Why "public-option" reform will fail to deliver affordable & accessible care

[Oregone]

In fact, any type of reform will fail to deliver affordable health care unless nearly all of the cost of a basic plan is subsidized for most people, and a 40%-50% of the public funding comes from the top quintile of income earners.

Why? Because healthcare is expensive, and beyond the affordable reach of 60% of Americans (without yet defining what “affordable” means)

Fact: the bottom 3 quintiles of non-elderly people privately pay an average of 17.66% of their income on health care. The top quintile pays 6%.

Fact: the bottom 3 quintiles of elderly people privately pay an average of 25.33% of their income on health care. The top quintile pays 7%.

Fact: the bottom quintile of non-elderly pay 22% of their income privately on health care (after public share of 66%). This is 366% more of their income than the top quintile pays.

Fact: the bottom quintile of elderly pay 35% of their income privately on health care (after public share of 81%). This is 500% more of their income than the top quintile pays.

(with that said, the upper quintiles contribute more to funding the public portion, but the public share still falls entirely short of what is needed to make costs affordable for the lower earners)

http://www.federalreserve.gov/pubs/feds/2005/200560/200560pap.pdf


So in terms of “Affordability”, I hope that we can accept the premise that 17.66% and 25.33% of one’s average $30K income is not an affordable amount for bottom 60% of income earners (after taxes, food, housing, and necessary goods). Even if achievable, it leaves nothing left over to promote social mobility, and therefore “unfair”.

And for the top 20% of earners, I think it is fair to state that 6% to 7% is quite affordable for those averaging about $168K a year.

Clearly, just due to costs, if you cannot find a way to fund health care that creates an affordable burden for all people, across all quintiles, then you will create a system which limits access to some group. If a group of people cannot afford to purchase or use care due to co-pays/fees/deductibles, they essentially do not have access to health-care (and they self-ration). So without promoting the concept of affordability to all, universal access is not achievable.

The Solution: essentially the answer is to create a funding system with a redistributive effect. The US currently does fund a lot of health care publicly, but not in a way that leaves it affordable for the lower income earners. Obama’s reform includes an idea of sliding-scale subsidization, but will it be funding from the correct people, and subsidizing amounts to close the gap? The likelihood is that it will not go far enough for 60%+ Americans in need, and hence, some people will lose access or self-ration care.

But how far does it need to go to create affordable care? Imagine there is a household of only 5 best-friends. Their earnings are (much like the quintile averages):

Aaron: $11,300
Burt: $28,750
Charlie: $48,250
Derek: $76,350
Earnie: $168,100

They would all like to see each-other healthy, but they find out it would cost $7025 a person annually, and they only have their own income to pay for it (no corporate earnings, or anything else of the sort for this example). Aaron, Burt and Charlie could not put up $7025 at all for health care after all expenses, so Earnie, being the good guy he is, tried to come up with a good way to pay for everything and make everyone happy.

First thing, Earnie made some calls and finds out if they “reformed” their bills and paid at once, it would be 5% less and only $33,275 all in all. Now Earnie, being a staunch Ron Paul Fair-Tax lunatic (with a soft spot) comes up with a “regressive” funding system for a progressive redistributive effect. Earnie thinks that it would be fair if everyone paid a flat 10% of their income on average into a pool. They paid:

Aaron: $1,130 (3.4% of the costs)
Burt: $2,875 (8.6% of the costs)
Charlie: $4,825 (14.5% of the costs)
Derek: $7,635 (22.9% of the costs)
Earnie: $16,810 (50.5% of the costs)

Now, while it could be argued that it is still more affordable for Earnie to pay 10% of his income than for Aaron, for the sake of simplicity, Aaron decided to cut his losses and let it be, as he figures for he is way ahead of where he was yesterday. And for the sake of simplicity, I used the per capita health costs pretending that it is simply limited to what an individual pays (rather than public health facility funding, etc).

Now, while this may appear like I am supporting Single-Payer healthcare with this example, I am rather supporting funding of comprehensive subsidization that has a significant progressive redistributive effect. While single-payer can easily do this inherently in its structure, single-payer can just as easily fail if it isn’t funded properly; that being, if the lower quintiles are taxed more than an “affordable” amount for the service. While single-payer may control costs more effectively, I am completely forgetting that variable for the time being and focusing on who is paying what.

