Healthcare is taking center stage once again as the political arena heats up. This will not be a political treatise, however. Instead, we will focus on the long-term problems in the U.S. healthcare system and potential solution to be found using the tax code.
Medicare for all is something that always appealed to me. When the politics are stripped away there is a lot to like in the idea of expanding Medicare coverage to everyone.
Currently about half the people get some form of Medicare benefit. The old, very young and poor qualify for the Medicare or Medicaid programs. Unfortunately, the Medicare system is set up backwards. The people who pay for it are not the people receiving benefits and the people receiving benefits don’t pay for it (with the exception of people age 65 and older).
Even the elderly who pay a Medicare premium for some parts of the program are still subsidized by those earning a wage or salary, the very people who don’t qualify for benefits.
The inefficiency of the U.S medical system has created the most expensive healthcare system in the world by far with sub-par results. For most illnesses it is better to travel to another country for treatment if you want better odds at living.
Solutions have been hard to come by and the Affordable Care Act hasn’t delivered on it’s promise while costing taxpayers plenty. Medicare for all is a solution more people are clinging to with good reason. But it must be done right to work!
Medicare for all will fail if simply enacted as another government entitlement to add to the budget. I propose there is a solution that increases American business’s competitiveness, covers all Americans with Medicare coverage and reduces taxes even more on all businesses.
Identifying the Problems
Small businesses struggle to afford healthcare for employees if they offer it at all and large employers are at a competitive disadvantage when competing against foreign firms that don’t spend major resources providing healthcare to their employees.
More and more small businesses have either stopped offering medical insurance as a fringe benefit or have seriously curtailed the benefit. Large businesses constantly deal with the large cost of medical insurance. If wages are the biggest expense for most corporations, then employee benefits—of which medical insurance is almost always the largest—are certainly the second largest expense or close to it.
Small businesses and large corporations alike get a tax deduction for providing medical insurance to employees. However, a deduction is worth less when there are fewer profits due to the added burden. (Corporations pay 100% of the benefit expense only to receive a faction of the expense back in tax savings.)
There is also a worry about turning over the vast majority of medical insurance over to the government. People say they don’t want the government involved with their medical decisions. They want their medical care choices to be between them and the doctor.
Except it doesn’t work that way! When you reach 65 you are on Medicare. If it is so bad we should maybe eliminate Medicare completely. (For the record, I am NOT recommending this and neither are the naysayers!)
The argument also falls flat when you realize your employer now makes those decisions for you! If your employer needs to downsize you are on your own medically. And God forbid you have a preexisting condition.
It isn’t often that we can have our cake and eat it to, but this could be one time when it could happen. If we got your employer out of the medical business (unless they are a doctor or medical facility) and let them do what they’re best at (providing the goods and services they are in business for in the first place) and could cover everyone with basic medical care at a cheaper cost we might be on to something.
Left and Right
The left generally pushes the idea of Medicare for all, but the right likes the idea too; President George W. Bush signed into law the largest expansion of Medicare since its inception with Part D.
The left is currently pushing the Medicare for all agenda. They love the idea since it covers everyone, eliminates waste (hopefully) and helps the uninsured, unemployed and those with preexisting conditions. It is easier to change jobs if medical insurance isn’t an issue. Early retirement is easier, too.
The right hates the idea because it promises massive new levels of government spending. There is something to be said about these concerns.
But nothing happens in a vacuum. Just tossing out Medicare for all would be a disaster! Yes, it would cover everyone with a minimal level of health care, but it could easily bankrupt the government or force taxes seriously higher. This is a major problem that must be resolved before we can grant every American basic healthcare and remain solvent.
Facts and Circumstances
Medicare for all can be coupled with massive tax cuts for businesses, increasing American competitiveness around the world and keeping the government solvent. Tariffs and other strong arm measures might force a temporary trade imbalance reduction, but until U.S. businesses increase their competitiveness the problem will not go away.
To see how this intractable problem can be resolved we need to review some facts.
The median American household income is just north of $60,000. In 2019 U.S. employers will fork over nearly $15,000 for medical insurance benefits per employee.
This means about 20% of the cost of an employee is in the form of just one benefit: medical insurance. (I know I took some license here. Household income doesn’t equal what each employee makes, but it does skew the data against my thesis so no one can accuse me of fudging the numbers to prove a point.) Yes, American businesses cough up around $1.2 trillion per year providing healthcare benefits to their employees and their families, about the same amount Medicare and Medicaid spends combined each year.
Call it what you want, but this is nothing more than a huge hidden tax!
Let’s put this into perspective. Corporation paid $341.7 billion in income taxes in 2015. The cost of healthcare is nearly four times what corporations pay in taxes!
When you consider how American businesses need to compete in a global environment it is easy to see why foreign corporations have competitive advantages. Not only do American corporations pay $341.7 billion in income taxes, they also pay $1.2 trillion in healthcare expenses.
You see, we already have nationalized healthcare! It is costly and inefficient with everyone trying their hand at dealing with the issues. In the U.S. we have corporations do what the national government does in most other nations.
We can fix this.
Tax Code to the Rescue
We have identified most of the major issues surrounding healthcare in America. It is a huge tax on businesses and is inefficient.
