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

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.