So I have proposed universal healthcare financing at the national level. How would I pay for it? My view is that we are already paying for it, directly or indirectly, through existing government programs, subsidies, and tax exclusions. My goal would not be to send health care soaring beyond its already world-leading nearly 16 percent of GDP, nor to increase the share of GDP devoted to health care by the government. My goal would be to shift government health care funding to basic, established care for everyone, rather than wasteful, luxury care for some and nothing for others. People could buy more, or contribute to charities that provide more to others, by choice. We need to avoid having the government force people to pay for wasteful, luxury care today, at the cost of national bankruptcy, and no care for today’s young people when they are senior citizens tomorrow. Federal politicians, including members of Congress and Presidential candidates, shrink from a simple, federally financed system for two reasons. First, they do not wish to confront those who benefit from the system as it is. Second, they do not wish to raise federal taxes for health care, and then get blamed, while saving businesses and state and local governments money, for which they will receive credit. Neither is an excuse for the disaster that is our existing health care finance system. Let’s move forward.
As shown I my prior posts, government health care spending, both direct and indirect, probably added to around 10% of GDP in 2006, or just under two-thirds of the total. Federal spending on existing federal health care programs such as Medicaid, Medicare, and the Veteran’s Administration, equaled 4.6% of GDP. As the population ages, these programs are set to soar in cost; under my proposal, these would be retained, or rolled into the new system, but with less cost inflation. The exclusion of employer-financed health insurance from taxable income, which I propose to eliminate if in excess of the single value of federal health care funding each person would be entitled to, cost $125 billion in FY 2006 according to Table 463 of the most recent Statistical Abstract of the United States. That is another 0.9% of GDP. The value of that tax break is forecast to reach $180 billion by 2009, as the federal government hands out more money the more that is spent. That’s no way to restrain health care costs. So we are up to 5.5% of GDP.
If you read my post on Social Security (attached), you know that I favor cutting the Social Security tax burden back to what is necessary to fund today’s benefits, rather than collecting extra taxes to “save Social Security.” That is because the extra money collected since 1983 has been diverted, and Social Security has not been saved. I am also in favor of lifting the cap on earnings subject to the Social Security payroll tax, so that every dollar is taxed from the first to the last. This would allow the tax rate to be decreased further for those earning $100,000 per year or less. Under my proposal Social Security would be a pay-as-you-go system with no specific retirement age. One person would be allowed to collect Social Security, in age order, for every three people working, and one dollar would be distributed for every dollar collected. That is the best those of my generation, and those after, will be able to do, since prior generations will just spend any additional payroll taxes on themselves.
Since this Social Security proposal would allow Social Security payroll tax rates to fall significantly for those earning $100,000 or less, health care payroll taxes could rise significantly for such people without any additional payroll tax liability overall. In addition it would, in my view, be reasonable to ask even those earning $100,000 or less to pay more in payroll taxes in exchange for universal federal health insurance financing. Those without health insurance would have it. Those with health insurance would have health insurance that did not tie them to their job, and could not be taken away.
It would be reasonable, as well, to increase the employer share of the payroll tax for Social Security. Businesses, and state and local governments, that had provided employee health insurance would suddenly have the federal government picking up a substantial share of the tab. (Businesses and governments might continue to provide more costly health insurance than the basic plan I have proposed, with the excess cost now counted as taxable income for the recipient). Those with substantial retiree health care obligations would have those obligations lifted. The result would be a savings for states and communities, which could avoid a fiscal disaster for many aging suburbs. American businesses would see their competitiveness improved in a way that no tax break or subsidy could provide, possibly during a recession when the assistance was most needed. If profitability were increased, and loopholes in the corporate income tax were closed, the federal government would receive some benefit back in higher tax revenues.
For those businesses that do not currently provide health insurance for their employees, the federal government would provide that health insurance, and at a much more affordable cost for the businesses. Why more affordable? Businesses that do not offer health insurance tend to be in low-wage, low profit industries. Today, their cost of health insurance, if they tried to provide it, would be the same as it is for more profitable companies with higher-wage employees. The employee contribution to that health care would also be the same, even though their wages were low. That’s why employees at Wal-Mart, which does offer health insurance, turn it down: they can’t afford the employee contribution. But under my proposal, the amount paid per person by both the employer and the employee would vary with the level of pay per employee, an automatic means testing of the cost. And what about those working and hiring off the books? They are already violating the tax code, and the IRS is already charged with tracking them down. We need to make that system stronger, not duplicate it.
