Heath Care Finance: Please W. and Hillary Not That!

Ever since the failure of the Clinton Administration's universal health care initiative in the early 1990s, health care legislation, and much else at the federal level, has been limited to a series of little special deals. A little more spending for you, a little tax break for you. Both the federal tax system, as the 1986 comprehensive reform is reversed, and the public health care finance system, have become increasingly complex, inequitable, and economically damaging. But little groups like their little handouts, which can provide more per beneficiary than anything provided to everyone, and the politically influential like complexity, because it disguises inequities that favor them. Thus, in the last few days, Senator Clinton and President Bush have proposed, as health care solutions, two things I absolutely do not want to see: a further expansion of Medicaid, as opposed to Medicare, and more tax breaks.

Expanding Medicaid kills New York. Why? Because the feds only cover half of most Medicaid expenditures in New York, compared with up to 80% in other states (the federal share for children is higher in both cases). Many states with lower poverty rates than ours nonetheless get a higher matching share. The larger the share of health care expenditures covered by Medicaid, the higher New York's tax burden and/or worse its services relative to other states. And, with health care funded at the state level, other states have an incentive to ship their sickest residents here for treatment on our dime.

In fact, Medicaid is 50 different health care plans, one for every state, with different rules and deals for each. Since people who require expensive health care, and people who don't want to pay for people who require expensive health care, are free to move among states, we need a national solution. In order to attract business and the affluent, many states have an incentive to skimp on care. In other states, where the health care industry is more politically powerful, states have no incentive to set priorities and control costs. Why? Because the money is spent locally, but a large share of it comes from the federal government.

Senator Clinton seems to have drawn the wrong conclusions from the failure of her health care plan. She seems to have learned that the only way to expand health care coverage is to cut little deals for little groups of people, and to attract Red State support by (once again) screwing financially the state she purportedly represents. In reality, her health care plan failed because it attempted to appease every Democratic interest, greatly increasing its likely cost, and/or because it was ahead of its time. The time will almost certainly arrive, in the next recession, for a basic universal health care financing system that doesn't provide everything to some, but provides something to everyone.

As for the President, he seems determined to continue to finance health care through tax breaks, which are worth more to those with higher incomes, and to maintain the link, for most people, between health care finance and place of work. The latter is a form of economic slavery, since it makes it difficult for those with an expensive health care problem in their family to change jobs, discourages entrepreneurship, discourages companies from hiring the unhealthy and disabled, etc., as I wrote here. It is the opposite of economic freedom you might have expected a Republican to endorse, assuming that the Republicans were a party of ideology and not interest groups. Are you aware that Canada has double the rate of self-employment of the U.S.? If working for yourself or starting your own business isn’t economic freedom, what is?

And while the President’s plan does proposed to reign in an inequity — the unlimited federal subsidy for those who have the richest health are insurance — in doing so it targets a Democratic constituency for pain — unionized public employees, who have the most expensive care. Not that such a proposal is unreasonable, but any such change ought to help pay for universal care, not fiscal recklessness. The federal government can pay for the interests on Republican debts with something else. And I didn’t notice a cost of living adjustment, like Medicare has, for more costly places like New York either. The proposals are another example of a Democrat screwing New York to seek swing votes, and a Republican screwing New York to reward his base. Who says there is no possibility of bi-partisan cooperation in Washington?

Nor am I impressed with the Massachusetts plan to force businesses and individual employees to pay for health insurance, with some subsidy for those who cannot afford it. (Health insurance for a family now costs more than a year’s pay at the minimum wage). This will require a huge enforcement effort, and a complicated application process and eligibility determination for subsidies. You want to force individual workers and employers to pay for health care, with consideration of ability to pay? As it happens, we have a mechanism that does just that — it is known as the Medicare payroll tax. No additional applications, bureaucracy and enforcement required.

I’ve had a couple of long conversations with a gentleman who is highly knowledgeable about health care finance. I am perhaps the greatest opponent of the health care non-profiteers in the New York State, based on our high Medicaid spending and the cost it has imposed on other services and the state’s economy. He works in Medicaid billing for a large hospital, and knows Denis Rivera personally, or so he tells me. Yet when it came time to identify a solution, we both have the same one: eliminate Medicaid, the tax deductability of private health care expenditures, and the rest of the complicated way government finances health care in this country. Instead, just expand Medicare managed care to everyone. Choice is maintained. Cost controls are in place, and improving. Those who want to spend more as individuals for beyond-basic care are allowed (unlike traditional Medicare, which requires one level of service with the program accepted as full payment). A reasonable cost of living adjustment for different areas is already there.

Could this be afforded? Well, as I’ve written previously, the federal, state and local governments are already pay, directly or indirectly, for most third party health care spending in this country, a share that is going up. Expanding Medicare managed care to everyone would lift a big financial burden off business, so it is not unreasonable to increase the employer share of the Medicare tax to pay for it. Since employees would gain a portable, universal, permanent form of health insurance, they should be willing to pay a higher employee share as well. State and local governments would benefit from the elimination of the state and local share of Medicaid, and a large part of the huge burden of providing health insurance for their own employee and retirees. With the federal government taking over the cost of health care, it would not be unreasonable to have the feds drop most other aid to states and to businesses, including federal transportation and other infrastructure aid, housing aid, and various economic development subsidies. Instead, the feds would only provide services and benefits direct to individuals, specifically to needy ones. And we would have some idea who was in charge of, and responsible for, what.

W.s plan seems like a gambit to head off the simple, fair solution that he knows may be coming after his Republicans get wiped out in 2008. Hillary should realize that the problem with her original plan was not that it benefited everyone, rather than limited groups of special beneficiaries. The problem was that it was a complicated plan that would have provided unlimited (regardless of value) care and an unlimited cost charged by the health care industry (which backs her), with no choices for consumers of health care. She needs to drop the worst parts of her plan, not the best.

Anything that isn’t simple is a ripoff. You see it again and again, in every area of public policy. “Workers pay for Medicare for others; workers should get Medicare for at least for the basics, and be allowed to pay for more if they want to.” That is simple and familiar enough that everyone can understand it. My vote goes to whoever is willing to provide a simple solution for all the people, rather than heading it off by expending the mess of deals, favors, and subsidies we already have.