As the health care debate ramps up, I’m not entirely pleased with what I read coming out of Washington and in the press. It seems that too much deference is being given to a broken system by those who are afraid to take on vested interests, and too much money might be being added to a system that doesn’t work — community rating and health insurance tied to place of work. There has been some discussion of the inequity of the current system, in which younger generations and the less well off lack health insurance and yet pay taxes to subsidize the better off people who have it. And there has been some discussion of the soaring cost of health insurance, and the need to slow it down. But there has been less discussion of the negative economic consequences of the tie between place of work and place of employment. Getting rid of that tie, more than almost anything else, could stimulate the economy.
Tying the availability of affordable health insurance to group plans provided by employers, the current system, discourages many workers from moving to jobs where they could be better compensated, particularly if they or a family member has a pre-existing health condition. This turns millions of Americans into serfs desperate to keep their current job — and yet liable to be fired at any time. Getting rid of that link could restore fluidity to the economy by allowing those now fearful to pursue new opportunities.
That workplace/health insurance tie also dissuades workers from becoming entrepreneurs, or becoming freelancers by choice, if that is what they would prefer, because they would be uninsured or forced to purchase health individual coverage at enormous cost. As old businesses providing obsolete jobs disappear, the U.S. needs new businesses creating new jobs. There is little the federal government could do that would more encourage new businesses than to provide entrepreneurs and their families with tax-funded health insurance.
Low, moderate, and middle-income households lacking health insurance have no incentive to save, because the cost of an illness or injury is likely to wipe them out sooner or later. And so, people have not saved. Since we have gone from too little savings to too much overnight the lack of savings isn’t a problem in the short run, but it is our greatest economic problem in the long run.
The burden of providing health insurance for retirees has made older companies — and communities — uncompetitive with newer, growing firms and taxing jurisdictions. This sets up a merry-go-round in which the former are abandoned for no other reason than the age distribution of their current and former employees, stranding people and wasting capital, infrastructure and other resources. Retiree healthcare has bankrupted older industrial companies such as the big three automakers, and is going to wreck local government services in large swaths of suburban and Sunbelt America as their workforces age.
And employers, particularly small ones, are reluctant to hire older workers and those with health problems even if they need them, because doing so could cause their health insurance premiums to soar. This could become a crisis as millions of older workers, who need to keep working because they lack retirement savings, are unable to land new jobs. Everyone in their 50s is vulnerable to protracted unemployment due to the tie between health care and place of work. Everyone in their 40s will be soon.
At the weeks leading up to the 2008 New York Presidential primary I wrote a series of posts laying out the problems of the way the U.S. finances health care — the inequity, economic damage and waste, critiquing the proposals of all the candidates for President, providing my own solution, and explaining how it could be paid for, complete with facts and figures. While the candidates had many good proposals, they had a lot of bad ideas, and I’m afraid some of those ideas might find their way into a half-ass health care reform. Among the bad ideas were:
Keeping any link, any link at all, between health insurance and place of employment, for the reasons listed above.
Forcing businesses to pay for health care, and providing subsidies to those who cannot afford it, or forcing people to have health insurance, also with subsidies. Such mandates impose massive duplicate administrative costs and inefficiencies for no other reason than symbolism. Just to pretend that the money people are forced to use for provide health insurance is not a “tax,” we’d have to have a second IRS.
Trying to maintain a universal community rating system in private insurance, with everyone charged the same for health care no matter how old they are and what chronic conditions they have. This is another hidden, off the books tax, and a regressive one at that. And it continues the “cat and mouse” game of community rating, with every health plan benefiting from shifting older and sicker people to some other health plan, and the “moral hazard” of healthy people seeking the stingiest plans and sick people the most generous, until the latter goes broke.
Providing money through states or expanding Medicaid is something that has already happened. The federal-state Medicaid program is an inequitable, expensive disaster that particularly hurts New York and provides every state with an incentive to cut its taxes by shifting the sick people someplace else.
Having multiple government programs, subsidies and systems to pay for health insurance, with every person theoretically qualifying for one or perhaps more than one, is just a way for the more politically powerful to have a separate, more extravagantly funded system for themselves.
Fortunately, some other bad ideas mentioned by the candidates and others, mostly having to do with Republicans, appear to be off the table.
I have once again attached an MS-word document with my entire series of posts from 14 months ago, including the health care reform proposals of the major Presidential candidates active at the time. To those involved with or at least considering the health care reform debate, I ask that you at least consider what I have to say. The current system of public health care finance has no moral legitimacy. It needs to be eliminated and replaced with something simple, equitable, and free of ties between place of employment and coverage.
I said several months ago that if a comprehensive health care finance reform was not in place by the new budget in October 2009, the Democrats will have failed. Given the effect of the current system of the economy, that is true more than ever.