As today, those in the country illegally could be provided with preventive and emergency health care as a matter of basic humanity, and repatriated to their country of origin if they become severely or chronically ill. That country would have the obligation to care for them. Similar health care services could be provided to legal visitors. Permanent residents who paid any taxes due would have the same health care rights as citizens.
Under the current system, the Medicare hospital tax of 1.45% of payroll for both employees and employers, and 2.9% of earnings for the self employed, equaled 1.34% of GDP in 2006. That is down from 1.38% of GDP in 2000, as wealthy people disguised work earnings as investment returns to evade the tax. Also evading the tax – the retired, because retirement income is not subject to it. We have, therefore, a tax that falls on working people, many poor and without health insurance, to subsidize health care for the wealthy (via the income tax break) provide health insurance for senior citizens who do not have to work, even if they are wealthy.
I would close the loopholes, include retirement income, and increase the health care payroll tax to 3.0% of GDP. Rather than have it dedicated to hospital care for those over 65, I would use the payroll tax for basic care for everyone without expensive healthcare conditions, regardless of age. Those with severe illnesses or disabilities, regardless of age, would be paid for out of general revenues, as the majority of federal healthcare spending, including Medicare Part B, the new Medicare prescription drug benefit, and Medicaid are today. With the payroll tax increase, we are up to 7.2% of GDP.
A national healthcare financing system would be a financial windfall for state and local governments. Not only would the state and local share of Medicaid expenditures, the largest and fastest growing part of most state budgets, be eliminated except for disabled adults requiring custodial care, but the federal government would be picking up the tab for a significant share of the health insurance costs for public employees and, more importantly, retired public employees, as well. State and local governments would have hundreds of billions of dollars in funding suddenly available. At a minimum, I estimate that state and local government payments for employee and retiree health insurance totaled $125 billion in 2005; the non-federal share of Medicaid was about the same that year. With all these savings, it would be reasonable to cut federal aid to state and local governments in other categories.
As an added benefit of the federal takeover of financial responsibility of government-funded health insurance, the tangled web of intergovernmental finance, with its pork, cost shifting, blame game, and wasted money, could be replaced by clear lines of federal, state and local authority, responsibility – and accountability. What I propose is the following. If federal funding for state and local governments is for services to people, especially people who are less well off and who state and local governments might want to shift elsewhere, it would be retained. That includes funding for income security, special education, food stamps, etc. Entitlements, in other words. The federal government would be responsible for providing a few big, basic things – income security, health security, national security, homeland security, disaster relief, the regulation of interstate businesses, and protection from interstate criminal activities. To the extent possible, the federal government would provide these services directly, rather than working through state and local intermediaries. Space could be rented in post offices, if additional federal workers needed to be located in communities to handle eligibility and paperwork issues.
On the other hand, the federal government could drop funding for joint federal-state programs that pay for housing, infrastructure, and other things that, unlike people, do not move from place to place, and cut spending on business subsidies. Federal spending on natural resources and the environment, excluding pollution control, housing, ground transportation (roads, transit), flood insurance, farm subsidies, other industry subsidies “community development,” and homeland security spending amounted to about 1.2% of GDP, give or take. Tax breaks for similar purposes cost that much or more. What I propose, in summary, is for the federal government to assume health care costs from state and local governments, while leaving other costs for state and local governments to fund themselves. You pay for yours, we’ll pay for ours, and we’ll cut out the middleman in Washington. Farm families would get health insurance instead of Archer Daniels Midland getting farm subsidies. And in some cases — the ownership of large tracts of federal land, federal highway and transit spending, public housing, — the federal government would just declare victory, or defeat, and go home. I think everyone could be better off as a result.
That brings the total funding available for the federal program up to 8.4% to 8.8% of GDP. Co-payments for services covered by the new federal Medicaid program, and by private insurers financed at the same level, (see my proposal for information on co-payments) could bring total spending by programs paid for or insurance subsidized by the federal government to closer to 9.5% of GDP, or even more. That is as much as other developed countries pay for universal health care. That is enough. But individuals, state and local governments, charities, and businesses would be free to pay for additional health care besides.
Anything that isn’t simple is a ripoff. We are all in it together or we are not. The way to decide how big government should be is to ensure that any public service or benefit offered is provided to everyone, so that people will think twice before demanding additional benefits (because others would get them) or demanding lower taxes (because their benefits would also be affected). Under this proposal political differences would continue, but they would be honest differences, not abuse by some at the expense of others.
I have attached an MS-Word file with all of my posts on healthcare, followed by a cut and paste of the candidates’ health care positions, as well as an MS-word file of my post on Social Security. The spreadsheets are attached to the individual posts, and to the first post in my prior overview of the federal government. It all fits together.