So could Obama’s reform really succeed in delivering affordable care? Oh yes, it potentially can, so perhaps my title is more provoking than anything, but, nonetheless, it will not (true redistributive funding isn’t on Congress’ radar). For Obama’s plan to succeed on this criterion, an individual’s tax contribution added to their private spending cannot exceed some finite percentage of their income (for their earning level). And for the most part, the only way to really make this equation succeed, is to ask the top 20% to kick in the lion’s share of the subsidization, and to have the subsidization cover such a large portion of the costs for the lower earners that “affordability” is not in question. Remember, a 66% subsidization for non-elderly lowest quintile still leaves 22% of their income spent privately. Due to the disparity in wealth and the expense of healthcare, there is no other option than to fund it in this manner, mostly from the top 2 quintiles.

Obama’s reform could tailor the subsidizations to cover 100% of the costs of a basic public/private standard plan for everybody, with their only costs being either their tax contributions or their choice to upgrade their plan. This would leave a multi-payer system in place, with a generic single-payer subsidization wrapper to preserve those very important corporate profits. Any cost cutting techniques or negotiations employed in the reform could significantly lower the tax contributions to the subsidization plan, and in the end, everyone (cept the top quintile) wins; the top quintile wins from having healthy workers and non-bankrupt consumers that buy their products.

And still, it fails: Why? Exceptions to the rule. Plans have set costs (and hence, a subsidization check mailed for every American family would have a static price based on their dependents). But exceptions come from those who need more service (more co-pays) and those who have a health catastrophe (75% of which go bankrupt when insured currently). The problem with simply subsidizing the buy-in costs of the consumer in a redistributive manner, is that it doesn’t really look at the exceptional costs that are an integral part of the system. And as long as this occurs, some exceptional people will still need to self-ration or go bankrupt in the mostly private, multi-payer system.

The only foreseeable way to handle exceptional costs in a mostly private, multi-payer system is to draw a firm line in the sand as to what is truly “affordable”. Once done, simply pay 100% of all out-of-pocket costs incurred beyond that limit for some earner, at a certain bracket, with a certain number of dependents. That being, a catastrophic single-payer safety net to handle all cases in which the private system fails individuals (and this happens very often currently). This mechanism would cost nothing as long as the reforms succeeded as a whole.


The Bottom Line

As long as there are entire demographics or simply exceptions who have to pay over some finite amount (“affordable”) of their income for health care, there will be bankruptcies, untreated people, self-rationing, and those who are uninsured. Only by firmly defining what each person should be expected to pay for some basic plan, and ensuring, by some blend of private/public spending, that they will never pay more, the system as a whole will not be equitable and will fail to provide affordable and accessible care to all (hence: not universal health care).

Until people start looking at the underlying mechanisms that make a multitude of different unique systems around the world work, that being, their funding, America will remain hopeless to reform the problems out of its own system. Even if health costs are cut by up to 30% to 40%, depending on who is subsidized, how much they are, and from who, any reform will fall short of delivering affordable and accessible health care to everyone.

People need to wake up and realize that through all the convoluted details of the current reform, this very important point is not really in the forefront (besides the talk of the sliding-scale plan which will not be substantial enough without a strong push).

In my opinion, this is more important than some “public-option” (which is more about cutting costs). Although the debate is steered conveniently around it, there is still a chance to address this aspect of reform.

[Aramchek]

1. we can be assured of failure if we throw out a plan that might work for one that is never approved

[Oregone]

2. You don't have to throw it out to fix it at all

Just focus on making sure the subsidization has a net progressive redistributive effect, such that no one will ever have to pay over a finite "affordable" amount of their income on health care. Thats the key Im getting at.

And there is no "might work" about it. It cannot succeed in promoting affordable and accessible healthcare for all if health care still remains un-affordable due to inadequate subsidization. People will self-ration and that entire cost-savings potential will be un-realized on its own.

