First and foremost, there is a major deficit issue that needs to be addressed. See the figure from the non-partisan Congressional Budget Office. "Outlays" are Outlays due to Social Security + Medicare. The numbers on the left are percentage of GDP.
So in other words, Social Security and Medicare taxes and premiums would have to almost double in the coming decades to pay for the rising costs. Part of that problem is Social Security, but I will only address the Medicare component in this post.
Second, there are millions of uninsured or underinsured in our system. This is not just a social problem, but also a cost problem. Since the only way that a lot of these folks get treated is in emergency rooms, the cost is unduly high. Of course, those costs are passed along to the consumer through higher hospital costs, doctors fees, etc....
Third, the cost of insurance to most families is onerous.
HEALTH CARE REFORM PROPOSED BY THE PRESIDENTIAL CANDIDATES
To broadly characterize the health care proposals put forth by the presidential candidates, the Republican plans attempt to address the cost of insurance to families and leaves open the possibility of working the deficit problem (they can’t address it outright due to the political difficulties) but does little for the problem of the uninsured. The Democratic plans attempt to address the uninsured and the cost to families problems, but do nothing for the deficit problem (the assumption being that this will have to be solved by reprioritization of budgets or tax increases / reductions in service).
A PROPOSAL BY A DUMB BLOGGER
In my view, there is a better answer. I propose a health care system modeled on the system we use to finance retirement. In other words, I propose a system that looks very much like a 401k / IRA with a safety net of Social Security. To accomplish this, I’ll have to borrow some of the ideas from both the Republican and Democratic plans. The outline of the plan is as follows:
1. Responsibility of paying for health care in retirement is shifted from Medicare to the individual with a safety net. The safety net would be analogous to Social Security.
Individuals would have to save money in the equivalent of IRAs or 401ks (Health Savings Accounts or a similar vehicle) while they are employed to pay for medical expenses in their retirement. Contributions to these accounts would be tax free.
Additionally, taxes would be deducted from paychecks with employer contributions (assumably less than the current FICA) to pay for the safety net. The safety net would work in similar fashion to Social Security: upon retirement, a monthly stipend would be paid into the individual’s HSA based on contributions.
2. Mandatory High Deductible Insurance with Tax Credit for the poor. A big difference between saving for retirement and saving for health care in retirement is that at any time, an individual may get sick and have to pay medical bills which would deplete their HSA. Insurance would have to be in-place to mitigate this risk. Tax credits would be given to offset costs for poor families.
Medicaid would still be required to help poor families that can’t meet their deductibles. Although In theory the costs of such a program should be substantially lower.
3. Larger employers would be required to match (up to a fixed amount) employees contributions to HSAs. In the current employer-based system, employers incur large and ever increasing health insurance expenses. Their burden could be greatly reduced while greatly increasing value.
4. Private sector insurance would receive tax credits for offering High Deductible Insurance policies if they met the following requirements:
a. Cover all individuals regardless of pre-existing conditions
b. Reimburse preventative healthcare costs (i.e. yearly checkups, mammograms, etc ..)
The tax credits would be designed to offset higher costs to the insurer due to meeting the requirements.
5. Heath care decisions would be entirely the responsibility of the individuals. Thus the burden/costs of health care administration are shifted to the individuals and away from the Govt. and away from Employers.
WHAT ARE THE ADVANTAGES OF THE PROPOSED SYSTEM?
The first advantage is that the Healthcare system becomes consumer driven. In the current system, inefficiencies are not driven out by market forces.
For example, even though drugs cost 2-5 times as much in the United States as they do elsewhere else in the world, HMOs typically don’t re-import them. The HMOs just pass that cost along to their customers (individuals and employers). Individuals don't see the outrageous cost of the drugs. They simply pay the co-pay. But ultimately, individuals and employers are paying for that inefficiency.
When an individual is looking at the choice between re-importing a drug and paying an exorbitant price, they’ll choose re-import. Other inefficiencies, such as unnecessary medical tests and procedures, and perhaps overhead due to excess litigation will be driven out as well.
Ultimately, good consumers will drive all the inefficiencies out of the system. The result will be that overall health care costs will go down. In the prescription drug example, Drug companies would have to lower prices in the US to compete with re-imports (where the prices would have to be raised). Even though the unfair US pricing has been a well-known problem and re-importation was legalized in 2003, reform has never fixed it. However where legislation fails, market forces would succeed.
The second advantage of the proposed system would be that cost savings from driving out inefficiencies and from removing the administrative costs would enable deficit reduction, universal coverage, manageable costs to families, and even reduced cost for employers.
The third advantage of the proposed system would be increased demand for more cost-effective healthcare solutions. Right now, individuals don’t necessarily feel the pain due to cost-ineffective management of diseases. However if individuals with diseases that cost a lot to manage (e.g. Diabetes) had to pay thousands of dollars out of their own pockets every year, you can be sure the urgency would be much higher to find a better solution. Diseases would get cured instead of managed, and ultimately the costs of healthcare would go down.
WHAT ARE THE DISADVANTAGES OF THE PROPOSED SYSTEM?
A disadvantage of the proposed system would be that people would make bad decisions. People that might not have gotten sick in the current system will get sick in the proposed system. Unfortunately there will always be a certain percentage of people that won’t make good risk / reward trades when it comes to healthcare. However, one would expect that the free market will come up with a solution for that problem as well.
A second disadvantage may be cost. The various tax credits I proposed wouldn't be free. I have to believe the cost would be significantly less than the $110 Billion needed to fund Hillary Clinton's plan. Furthermore, I believe that removing the healthcare burden from employers would increase profits and encourage growth. Ultimately as the inefficiencies in the system worked themselves out, the cost would mostly be offset. Combine that with the long term solvency of the healthcare system and I think that the total picture would be acceptable to even fiscal conservatives.
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