Virtually every method of restricting eligibility comes together in the public health care finance system of the United States. Medicare, and part of Medicaid, have eligibility restricted based on age. Other parts of Medicaid, and public health and hospitals, allocate benefits based on means and need. The exemption of health insurance premiums from taxable income allocates benefits according to the “golden rule,” while the publicly mandated right of those with tax-subsidized private health insurance to keep it (under COLA laws) allocates money based on feudal tenure. Scarce vital organs available for transplant are, theoretically, allocated based on “merit” criteria by quasi-public groups backed by federal and state regulations. When all the direct and indirect (tax subsidy) public spending on health care is added up, it turns out that the federal, state and local governments were already funding approximately three-quarters of all third party (not out of pocket) health expenditures in the country in 2000. Excluding non-vital services the government share was 80 percent. That share is certain to rise as the nation ages, and Medicare and Medicaid account for more of nation’s health care. This entire health care finance system is profoundly inequitable — if it didn’t already exist, would anyone dare to suggest it? Yet politicians continue to propose adding to it rather than scrapping it altogether, so numerous and powerful are the beneficiaries of that inequity.
The U.S. health care finance system is a historical accident. Health insurance tied to one’s employer emerged during World War II, when wage and price controls outlawed cash raises at a moment of labor scarcity, and employer-provided insurance was a way to attract and retain workers without violating the law. It has persisted because it is subsidized by the federal income tax system in a way that other alternatives are not. Medicaid and Medicare were passed at a time when the elderly were, on average, poorer than younger Americans, when workers were assumed to have health insurance through their employers, and when politically organized workers assumed that they would remain with one employer throughout their careers. Both private insurance and public programs assumed that health care was an unpleasant necessity — that no one would want more than the minimum necessary — and that the health care industry was run by “non-profit” charities, uninterested in increasing their own relative wealth even if it had the power to do so.
The entire basis of the system has turned out to be wrong, with severe equity and economic consequences. The elderly are no longer poorer than average. In 1999, according to the U.S. Census Bureau, just 9.7 percent of those age 65 and over were poor, compared with 16.9 percent of those under age 18 (and their parents). Yet the elderly are entitled to extensive health care at public expense, while the workers who support and serve them have their health care choices constrained. Many working poor and self-employed people and their children are entitled to nothing at all — even though their FICA and sales tax payments support Medicare and Medicaid.
For some workers in middle-income families, those with one or more members with an expensive chronic illness, the exclusion of pre-existing conditions from new private health insurance policies has created a new form of semi-slavery. Even if such workers are unhappy in their jobs, and could do better elsewhere, they must stay on where they are because the cost of their own illness (or that of a family member) would ruin them if they were forced to move to a new health insurance plan. In bad times, such workers run the risk of being laid off and ruined in any event. Market conditions are becoming more and more difficult for those forced to purchase health insurance on their own. Even if they can get it they now face “re-underwriting” — with soaring premiums or lost coverage if they happen to get sick. The high cost of health coverage separate from a place of employment is also a severe risk – and disincentive – for people to try and start their own new business. This hurts everyone, since our economy depends on ongoing entrepreneurship for its vitality.
In theory the poor and uninsured, those with few or any assets, are better off. Since they have nothing to lose they cannot be held accountable for unpaid-hospital bills, and the health care system still generally treats all in need. Some argue that for this reason the United States actually has universal health care, and that there is no health care finance problem. As my current boss puts it “we have a universal health care system, the problem is that it is Medicaid, and it sucks.”
But other people and groups are becoming resistant to cross-subsidizing the bad debts of the uninsured. With all the money moving around under the table, it’s hard to say who is paying for what. Plenty of health care organizations are avoiding taxes as “non-profits” but avoiding charity care any way they can. Moreover, the fact that those on public assistance are automatically entitled to health care under Medicaid, while the working poor are not, leads to some strange incentives. Some people are on welfare just to qualify for Medicaid; indeed a neighbor who works for New York City’s welfare department tells me of people who (based on their scheduling requests) have jobs, but still illegally participate in workfare just to qualify for Medicaid.
