U.S. Health Care Finance: The Inequity

There are many reasons for inequality. Some are blessed, by God and by nature, with great intelligence, athletic ability, or beauty; others cursed by congenital handicaps, disabilities, and diseases. Some are born into loving and stable families; others into broken homes filled with drugs and abuse. Some parents have the money required to induce the broader society to provide their children with extensive resources and support; others have little money, and must raise their children in unsupportive environments. All these advantages and disadvantages are present even before a person begins to make his or her own choices and mistakes. For the worst off, mistakes made in youth - with drugs, violence, sexuality, relationships, learning - often cannot be recovered from later on. Some of us would like to see government policies reduce the level of this “naturally occurring inequality,” and some would not.

What is indefensible under any reasonable ideology, however, is to have the government intervene in some area of life and merely replicate, or even exacerbate, the inequalities generated elsewhere. Today, however, in case after case the government, with the power to compel people to do what they do not wish to do, is using that power to make the less well off even less well off, the less influential even less influential, the less secure even less secure - all while protecting the better off from the consequences of free choice in the marketplace, or the consequences of their own decisions. Today’s case in point: health care finance, where inequality grows by the hour despite the dominance of the government, with those lacking health insurance paying taxes to provide it or subsidize it for others. And as in the case of Social Security, younger generations and the working poor have fared the worst over the past 20 years.

If you look at the most recent data on the availability of health insurance, you find that more than 68 percent of Americans were covered by private health insurance in 2006 (see attached spreadsheet), 27 percent were covered by government health insurance programs such as Medicaid, Medicare, and military health care, and just under 16 percent had no health insurance. (Some people were covered by both public and private insurance). But this is misleading. It is the government programs that cover more of those who actually need the most health care, the old, chronically sick and disabled. Excluding out of pocket heath care (co-payments, and the growing market for health care services not covered by insurance), government-funded programs actually paid for 53% of all U.S. third party health care spending in 2005 (see second attached spreadsheets). And excluding certain services less likely to be funded under government programs, the government share rises to 55%.

That, however, is only the share of health care that the government pays for directly. Public employees tend to have much more generous employment benefits than private-sector employees, with nearly all of them having health insurance, according to the Bureau of Labor Statistics. Although a private health insurance company is paying for the services, therefore, for public employees the government is paying for the health insurance. At an absolute bare minimum, public employees account for 25 percent of private health insurance, but as the spreadsheet explains the actual share is probably much higher, and rising. That 25 percent is based on employees who are working; an increasing number of private sector workers are self-employed, and most of those do not have health insurance, while public sector workers are vastly more likely to receive employer-funded health insurance in retirement. Public employees also tend to have policies that cover more services, and that pay more.

Even private health insurance paid for by private companies is indirectly subsidized for by the government, through tax subsidies, the value of which is estimated at $132 billion in 2005. The most important is the exclusion of employer-provided health insurance from taxable income under the federal income and payroll taxes, a break that -- since the money comes off the top -- even the wealthiest benefit from.

Adding direct and indirect government expenditures and subsidies, the federal, state and local governments were already paying, at a bare minimum, for about three-quarters of all third party health care spending in the United States. A more complete analysis, based on data I don’t have, would probably push the government share up to more than 80%, or higher. And as more Americans lose private health insurance, and an aging population allows more people to qualify for Medicare, that share is going to rise, not matter what else is decided.

If that 75 to 80 percent was only used to pay for a basic level of health care, at fair prices, then universal health insurance could probably be achieved without the expenditure of a single additional dollar of public money. Instead, public funds and subsidies are used to pay for, or to subsidize, the most advanced, costly, extensive, high-technology health care in the world, for those fortunate enough to benefit from it. Organ transplants. Artificial bones and hips. Advanced, non-generic drugs. Personal health aides. Viagara, Levitra, and Claritan. Fertility treatment. Orthodontic treatment. In some cases, even cosmetic surgery.

Americans no longer expect the health care system to merely preserve their life to the extent practical, but also to make it perfect, free from disability, disappointment, aches and pains. And there is nothing wrong with that, if they are willing and able to pay, but many are not willing to pay for others to have the care they expect themselves. And meanwhile, working people who do not receive employer-financed health insurance, and cannot afford to purchase health insurance themselves, pay taxes for health care but get nothing. Until a health emergency bankrupts them, and they qualify for Medicaid.

So this is worse that some people having more health insurance than others because some have more money than others. This is the government taking from some, often those who have less, and giving money to others who have more.

Generational inequity seems to be ever-present in every area of public policy, and health care is no exception. Just as earlier generations granted generous defined-benefit pensions for themselves, and offset the cost by giving my generation less-generous 401K plans (increasingly with no employer contribution at all), so generations younger than mine are increasingly less likely to receive health care. Some say that is a choice younger people make, but in reality it is yet another ratcheting down in well being for future Americans. Businesses get around preserving health insurance for those already on board but not for new hires by taking on the latter as “freelancers” -- in name only. That is one reason self-employment is surging as a share of total employment in this country. Based on the current trend, there is no reason for me to believe my children will receive employer-financed health insurance once they complete their education.