[dkf]

3. You could tax all people who make more than 250,000 everything they make and that

Would pay for this years deficit without increasing healthcare costs. That is taxing them 100 percent on the federal level without leaving them any funds to pay state or local taxes. Rich people don't make enough to pay for the rest of us.

[Oregone]

6. Who suggested taxing them everything they make?

No, rich people don't make enough to pay for everyone. But, moving their health care expenditure from 6% of their income to 10% of their income slashes the burden for 60% of Americans if it were public spending, rather than private. How is a 4% increase the same as suggesting a 100% tax rate? Thats silly.

[dkf]

7. I'm just saying it is not feasible for us to think the rich can pay for everything

If we want to cover everyone we will all have to pay extra and to say most of us won't because we don't make 250000 is a lie. Maybe in the near term we can keep borrowing but eventually taxes will go up drastically for anyone who isn't accepting help from he government.

[Oregone]

8. The lower quintiles cannot reasonably pay extra for healthcare than they already do

(or at least by much)

Yes, I agree that the rich cannot pay for everything, BUT, as I illustrated, Im not asking them to at all. In fact, my example showed all quintiles taxes going up by the exact same rate to publicly fund the costs (to replace private funding).

While this would be a 4% increase to the top non-elderly quintile, it would be a 12% decrease to the lower non-elderly quintile. So, with that considered, whats wrong with everyone paying the same rate to fund health care?

[dkf]

9. All I ask is that no one here pretend that we can simply tax people who make 250000

And that will pay our bills. The numbers don't add up. Obama and you are deceiving people onto thinking they will never have to pay for the expenditures of this government and it is pissing me off.

[Oregone]

10. Im not deceiving anybody

Im specifically calling for a tax increase across the board (on all quintiles) to fund adequate health care subsidization based on the actual numbers.

This tax increase would merely replace private spending, lowering net costs of approx 60% of the people and increasing it for 20% (those averaging $168K a year). Everyone's taxes go up, but their out-of-pocket costs are reduced drastically on average, or even eliminated.

And the tax increase, over the status quo, wouldn't be that much, because currently ~60% of costs are already publicly funded. You only need enough to fund the gap left over, which is the private health care expenditures. Now, with cost savings built in, the increase in taxes would not have to be so substantial. But yes, I specifically think taxes need to be raised to do this; I am merely advocating that in doing so we shift healthcare from a regressive social burden (where the poorest pay 333%-500% more of their income than the richest) to a more progressive burden where no one pays over X% of their income on health expenses guaranteed.

What I am suggesting is entirely reasonable, and is not based on some absurd tax the rich to death mentality.

[Oregone]

12. Here are some quick numbers about a tax increase

(Based on current private spending, which doesn't figure in savings from reform. It contains some indiscrepencies against average income of all vs non-elderly only expense, as well as different year expenses)

The average private health care expense is: $5390.

By non-elderly quintile:

1st: $2333
2nd: $5032
3rd: $6345
4th: $6551
5th: $6687

The average household income is: $66,570

By quintile:

1st: $11352
2nd: $28777
3rd: $48223
4th: $76329
5th: $168170

Currently, private expenditures create a regressive social burden, because private health care spending is almost static (except for the lowest quintile), and income grows non-linearly.

If the government decided to subsidize the rest of the costs, and average of $5390 a person, it would need an average additional tax rate against the average income of $66,570 of just 8% (this ignores potential cost savings of reform and uses current numbers). This "tax increase" would shift health contributions to the following if applied at a "Flat Tax" rate:

1st: $908 (-$1425 net, although they would probably use more healthcare)
2nd: $2302 (-$2730 net)
3rd: $3857 (-$2448 net)
4th: $6106 (-$445 net)
5th: $13453 (+$6766 net or 4% increase again income)

Anything stepping close to this system will create a much more equitable system for all.

Im not sure how anyone could argue that it is more unaffordable for someone who makes $168K to pay 8% more of their income in taxes (in lieu of private spending) than for someone who makes $11K. And if someone rejected this entire notion, how could they argue then it is as "fair" and affordable for the lowest quintile to pay 333% more of their income than the upper quintile pays for health care?

