The Amazing Maze of US Health Care

There is nothing simple about our health care maze.  Fixing it is not easy.

I prefer to look for the simple.  The complexity will evolve naturally.

Congress prefers to start with the complex and make it more so.

Spreading the medical risk

There  are two major challenges to fixing the customer side of the health care mess – spreading the medical risk and spreading the financial costs.

Spreading medical risk requires that everyone be in the system.  That spreads medical risk evenly between the sick and the healthy.  That can be accomplished by a system of automatic eligibility or a system of required enrollment.

Automatic eligibility describes a single payer system.  All citizens are enrolled by virtue of their citizenship.  To draw from known models, automatic enrollment describes Part A Medicare, Department of Defense medicine, and to a lesser extent, the Veterans Administration.

Funding for those programs is separate from enrollment and may or may not rely on direct participant financing.

A system of mandatory enrollment implies a system of mandatory participant financing.  That is where we bump into the second challenge.

Spreading the financial costs

How do we transfer money from those who have it to those who need it?

This is not a new problem.  Since the creation of Medicare and Medicaid, the federal and state governments have developed a complex and confusing mix of approaches to fund directly or indirectly the recognized social good of delivering health care to those who cannot afford it.  It includes:

• General federal tax revenues
• Specific designated taxes (FICA)
• Tax incentives for employer sponsored health insurance
• Mandates on employer sponsored health insurance
• Federal support of state efforts
• State tax revenues

What’s proposed?

How does the house bill propose to shuffle money from where it is to where it’s needed?

• A 5.4% surtax on Adjusted Gross Incomes (AGI) above $500,000
• A Tax on medical device companies
• An 8% payroll tax on businesses who do not provide health insurance
• Penalty payments on uninsured individuals
• Smaller tax exemption on Flexible Spending accounts

But these don’t quite get the money to where it is needed.  It only makes it available.  Individuals have to apply and have to qualify for what the law call “affordability credits.”

In addition, there are a host of exemptions that will still leave an unacceptable number of uninsured.

In a nutshell, we take money from different pots of private money, we combine it with other pots of public money, assign it to a larger pot of public money that can be remixed with private money and used to buy public or private health care insurance.

A simpler approach

Let me suggest a simpler approach – the germ of which is in the current proposal.

Tax all compensation at 8% – absolutely no exceptions.  The tax should be on all forms of employee and owner compensation, whether it’s wages, bonuses, or compensation to independent contractors.  No exceptions – none. The tax would be directly offset by the employer expense of providing health insurance that meets some minimum standard.  Low wage industries that provide health insurance that exceeds 8% would receive a straight credit for the amount above 8%.

Adjustments would need to be made for small businesses, not just in the level of the tax but also in defining what exactly gets taxed.

A straightforward subsidy

It should be immediately apparent that high wage industries will subsidize low wage industries.  There is no secret to that. It is just more obvious, less convoluted and simpler and less expensive to administer.

This is not un-American

There is a precedent for this way of thinking.  There are companies now that charge their employees a percentage of income.  Some even charge a higher percentage for higher earners.

An even better example is the multi-employer plans.  Almost all multi-employer plans base employer contributions into the benefit trust fund on either compensation or hours worked.

Two employees, one who works 1200 hours and another who works 2400 hours, will both have the same level of benefits. But the money from the first person’s employer will be half of that from the second person’s employer.  There is no complicated bureaucracy to transfer money from the second employee to the first.  It does not matter whether either employee has a family or not.  This design has existed for decades and the participants in those plans like it because they know that there will be years in which they may be the one working 1200 hours.

In order to simplify the process we need to make a change in our fundamental approach to health care financing.  Payments into the system should be based on ability to pay – not on the cost of health care insurance to each individual.

And for those who think this is an atheist plot, I refer them to Acts 4: 34-35.

For the rest, I suggest it simply makes practical sense.

This entry was posted on Saturday, October 31st, 2009 at 4:00 pm and is filed under Bureaucracy, Health Care Reform, Single payer, The Amazing Maze. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.