Looking at back issues of the Statistical Abstract of the United States (I continue to be amazed at how much information the U.S. Census Bureau has made available in just the last few years), one finds that 66.1% of Americans age 18 to 24 had hospital insurance in 1962, rising to 78.1% having health insurance in 1990 before falling to 70.7% in 2006. Meanwhile, only 54% of those age 65 or more had hospital insurance in 1962, before the creation of Medicare and Medicaid. Now nearly all have increasingly generous health insurance that covers more services every year. And, moreover, retired seniors don’t pay for it -- working people do through a Medicare payroll tax of 2.9% apportioned between employers and employees. The young will pay for other health care services for today’s seniors, with interest, in the future, because the money to pay for it has been borrowed. And while the cost of health care for senior citizens goes up significantly ever year, since 1990 there has been a significant decline in the share of people age 25 to 35, 35 to 44, and 45 to 54 with health insurance. The decline occurred even during the 2003 to 2006 period, when the economy was strong and employment was rising. A recession will make the trend worse.

Of course the young are less likely to require extensive health care than senior citizens are, but this generational shift is likely to persist as today’ young people age unless policies are changed. Today’s twenty-somethings will be much less likely to have health insurance when health problems begin to accumulate in their 50s. And, as the United States heads toward bankruptcy, I tell my generational peers they are unlikely to get Medicare as it is today when they themselves are old. All we’ll get is medical marijuana followed by legal assisted suicide. And that’s if the Democrats are in power. If the Republicans are in, we won’t even get that.

Why does this inequality persist? Because it benefits those with power, and a greater sense of entitlement.

At one time America was not every good to its senior citizens. Prior to the creation of Medicare and Medicaid in the 1960s, and the automatic indexing of Social Security for inflation, they were not only less likely to have health insurance than other Americans, but also more likely to be poor. In the 1950s and 1960s, everything was for the children and the young, as young parents left their parents behind in declining urban and rural communities and moved to the suburbs and the Sunbelt. The old, who had worked and sacrificed, were neglected and forgotten. Today things are just as inequitable, but in the opposite direction, and yet politicians of both political parties continue to stoke the sense of entitlement to those over 65, telling them they should have ever more and pay ever less for others. And that is the way public health care expenditures and subsidies have gone.

Unions, especially public employee unions, are another powerful group, and traditional unions have extensive health insurance benefits, with their extensive government tax subsidy, permanently grandfathered into their contracts under federal and state labor laws. If they manage to bankrupt their companies, as they nearly have in the auto industry, the unions typically preserve rich benefits for those with seniority while providing less -- often much less -- to younger workers, who are nonetheless forced to pay the same dues. As for universal care, it’s fine if the money drops from the sky, but why would union members want to pay taxes for others to get something that they were already getting, in part at someone else’s expense, themselves? One of the hopeful signs in health care is the break up of the AFL-CIO into the unions whose members tend to have health insurance, and those who don’t -- the Unite to Win coalition. Perhaps the latter will work to push through universal health insurance financing.

The wealthy, who can easily afford health insurance, also benefit from the tax break, in fact the benefit more since it is worth more the higher one’s tax bracket. Meanwhile, under current policies they pay lower taxes and lower prices because their nanny, gardener, housekeeper, bartender, waitress, store clerk, and other goods and services providers lack health insurance.

The health care industries are themselves winners, since the mishmash health care finance system allows them to milk the public treasury without appearing to do so. No wonder they opposed Bill Clinton’s universal health care plan in 1993. Separated from the customer by blame-absorbing intermediaries, the health care industry continues to provide more and more expensive care to fewer and fewer people, with an ever present threat of providing nothing at all unless funding is increased further. Even as the cost of health care burdens the United States more than any other country, people are happy to take more and more of it because they are forced to pay up front, and after that it is “free.” Nowhere in the United States is the health care industry more powerful, and greedier, than in New York, where our Medicaid program is the best argument against universal public funding for health insurance out there.

The losers? The real working class including Blacks, Latinos, Asians, immigrants, “rednecks,” and others working in the low paid, no-benefit small business sector. The growing ranks of self-employed, college educated “freelancers” and “permalancers.” Today’s young, who will tomorrow’s senior citizens with less health care. Elected officials like to talk about the losers. But they are unwilling to ask the winners to pay more, or accept less, to do something for them.

My view is that we are either all in it together, or we are not. Republicans and Democrats, liberals and conservatives, can debate what the level of socially guaranteed health care should be, but whatever it is, it should be for everyone, and paid for today, not cost-shifted to tomorrow. They should settle their differences by agreeing to a middle of the road level of guaranteed health care for all, rather than agreeing to have some people count more than others. Any solution that continues to have separate multiple funding streams for different groups is likely to perpetuate these inequalities to the benefit of insiders and better off generations, and the detriment of outsiders and future generations. We don’t need a single national health service, since not even Democrats dare to object to a “voucher system” in health care. We could have multiple intermediaries, including public programs and insurance companies. We could even offer a choice of paying more taxes and having the government pay for health care, or sending the money to a private intermediary and sending in less taxes. But the level of public funding per person, adjusted only for defensible differences such as age, sex, and chronic existing health conditions, should be the same. Anything else is morally wrong.

Percent Covered By Health Insurance.xls20 KB
Health Care Finance 2005.xls23 KB