The bottom line is that health care is too expensive and out of reach for the majority of Americans, despite any cost savings measures that can be applied. Unless an equitable system is developed (which can be done through taxation), such that everyone never has to pay over some firm finite percentage of their income as an expense, there will forever be bankruptcy, deaths, debt, rationing, and compounded costs from lack of prevention.

[dkf]

13. You want someone making 168000 to pay for his health insurance and three other guys and

Cover his own catastrophic costs along with the catastrophic costs of three other people? Why does this not sound feasible to me? Can't medical costs bankrupt people even when they do have health insurance? Out of pocket costs could easily exceed our 168000 earners salary over the entirety if the time he is supporting all four of them.

[Oregone]

14. "Why does this not sound feasible to me?"

I'm not sure. Is it more feasible for you to have the lower quintile pay 366% to 500% more of their income on health expenses than the top quintile?

Did you know that with graduated rates, the upper quintile actually progressively pays much more of a share for all other current government services than I am suggesting for this example (which is flat)? Why is that quintile funding all the current government services at a higher rate feasible, and this is not? That is what doesn't make any sense. This upper quintile profits from employing the others as healthy workers, and they profit from selling their goods to them.

If historic taxes against this subsection of society were too punitive and excessive, simply put, they wouldn't exist (but they flourished under a 70% top marginal rate for decades). That is not the case. Rather, expenses amongst the other quintiles are proving to be far more excessive, leaving no spare capital to promote social mobility (the US has the lowest rate of intergenerational mobility in the industrialized world). With the status quo (that asks the rich to kick in a higher percentage of their income as taxes), we essentially have an entrenched caste system.


"Can't medical costs bankrupt people even when they do have health insurance? Out of pocket costs could easily exceed our 168000 earners salary over the entirety if the time he is supporting all four of them."

No, not if you are dealing with millions of these earners, it is not. Thats the benefit of insurance systems: the risks are spread and the averages prevail.

[dkf]

16. How many millions make 168000?

And what if our earner has a wife and 2 kids and the three guys he is paying for also has a wife and 2 kids. That is one salary paying for 16 people!

[Oregone]

17. 1 out of 5 households

If an earner has dependents, that should be considered into an affordability system. The tax code already does this

[dkf]

19. That is definitely not in the rich category then

so it's not 168000 but 84000 a person? That is firmly in middle class territory. Even some trades can make that.

[Oregone]

20. Nope, sure isn't

Its about spreading the burden equally (so everyone is paying the same percentage of their income or so) in order to ensure everyone can affordably handle it, rather than targeting some evil group called the "rich". Hypothetically, the ones at the bottom edge of that group could even pay less than currently if they have dependents

[LeftishBrit]

21. One point, however, is...

that in countries where people pay more taxes that go to health care, they also *save* money by not having to pay so much for private medicine, or for health insurance. It's not a one-way street.

[JDPriestly]

4. Your "facts" are based on the premise that current healthcare

costs cannot or will not be lowered. That may be true with a public option that is required to compete with current for porfit plans on an "even playing field." It would not be true of a single payer option or of a system in which there was a true public option that could be administered in a rational manner.

Especially with a single payer plan but also with the public option plan, the cost savings on things like advertising and administration would lower the percentages of income that you show must be spent on health care. The Europeans do provide health care for all at affordable cost to all. And the reason they can do it is that they do not bear the huge administrative costs that Americans must pay their for profit insurers. In addition, their tax structure, in part because it includes taxes from which health care is funded, discourages huge salaries for the few and extremely low salaries for the many.

You also make an error in that you do not figure in the reduction in the current cost that would occur if hospitals no longer had to provide charitable care to large numbers of indigent patients not eligible for Medicaid. These are the people who regularly go to the hospital for care that others obtain from their GPs. And their health care is, therefore, much more expensive than it would be if they had insurance and were encouraged to go to their GPs for their pain medications and other routine care.

In addition, the cost of health care in our current system, even in Medicare, is marked by an incredible amount of fraud. It is easier to spot and discourage fraud in a public option plan and much easier in a single payer plan. The data on costs is more transparent. That means that cost patterns that indicate systematic fraud are more easily discovered.

