Game Over: Neither Party’s Health Care Plan Reflects Economic Reality

John Ikerd July 7, 2017

The con­tro­ver­sy sur­round­ing health care pro­vides a com­pelling case for find­ing com­mon ground. The pro­posed Repub­li­can health­care plan is even more flawed than the fail­ing Demo­c­ra­t­ic plan. We urgent­ly need health­care reform, but nei­ther plan is based on eco­nom­ic real­i­ty, and nei­ther has the con­sent of the Amer­i­can people.

Health care is a mar­ket fail­ure” — eco­nom­ic jar­gon that means the mar­ket” is fun­da­men­tal­ly inca­pable of pro­vid­ing essen­tial health care ser­vices for every­one. Mar­kets do many things well, in fact bet­ter than any alter­na­tive. How­ev­er, there are some things mar­kets sim­ply can­not do. Mar­kets can pro­vide the dis­cre­tionary things that make life bet­ter but can­not ensure equal access to the things that make life pos­si­ble or liv­able. Among mar­ket fail­ures are pro­vi­sion of the essen­tials of life: clean air, pure water, safe food and med­ical care. If we have an equal right to life, we must also be afford­ed the essen­tials of life, includ­ing basic health care.

Some may argue that we Amer­i­cans don’t agree that every­one has a right to health care — but we do. We don’t let peo­ple die for lack of med­ical treat­ment, at least not in pub­lic. The fed­er­al Emer­gency Med­ical Treat­ment and Labor Act” ensures that every­one can receive emer­gency med­ical treat­ment in hos­pi­tals, regard­less of insur­ance sta­tus or abil­i­ty to pay. We also have Med­ic­aid for those deemed unable to pay med­ical bills or buy health insur­ance. Still, mil­lions of Amer­i­cans are left with­out ade­quate med­ical care while health­care costs claim more than one-sixth of our total GDP and con­tin­ue to rise. We don’t open­ly accept essen­tial health care as a right” for every­one because we don’t agree on the lev­el of health care to be secured by government.

There is no rea­son­able means for indi­vid­u­als to accu­rate­ly assess their future health­care needs. For this rea­son, most Amer­i­cans pay for health care through peri­od­ic health insur­ance pay­ments — rather than indi­vid­ual med­ical pur­chas­es. We can’t leave indi­vid­ual deci­sions to either buy or not buy health insur­ance to the mar­ket because ratio­nal eco­nom­ic deci­sions will inevitably leave mil­lions of Amer­i­cans unin­sured. That’s the rea­son pro­vi­sion of health­care ser­vices has nev­er been left com­plete­ly to the eco­nom­ic dis­cre­tion of indi­vid­u­als. The Repub­li­can plan to replace guar­an­teed ben­e­fits with indi­vid­ual tax cred­its gives some indi­vid­u­als more mon­ey to buy health insur­ance but leaves health care deci­sions to indi­vid­u­als. The cur­rent Demo­c­ra­t­ic approach to health care also is fail­ing because it relies too heav­i­ly on the health insur­ance mar­ket.” Nei­ther plan is capa­ble of ensur­ing essen­tial health care for all.

When we are young and healthy, the risk of a major med­ical bill may be quite low, and oth­er eco­nom­ic needs tend to take pri­or­i­ty over health insur­ance. As a result, many young peo­ple quite ratio­nal­ly choose not to buy health insur­ance. When our health dete­ri­o­rates with age or we are oth­er­wise con­front­ed with the pos­si­bil­i­ty of debil­i­ta­tion or death, health care takes pri­or­i­ty over all oth­er eco­nom­ic needs. The poten­tial ben­e­fits of all oth­er expen­di­tures are depen­dent of our phys­i­cal sur­vival and abil­i­ty to enjoy life.

How­ev­er, if we wait until we were old and sick to buy health­care insur­ance, the eco­nom­ic risks of astro­nom­i­cal med­ical bills dur­ing the remain­der of our lives will make risk-based insur­ance pre­mi­ums unaf­ford­able for all but the very wealthy. The same is true for those of any age with pre-exist­ing med­ical con­di­tions requir­ing major expens­es. No polit­i­cal­ly accept­able tax cred­it or gov­ern­ment sub­sidy can make eco­nom­i­cal­ly ratio­nal health insur­ance pre­mi­ums afford­able for pre­vi­ous­ly unin­sured old­er peo­ple or those with pre-exist­ing med­ical con­di­tions requir­ing major med­ical expen­di­tures. This is the fun­da­men­tal flaw in the both the Repub­li­ca­tion and Demo­c­ra­t­ic health­care plans.