The health care industry has continued to find more services that more people require, as long as money has been available to pay for them. Health care turns out to be luxury good, upon which spending rises faster than income, rather than a basic good, which falls as a share of income as income rises. And it turns out that the health care industry, even its non-profit portion, is far from selfless. While other industries must confront their customer directly when they raise prices, the health care industry doesn’t have to. Its bills are paid by higher taxes, reduced public spending on other things, and lower wage increases. Insurance companies, employers and governments get the blame. When there is price resistance, and its income does not rise as fast at it wants, the health care industry threatens to reduce vital services. Indeed, the Greater New York Hospital Association and Local 1199, the NYC hospital worker’s unions, were among the most powerful groups opposing health care reform in 1993.
The American health care system defies the economic tradeoff between equity and efficiency, by achieving neither. Year by year the situation gets worse and worse, for more and more people. The share of the population with health insurance goes down. The cost of health care – both for the government directly and the cost of subsidizing private health insurance — goes up. Yet no action is taken. Why?
No change occurs because the existing system serves those with power very well. Public employees, and thus public employee unions, are satisfied with a situation in which almost all their members have health insurance. So are the elderly. So are the wealthy, who can afford health care or insurance on their own. So are those with seniority in the few remaining unionized industries; they are unlikely to lose their jobs and thus their health insurance. So is the health care industry itself, which is paid more and more to provide services that fewer and fewer people are entitled to. Any move toward universal coverage would make one or more of these groups worse off, requiring them to either pay more or accept less. In the 2000 Presidential election, therefore, nearly the entire Democratic union and public employee establishment lined up behind Al Gore against Bill Bradley, who had made universal health care the centerpiece of his campaign.
Republicans continue to deceive us, or perhaps delude themselves, that the problem will just go away even as public spending on health care continues to go up and the share of people who benefit from such spending continues to go down. Their “think tanks” argue that most of the uninsured are young people who are choosing to take a risk, and not purchase insurance they could afford, because they unlikely to become ill. Such people will, it assumed, eventually obtain employer-linked health insurance once they mature in the labor market. Those same think tanks, however, probably said the same thing about defined-benefit pension plans in the early 1980s. It turned out, however, that most of those who entered the labor market at the time never received them – only 19 percent of all private sector workers had defined benefit pension plans in 2000, and only half had any retirement plan at all.
Similarly, the lack of employer-financed health insurance among the young is probably not a “phase of life” issue. It is a “generational shift” issue, a way to structure the fact that the next generation will be worse off than prior generations without the up-front directness of lower cash wages. Those over age 45 with employer-provided health insurance probably had it when they were young. Those under age 30 who do not have it now probably never will. At some point in their lives, they and their families will suffer the consequences of this. After they had been forced to pay in their entire lives to insulate other, more privileged groups from the consequences of similar circumstances.
As a consensus emerges that all this is unworkable, plans emerge to maintain the entire corrupt apparatus and buy off different groups by adding to it. Some have proposed shifting to individual private coverage, which would allow the healthy to stop cross-subsidizing the sick — the cost of whose care would then be left to the government. Private companies would make money on people who don’t need health care, and hostility would grow for those who do. Some have suggested a state-by-state solution. This would allow states with lower benefits to shed the poor and ill and attract the wealthy with lower taxes, while those providing better health care are overwhelmed by the cost of those who require extensive care. Some Democrats want to just keep expanding Medicaid, forcing New York City, with its lower federal share, to pay a huge share of the cost of the health care within its borders even as other states, with higher federal shares, have their health care costs covered by those in places like New York. Some might want to shift to an exclusively public system, in which you pay in advance through taxes whether you like it or not and then take what they give you, which for some is far less than others. In that case, a much higher share of the health care dollar will go to pensions, not health care. All want to maintain more than one health care financing system, with both direct and indirect funding, so that there can be different benefits for different people.
Why is this fair? Because the people who matter can get away with it, and because it isn’t politically profitable to take them on in order to change it. After 20 years of hostility to the poor, eligibility for public benefits is increasingly concentrated among those who are not poor. And no one, not liberals, not conservatives, not the Republicans, not the Democrats, is willing to point this out. When will a candidate ask why is it fair that a struggling, working class couple with no health insurance has to pay Medicare taxes, while affluent seniors, who take several cruises per year and get all the health care they want, do not have to pay for the working class couple to get at least something? I’m waiting.