You also fail to figure in savings to all Americans in the reduction of court costs and personal liability medical damages in lawsuits that a single payer plan would permit. When all Americans have medical care guaranteed to them and need not fear damages from unknowable future medical costs, litigation in the aftermath of accidents and injuries will be reduced dramatically. Being the plaintiff in a lawsuit is not fun. If Americans did not have to worry about paying for medical treatment at some unknown future date following a fender bender, they probably would not bother to file a claim or lawsuit for their "injury." This would not only save the court costs (mostly paid by the taxpayers), damages and claims settlements but also lawyers' fees.

Similarly, there would probably be far fewer medical malpractice cases since the damages in those cases at least in California are to a great extent based on the future and past medicals which would be paid automatically under a single payer or public option system.

Your analysis of the economics is overly simplistic and completely ignores the savings that a single payer or public option plan would generate. Think again.

As an economist once explained to me, economists apply formulas based on asssumptions about the facts. When the facts are wrong, the economists' results are wrong.

Your results are very complicated and appear well thought out. But they are based on incorrect assumptions, therefore your conclusions are just jibberish. Do you work for an insurance company? Are you related to or associated with someone who works in the insurance business?

I should explain that I lived in various European countries for quite a few years and had some excellent, very complicated healthcare while there. I and my children (together) spent over four weeks in hospitals. My husband also spent a number of weeks in a hospital. The care we received would be inconceivable in the U.S. for ordinary people like us. It was way beyond excellent. We just paid a portion of our tax money for coverage, and since taxes were progressive, it was affordable for us. It can be done and is being done all over the world.

Of course, it might mean that American would have to put Americans first and defending the rest of the world against themselves second. It is interesting that we can afford a buffed up, out of bounds military but cannot afford healthcare for ourselves. It is as though the father of a large family spent a larger percentage of his monthly income on paying for a security system and buying guns than on paying for healthcare. That is what we Americans are doing.

[Oregone]

5. Although I acknowledged that there could potentially be significant costs savings in any system,

the bottom line is that if there is any group who STILL cannot pay, due to inadequate subsidization, then there will be groups of people who will not have access to health care. For example, you can reduce health care costs by 30% and its still have costs over 45% and 131% of the non-elderly and elderly's gross income on average, respectively. The minute you cut people off from health care, due to costs, or force them to ration, the entire costs savings mechanism of universal prevention is also negated for this group.

My "facts", as you state them, are to show everyone's share of their income to cover health care costs. Graphing these numbers results in a shameful regressive curve, and cost savings will simply scale such a curve down, rather than restructure it completely (because health care spending per quintile is almost static, but their income is not). The poor will always be paying a larger percentage of their income out of pocket for care until it is more adequately subsidized, and such subsidization comes from those who can afford it the most.


"Your analysis of the economics is overly simplistic and completely ignores the savings that a single payer or public option plan would generate. Think again.

As an economist once explained to me, economists apply formulas based on assumptions about the facts. When the facts are wrong, the economists' results are wrong."

There is nothing wrong with the notion that if health care remains un affordable due to taxable monies plus private monies exceeding a finite percentage of one's income, then it becomes inaccessible and un affordable. Despite any reforms that may take place to cut costs, and any other subsidizations in place, the very bottom line is that if any group of people cannot afford to pay and use the system, it is not universally accessible to all. For example, single-payer itself will fail if it requires all money to be generated equally across all quintiles (as an example, in Canada, ~40% comes from the upper quintile alone, yet 24% of funding is used by the lower quintile). No one is even looking at this basic idea in a serious manner, yet foreign health care system hinge on this principle.


"We just paid a portion of our tax money for coverage, and since taxes were progressive, it was affordable for us. It can be done and is being done all over the world."

This is PRECISELY my point (I also pay higher taxes for health care in another country, which led me to look at this). The funding of governments is inherently "affordable", because tax codes create such an "affordability" index based on one's income, dependents, life expenditures, and other such factors. Any time you base funding off of taxes, you are creating a redistributive effect. No European Country would ever suggest the following tax rates:

Aaron: $11,300 @ 22%
Burt: $28,750 @ 17%
Charlie: $48,250 @ 14%
Derek: $76,350 @ 10%
Earnie: $168,100 @ 6%

That would be an exact inversion of the United States' own taxing philosophy, which climbs in graduated rates. But since these costs are private, this is the rate on one's income non-elderly are actually paying for health care (significant savings still leaves people in a bind).