If the mar­kets actu­al­ly reflect­ed the dif­fer­ent eco­nom­ic risks among indi­vid­u­als, our entire health­care sys­tem would collapse.”

The only rea­son the U.S. health care sys­tem has worked as well as it has in the past is because most peo­ple have pur­chased health insur­ance through group plans that have includ­ed both young, healthy peo­ple and old­er, less-healthy peo­ple. Such plans work because younger and health­i­er group mem­bers pay pre­mi­ums high­er than jus­ti­fied by their eco­nom­ic health­care risks. This allows insur­ance com­pa­nies to accept pre­mi­ums low­er than jus­ti­fied by the eco­nom­ic risks from mem­ber who are old or sick.

Pre­mi­ums for employ­ee group plans may be ful­ly paid or sub­si­dized by employ­ers. This makes group plans more attrac­tive to younger work­ers. How­ev­er, nei­ther employ­er nor employ­ees would be able afford the plans with­out both healthy and unhealthy peo­ple being cov­ered by the same group plans. Some younger peo­ple are risk adverse and would will­ing­ly pay the high­er pre­mi­ums. How­ev­er, most have joined group plans because they expect­ed to be among the old­er and less healthy work­ers at some time in the future. They have expect­ed to have access to rea­son­ably priced health insur­ance through­out their pro­duc­tive years by par­tic­i­pat­ing in group plans.

Old­er work­ers expect to even­tu­al­ly become eli­gi­ble for Medicare, which reduces the pri­vate cost of group health insur­ance plans for retirees. How­ev­er, Medicare only works for old­er, less healthy peo­ple because they have paid into Medicare when they were young and healthy. As with pri­vate group plans, most Medicare recip­i­ents have paid more than eco­nom­i­cal­ly jus­ti­fied pre­mi­ums for decades before they receive ben­e­fits com­pa­ra­ble to their eco­nom­ic costs of pre­mi­ums. Essen­tial­ly, Medicare recip­i­ents have pre­paid” the cost of their health insur­ance through life­time pay­roll deductions.

The Repub­li­can tax cred­its would sim­ply pro­vide a sub­sti­tute for an employ­er con­tri­bu­tion to health insur­ance. The fun­da­men­tal prob­lem is that most peo­ple cur­rent­ly among the unin­sured are young peo­ple who are reluc­tant to pay more than a fair mar­ket pre­mi­um for insur­ance and old­er, less-healthy peo­ple who can’t afford to pay a fair mar­ket pre­mi­um for insur­ance. Quot­ing from a study by Health Research Ser­vices, After the first year of life, health care costs are low­est for chil­dren, rise slow­ly through­out adult life, and increase expo­nen­tial­ly after age 50… annu­al costs for the elder­ly are approx­i­mate­ly four to five times those of peo­ple in their ear­ly teens.” In addi­tion, many of the health care cost of young peo­ple are asso­ci­at­ed with trau­mat­ic acci­dents or events for which they can receive free emer­gency treatment.

The eco­nom­ic risks for some pre­ex­ist­ing med­ical costs are far greater than the costs of sim­ply being old. If the mar­kets actu­al­ly reflect­ed the dif­fer­ent eco­nom­ic risks among indi­vid­u­als, our entire health­care sys­tem would col­lapse. No tax cred­it or polit­i­cal­ly accept­able sub­sidy can make it eco­nom­i­cal­ly ratio­nal for indi­vid­u­als to pay the fair mar­ket val­ue of health insur­ance for their par­tic­u­lar risk group. That’s why the Con­gres­sion­al Bud­get Office con­sis­tent­ly esti­mates that mil­lions of peo­ple will remain unin­sured under the Repub­li­can plan and the health insur­ance providers are rais­ing rates dra­mat­i­cal­ly or drop­ping out of the Demo­c­ra­t­ic health­care program.

Accept­ing and defin­ing a spe­cif­ic right to health care”

We ulti­mate­ly have to face real­i­ty: nei­ther the Repub­li­can pro­pos­al nor the cur­rent Demo­c­ra­t­ic health­care pro­grams can meet the health­care needs of the peo­ple. Ulti­mate­ly, we must reach a con­sen­sus that every­one has a right to some basic lev­el of health care, and that we must col­lec­tive­ly com­mit to secur­ing that right for every­one. Those who sup­port uni­ver­sal health care as a basic human right must face the real­i­ty that gov­ern­ment can­not and need not pro­vide every­one with every med­ical treat­ment or tech­nol­o­gy avail­able. Such a pro­gram could even­tu­al­ly claim the entire eco­nom­ic out­put of any nation. Human rights may be absolute, but the abil­i­ty of gov­ern­ments to secure those rights are always lim­it­ed by prac­ti­cal real­i­ties. The respon­si­bil­i­ty of the U.S. gov­ern­ment to secure the right to health care for all is lim­it­ed to the basic lev­el of health­care that the Amer­i­can peo­ple will con­sent to ensure.

