the first time, in an equitable way, a candidate is seeking to return control over health care dollars to workers, rather than expand it to employers and government bureaucrats. The idea, of course, is that this would encourage people to show the same cost consciousness and discipline as they do when shopping for other goods and services.
Furthermore, this frees up both providers and insurance companies to get more creative in the products and services they offer, whether it be package deals to promote price transparency and competition, discounted services for those of lesser means, as was done before the advent of third party and government financing, or specialized coverage for sufferers of various illnesses whose healthcare needs can be more or less predetermined (e.g. a diabetic can expect to have high insulin and diagnostic costs, but might not wish to pre-pay for marriage counseling or hair transplants or even orthopedic needs).
One criticism of this approach that has been raised is that it would put individuals with pre-existing conditions at a disadvantage as, tax credit or no tax credit, they might have difficulty obtaining affordable coverage on the open market. However, Sen. McCain has already tacitly endorsed the possibility of means and risk-rating the tax credits, with more money going to those who need it more. Further, he has already said that he would use federal funds to subsidize state high-risk pools, which are already in use to help those finding affordable coverage difficult to come by. Similarly, this problem will be further addressed by the fact that health insurance will be more affordable for the young and healthy, attracting them and their premium payments into the market before they develop costly conditions. This is the same way home-owners or car insurance is made affordable: more people pay lower premiums before their house catches on fire or they wrap their car around a tree.
Perhaps as revolutionary is McCain's insistence that, finally, a national market for health insurance be permitted to exist.
As it stands now, most health regulation takes place at the state level, and it is illegal for an individual in one state to purchase coverage from another. The problem with this is revealed when one considers the cost of state-by-state coverage mandates for everything from drug/alcohol counseling to chiropractic therapy. Currently there are more than 1,900 coverage mandates nation-wide which, according to the Council for Affordable Health Insurance, increase the costs of insurance premiums anywhere from 20% to 50%. This of course creates the gross inequity of trapping consumers in highly-regulated, high-cost states, legally prohibiting them from procuring the health coverage they might sorely need and in many cases might only be just a few short miles away, across the state border.
Take another example, elucidated by Michael Tanner:
New Jersey imposes more than 40 mandated benefits, including in-vitro fertilization, contraceptives, chiropodists, coverage of children until they reach age 25, and other regulations. As a result, according to the Commonwealth Fund, the cost of a standard health insurance policy for a healthy 25 year old man in New Jersey comes to $5,580 ... However, a similar policy in Kentucky, which has far fewer mandates, would cost him only $960 per year.
I grew up in New York, and it might be noted that the average policy there, for a family of four, is $12,000.
I've used this analogy before, but, why is it that Jennifer Lopez can get her ass insured by Lloyds of London, across the Atlantic Ocean, but my family can't get simple health insurance from a company on the other side of Long Island Sound?
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The elimination of such inequities, and the other reforms discussed above, are both radical and right. They are novel and well reasoned approaches to universally accepted problems. Sen. Obama, for all his rhetoric, refuses to even recognize some of these issues, and for his solutions relies on the same tired prescriptions of a heavier hand for government and a usurpation of choice and suppression of the same market mechanism which have brought goods of ever-improving quality to ever more affordable prices. The really revolutionary action here would be to finally permit the market to do what it does best, not to suppress it, no matter how fashionable it might be.
The choice is clear. Both candidates want change. Which change do you think we should believe in?
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1 comments:
this was wierd
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