If the subsidy began to cover the basic costs of everyone, then these costs would suddenly become public expenditures, and therefore, funded progressively through taxation. And as I illustrated, even at a regressive flat tax of 10% across all income levels, the net redistributive effect of the financing/spending would be progressive, as the lower 3 income quintiles will have a significantly smaller burden that is "affordable" (although, the lower quintile may not be able to afford even 1% of their income, I am shooting for simplicity for an example here). Lower health care costs could eventually lead to a graduated system, such that the top quintiles funding rate is 10%, but it steps down from there.

It would seem, in terms of progressive funding, you are more in agreement with me than not. This is the crux of success elsewhere in terms of creating an equitable and accessible system for all.

As much as costs-savings is going to be effective, there is going to be a ceiling to exactly how much of the costs it will lower. And beyond that, in a truly universal system, everyone at that point will still need to "afford" whatever costs is left over. To the lowest two quintiles (40%), they may need 100% of the costs subsidized to truly afford health care at all.

But you also need to acknowledge that beyond costs reduction, exceptions to the rule still exist (such as the 75% of insured who go bankrupt in health related catastrophes). These costs are not "affordable" whatsoever, despite reductions in costs. If we cannot find some public way to pay for the cases where the system fails, people will still self-ration, die, or go bankrupt. And if this is happening to some select group, any reform will fail to deliver affordable and accessible care for all.

[JDPriestly]

15. Health care for all is affordable. Less wealthy countries provide it.

No health care for some kills. We are the only wealthy country that permits that.

War also kills. How affordable are our wars? I would argue that we cannot afford the military involvements that we have around the world. As I explained, it is as if the father of a family spent a huge portion of his money on an expensive security system for his house and stocked it with weapons, but did not take his children to the doctor when they were ill or needed dental care or glasses. That is what we are doing. We are not budgeting or setting our financial priorities in a rational manner. Health first, education second, weapons stockpiles and war at the end of the line.

[Oregone]

18. Much less wealthy countries have lower health goal attainment

US ranks 15th, to its credit, despite all other problems. Expanding access shouldn't come at the price of lower quality jungle care (with lowering costs, eliminating wastes, and spreading the burden, it doesn't have to).

But no matter how low your per capita expenditure is, the minute one's share exceeds an "affordable" portion of their income, the system fails them. We have to draw some lines in the sand and develop a system that will always prevent this; and taxation is among the best ways to do this.

Yeah, I agree that war is not affordable (or cost-productive) to the society as a whole, but at least it is funded from each income bracket affordably (via taxation). At least they have that together. If you swap a portion of "defense" spending for health care spending, you would have this in the bag with no one slipping through the cracks.

[JDPriestly]

22. You said it:

"If you swap a portion of "defense" spending for health care spending, you would have this in the bag with no one slipping through the cracks."

That is the key. European countries, for example, that have excellent public healthcare programs, do not spend nearly the amount per capita on defense that we do. That is the secret of their great healthcare programs.

And, by the way, the VA system should be merged into the regular healthcare system -- another savings mechanism. If eligibel veterans live in big cities, they get good healthcare from the VA. If they live in rural American, they probably cannot get good VA care. I base that on personal assumption with veterans in my family who have or do not have good VA care.

[TheMadMonk]

11. Here's another reason why.

The insurance companies, or at least the funds that "own" the insurers also hold large stakes in other parts of the health industry, including hospitals and other health service providers. And they are the ones who provide those health service providers with malpractice insurance.

Private practiotioners and other small providers will almost certainly be hit with punative level insurance premiums, and the only ones who will be offered "affordable" "collective" insurance will be those doctors and providers they themselves own and control.

Even if they lose the lot with a 100% public option, they will continue to collect their pound of flesh, by setting the price of medical care, either directly through their holding or indirectly by forcing small providers' costs up.