The Logic Of American Healthcare

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Thinking about Life Sciences http://blog.aesisgroup.com Tuesday, February 05, 2008 The Logic of American Healthcare On primary election day here in Illinois, it would be of interest to discuss healthcare reform – an issue that goes head-to-head with the Economy and Iraq as the number one issue facing voters this political season. One sentiment that appears to unite nearly all the candidates is the claim that our healthcare system is “broken.” Everybody has a healthcare reform package with the hope – among the Democrats in particular – to solve the huge problem of covering the nation’s 46 million uninsured. It would be helpful to review – in broad strokes – how are healthcare system works (or as many have stated doesn’t work). Despite the claim that it is an irrational system there is, in fact, a logic that has evolved over the past sixty years. It is a logic that points to why the 1993 Clinton reform plan failed and why both the Obama and “new” Clinton proposals are also potentially doomed. As a consequence of the wage and price controls instituted during World War II, employer-sponsored healthcare insurance has become – at least until recently – the avenue by which the employed have obtained healthcare coverage. With the 1960’s and the Great Society programs, Medicare and Medicaid were enacted to cover the well recognized gap that developed among the non-working elderly and poor respectively. More recently during the 1990’s SCHIP was brought on board to cover the last apparent gap – namely that of children. In short, our system is actually quite logical and simple and consists of two parts: businesses pay for the health insurance for the employed public while government pays for everyone else.

Obviously this is a simplification as taxpayers and businesses, of course, pay into Social Security and Medicare. Nevertheless it is useful to look at the system broadly along these lines. There are many reasons why the 1993 healthcare reform effort failed but it would seem that the core reason was that it would upend a system that had evolved through fits and starts (and occasional bursts) over the past sixty years. In essence, the proposal at that time was that government would pay for (and run) everything. Beyond all the usual complaints against “socialized medicine” such a framework was simply too radical for the logic that was firmly in place. Using this framework and fast forwarding to the present we can see that both the Clinton and Obama plans (as summarized very nicely in Paul Krugman’s New York Times column from today) while less radical than that proposed in ’93 likewise complicate the logic and thus run an equal risk of failing.

Given the premise that there is a large population of uninsured among the working public, a proposal that would fit with this logic would propose that businesses in some form would actually fund healthcare insurance for the uninsured working public. In essence, both the Clinton and Obama plans would ask (and in the case of the Clinton plan “mandate) uninsured individuals to pay for their healthcare insurance. Notwithstanding the subsidies that would be involved to make this more-or-less affordable (as the candidates claim), this would create a more complex – and in a certain sense less logical – system of three parts. Namely: some businesses pay for the health insurance for the employed public while uninsured working people (some in the case of the Obama plan) pay for their own insurance and then government pays for everyone else.

This three-part system – with the operative terms “some” as indicated – strikes me as an inherently unstable system. The “some” businesses may become more, government gets mixed in with the working public and the problems that we lament over now may look like a party compared to the chaos of the future. The concept of having businesses pay for the health insurance of the uninsured working public is not a new one. Gov. Blagojevich tried that – though in a rather crude way – with the proposed “gross receipts tax” which was roundly defeated and likewise Gov. Schwarzenegger has attempted that in California. In the latter case, an amalgam of business taxes including those on hospitals and doctors sent his proposal to failure as well. So what’s the answer? Last year, this column – in the wake of the Blagojevich plan proposed a new form of business tax – the health

11/17/2008 12:33 AM

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impact tax – that was expressly designed to: 1. fit with the existing logic of our healthcare system; namely acknowledging that businesses should continue their role in paying for

healthcare insurance for the working population, and

2. be fair with respect to the actual healthcare burden that different businesses create on society and hence also proportional to how

much they should pay for the uninsured funding pool, and, in fact,

3. also provide direct tax incentives for encouraging healthier businesses

It is important to note that this proposal is not “anti-business” but rather consonant with the established principles of our healthcare system over the past half-century. While it aims to preserve the balance that we have created over these years, it is neither a “conservative” plan as it proposes a 21st century health impact tax (akin to a “carbon tax”) that fully and fairly apportions the externality costs created within our society. If you are interested in more details, I would encourage you to read the Midwestbusiness.com column or my follow blog article. The bottom line is that while we are voting for what appears to be set positions by the various candidates, the debate isn’t over yet. We can do better. Ogan Gurel, MPhil [email protected] http://blog.aesisgroup.com/

11/17/2008 12:33 AM