The US Healthcare Dilemma

The United States spends $3.5 trillion on health care each year—nearly $11,000 per person. As a percentage of gross domestic product, we spend more than any other advanced nation in the world, including Australia, Canada, Denmark, France, Germany, Japan, New Zealand and the United Kingdom. And our medical spending continues to grow at twice the rate of inflation. But all that money has not made Americans healthier than the rest of the world. According to the World Health Organization the US Healthcare system ranks 37th, and US life expectancy ranks 31st – in both cases well behind every single western European country. We spend more yet end up with less. What the ….?

 

Here are some other annoying statistics compared to those nations that rank higher:

  • Americans actually spend less time visiting the doctor or the hospital
  • Americans have twice times as many tests – MRI, CT, PET, PSA, etc
  • Prescription drugs are much more expensive in the USA
  • Americans do have excellent care and results when it comes to cancer, but that’s about it.

So, let’s look at the healthcare programs we currently have in place. According to the Kaiser Family Foundation:

  • 57% of the population is covered by employer-sponsored private health insurance
  • 20% are on Medicare (government plan for people above 65 years of age)
  • 13% are on Medicaid (government plan for people with very low income)
  • 2% are Military or Veterans (government plan)
  • 8% are Uninsured

No one is particularly happy with the programs currently in place. In 2010 the Affordable Care Act was passed by a government controlled by Democrats. The Act became effective in 2014 and has significantly reduced the number of Uninsured, but many issues remain.

And, just in case you have a short memory or think that Obamacare is the source of all of our healthcare problems, look at this chart. It shows that health care premiums were rising significantly for years before ACA became law. In fact, between 2000 and 2005, private company healthcare premiums rose 69%!!

 

Since 2010, Republicans have campaigned to repeal and replace this law but now that they control all three levels of government, their first attempt (March 2017) to follow through failed because they could not gain consensus within their own party. Like the new President Donald Trump said in early March 2017: “Who knew that healthcare was so complicated?”

 

What’s the solution?

We know that Republicans can’t live with Obamacare, and Democrats won’t support anything new that the Republicans propose, so let’s explore something that is already in place: Expanding Medicare.

 

Since 1966, the US government has been administering a national single-payer insurance program for anyone over 65 years of age called Medicare. In 2017, Medicare provided health insurance for 66 million people. This program is funded by:

  1. A Medicare Tax of 2.9% which is paid by employers and workers (each pay 1.45%). This premium is compulsory for everyone who earns income and this revenue primarily covers hospitalization expenses. (Part A of Medicare).
  2. Medicare enrollees pay an optional monthly premium for medical coverage (Part B – doctors and various tests) and prescription drug coverage (Part D).
  3. Medicare enrollees can supplement their insurance plans for a higher level of coverage by purchasing additional, optional coverage from private insurance companies (Part C).
  4. Medicare enrollees pay a deductible and co-pay fees depending on the care needed.
  5. People at the highest income levels pay a surcharge on income above $250,000.
  6. Money from general taxation

The last point (#6) needs some explanation. The total cost of Medicare is approximately $700b per year but the revenues raised from items 1-5 are not enough to cover all of the outlays for this program. Therefore the government supplements Medicare with $500b per year from general taxation revenues to make up the deficit. The reason for the deficit is that Medicare is a program just for old people – who consume the most health care (average healthcare spend for person above 65 years is $22k vs $7k for a person 40 years of age and $4k for a child). If Medicare were available to younger people, the revenue raised would easily cover their costs – certainly for Part A coverage.

When first introduced Medicare was not perfect.  Over the years it had to go through 11 adjustments to make it better. Today Gallop surveys show that 80% of Americans are satisfied with Medicare. It works and it’s much simpler to understand and administer than any of the private plans: (You must be enrolled in Part A and you have choices when it comes to Part B and Part D. That’s it! A mandate for the basics and then plenty of options.)

 

If we stopped clowning around with the ACA and the AHCA and whatever else the politicians dream up and just adopt Medicare-for-All for the entire country we would actually solve many problems:

  • Everyone who earns income or has earned income in the past would qualify and everyone would be covered (using existing Medicare rules).
  • The system would be dramatically simplified for the patient and the health-care provider thereby driving out costs.
  • While you are working, everyone would pay a Medicare Tax/Premium deducted at source and the amount would increase gradually, over 10 years, to 12% (8% for the employer and 4% for the employee – which means that a family earning $100,000 per year would be paying $330 per month in healthcare premiums for basic Part A coverage.) Because everyone would pay a monthly premium, we can remove the “entitlement” label from this program.
  • Optional supplemental coverage would be possible – just as it exists in Medicare today, and that would add $300 per month to that same family bill.
  • Within 10 years the system would be self-funding

OK, I know what you’re thinking: A government program is less efficient than a private program. But according to the Congressional Budget Office, Medicare per capita expenditures have historically been lower and over the next decade Medicare’s per capita spending is projected to grow at a rate of 2.5 percent each year, compared to private insurance’s 4.8 percent.

Or, maybe you were thinking: this is a huge increase in the current Medicare tax from 3% to 12%. Yes and no. Employers and Employees are already paying significant health insurance premiums. We just don’t call it a tax. Today, for a family of 4, the average employer’s portion of health insurance is $18,000 per year and the employee’s portion is $4,500.

US Medicare has been in place for 50 years, there are 66 million enrollees and because 10,000 people are turning 65 every day, this group will growing by 2-3 million per year until 2040. These people like Medicare, are not moving to any other kind of program and they have the political clout to prevent politicians from messing with their plan. Veterans could easily be transitioned to Medicare thereby eliminating the duplication and delays within the VA. The trick will be to get those people currently on private employer-supported plans to the Medicare-for-All plan. The Insurance Lobby won’t like it and some politicians will suggest that this is an attempt to turn America into Europe by offering socialized medicine. Get over the label – we already have that in Medicare and Social Security. And maybe, on the issue of Healthcare – something which affects every single person in this country – we should consider a model that has proven it delivers better results than the one we currently have in place.

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