Peo­ple who can afford health­care ser­vices dif­fer­ent from or in addi­tion to those to which they have a right, would have a right to secure those ser­vices for them­selves. Pri­vate indi­vid­ual and group health insur­ance plans would become sup­ple­men­tal insur­ance cov­er­age, coor­di­nat­ed and fund­ed sim­i­lar to Medicare-Plus cov­er­age today. Most peo­ple in coun­tries that cur­rent­ly have gov­ern­ment pro­vid­ed uni­ver­sal health care also have sup­ple­men­tal cov­er­age. Med­ical ser­vices could be pro­vid­ed by pri­vate med­ical prac­ti­tion­ers and facil­i­ties, as with Medicare and Med­ic­aid today. Peo­ple would have a right to opt out of the uni­ver­sal health­care pro­gram, but not to opt out of pay­ing their share for sup­port­ing the fed­er­al uni­ver­sal health­care pro­gram. We all ben­e­fit from the gov­ern­ment insur­ance of our basic rights — includ­ing life, lib­er­ty, and the pur­suit of hap­pi­ness. We all have a respon­si­bil­i­ty to pay our fair share of the costs of ensur­ing those rights.

The chal­lenge is to define a spe­cif­ic right to health care” to which the Amer­i­can peo­ple will con­sent, includ­ing the con­sent to pay the cost of ensur­ing that right. Indi­vid­ual states could pro­vide and pay for addi­tion­al ben­e­fits but could not deny res­i­dents of ben­e­fits pro­vid­ed under fed­er­al uni­ver­sal health care pro­gram. Medicare does not cov­er every med­ical pro­ce­dure or tech­nol­o­gy, and basic uni­ver­sal health care might ensure even few­er. If the uni­ver­sal ben­e­fits are less, Medicare could remain a sep­a­rate fed­er­al group health insur­ance pro­gram. If peo­ple do not have a right” to a par­tic­u­lar health­care ser­vice, they would not be deprived of their rights when such ser­vices were not provided.

The big chal­lenge of uni­ver­sal health care will be find­ing com­mon ground on spe­cif­ic health­care treat­ments and tech­nolo­gies that are accept­ed as uni­ver­sal rights rather than indi­vid­ual respon­si­bil­i­ties. The Repub­li­cans and Democ­rats need to quit fight­ing over Oba­macare and Trump­care, nei­ther of which reflects eco­nom­ic real­i­ty, and get to work devel­op­ing a uni­ver­sal health­care pro­gram to which the Amer­i­can peo­ple will consent.

Com­mon Grounds #7: Com­mon Ground on Health Care” was orig­i­nal­ly post­ed on Mr. Ikerd’s blog—the sev­enth in a nine part series address­ing the need for coop­er­a­tion when it comes to con­fronting the sociopo­lit­i­cal, envi­ron­men­tal and eco­nom­ic issues that are crit­i­cal­ly impor­tant to us all” — and is repost­ed on Rur­al Amer­i­ca In These Times with per­mis­sion from the author. To sub­scribe to John’s blog, vis­it JohnIkerd​.com.

John Ikerd was raised on a small dairy farm in south­west Mis­souri. He received his BS, MS, and Ph.D. degrees in agri­cul­tur­al eco­nom­ics from the Uni­ver­si­ty of Mis­souri. After work­ing in pri­vate indus­try, he spent 30 years in var­i­ous pro­fes­so­r­i­al posi­tions at North Car­oli­na State Uni­ver­si­ty, Okla­homa State Uni­ver­si­ty, Uni­ver­si­ty of Geor­gia and the Uni­ver­si­ty of Mis­souri before retir­ing in ear­ly 2000. He now spends most of his time writ­ing and speak­ing on issues relat­ed to sus­tain­abil­i­ty with an empha­sis on eco­nom­ics and agri­cul­ture. He cur­rent­ly resides in Fair­field, Iowa and is the author of sev­er­al books includ­ing Essen­tials of Eco­nom­ic Sus­tain­abil­i­ty, Sus­tain­able Cap­i­tal­ism, A Return to Com­mon Sense and Cri­sis and Oppor­tu­ni­ty: Sus­tain­abil­i­ty in Amer­i­can Agri­cul­ture and A Rev­o­lu­tion of the Mid­dle.
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