If all we do is add Medicare for all we still have a massive mess. Employers would still fork over for benefits above and beyond Medicare benefits.
The solution requires a tax bill as draconian as the Tax Cuts and Jobs Act of 2017. Only the focus would be on a single issue: solving the American healthcare crisis.
First, we have to stop draining corporate coffers of $1.2 trillion every year, a cost that is growing at a rate many times the rate of inflation.
For Medicare to offer universal coverage at current rates we would need to change the tax code. Medical insurance and all employee benefits related to medical can no longer be deductible. In fact, we would need to make medical coverage by an employer illegal so corporations could not shift the deductible expense to a nondeductible expense.
This would save businesses $1.2 trillion this year alone which equates to a massive tax cut. Corporations would have a real cost reduction, opening the door to real wage growth going forward.
To pay for Medicare for all is straight forward. If businesses have $1.2 trillion less in expenses they will pay more in tax because they are more profitable. Even Wall Street would love such a plan as the stock market would climb smartly on such earnings growth.
Corporations would not be allowed to keep all of the $1.2 trillion tax cut, however. A 2% or so additional Medicare payroll tax would need to be instituted, paid by the employer only. (The current Medicare payroll tax is 2.9%, half paid by the employer and half by the employee. I propose the additional payroll tax be levied against the employer only since the employer just saved $1.2 trillion by getting out of the healthcare business.)
Winners and Losers
There would be lots of winners under my plan with only one real loser: insurance companies.
Medicare returns around 98% of premiums in benefits while medical insurance companies return somewhere in the low 80s. The increased efficiency of a centrally managed healthcare system would be tremendous, saving the American economy (that is you and me, kind readers) massive resources better utilized elsewhere. The savings alone could dwarf the trade deficit!
Businesses and employees are easy winners under my plan. A recession doesn’t bring the added risk of lost medical coverage for employees either.
Medical treatment centers would not have to deal with untold numbers of payment providers.
Business owners would not squander valuable resources anymore trying to make medical decisions when they are not in the medical business. The added focus alone would increase American business effectiveness which should add to economic growth and competitiveness.
Insurance companies are not complete losers either. Medicare is basic medical coverage. Insurance companies can still play a crucial role in benefit administration. They can also provide supplemental insurance as they do now to the elderly.
I also propose, under my plan, that Medicare benefits be handled as they are now for those 65 and older. Certain benefits are free to all American while some benefits have a small premium (Part B, C and D, for example) based on income level. Insurance companies would still play a role in this arena also as they do now for older Americans.
Putting it Together
Here are the simultaneous steps to institute my program to provide all Americans with basic medical coverage:
- Medical insurance benefits no longer deductible for employers.
- It would be illegal for employers to provide medical insurance, even if nondeductible, unless they are a medical facility.
- Businesses would save over $1 trillion in costs this year alone. Part of these saving would be paid into Medicare to pay for Medicare for all.
- Medicare Part A would cover all Americans while a small premium would be required for Part B, C and D based on income.
How You Can Fix Healthcare in America
This is my back-of-the-envelope plan to fix the healthcare crisis in America. It isn’t a perfect plan and I’m certainly open to adjustments, improvements and suggestions.
Do you like my plan? How would you modify what I offered above?
And most of all, send this to your Congressman or Congresswoman and Senator. They need to know it is time to fix the healthcare mess once and for all while we still have our health.
I think this is something we can all agree would make America great in a global economy.
And nobody has to get sick over it.
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Thursday 4th of April 2019
As the wealthiest country in the world, the US is also the only post-industrial country that does not have some form of universal healthcare for all of its citizens. That lack of coverage most certainly has not resulted in cost savings (we have the most expensive healthcare in the world) or improved outcomes (life expectancy is now declining and cancer survival rates are not as high as other countries). I don't buy the argument that companies would raise wages if they didn't have to pay health insurance costs. Most people now have high deductible health plans that are dirt cheap (for employers and employees) and cover virtually nothing and yet wages have not shown any sort of increase. Corporate profits are at or near all-time highs, and corporate taxes are near all-time lows. The only master big companies have is to Wall Street, and Wall Street demands higher profits so there is little or nothing leftover to share with employees.
Layers of bureaucracy should be eliminated from the medical care supply chain between provider and patient. Eliminate insurance companies and their hundreds and hundreds of plans that only serve to increase costs, reduce access to care, and create immense confusion among everyone. Medicare does this significantly more efficiently than Blue Cross et al, and does it without the profit motive. On the prescription drug side, eliminate the pharmacy benefit managers and reduce the supply chain to manufacturer -> wholesaler -> pharmacy/hospital. Period. Get rid of direct-to-consumer marketing of drugs. Pharma companies spend more on advertising than they do on R&D.
"I don't want government making healthcare decisions for me." That is exactly what employers and insurance companies already do, and the insurance companies do everything in their power to not pay for covered services. Other countries provide quality care at much more reasonable costs and the US could do the same if there was the political will to make it happen. The money is already there in different forms (insurance premiums, copays, etc) and would just need to be reallocated.
Saturday 9th of March 2019
Keith, another great and provocative article. Your plan is sound though it does need to be mixed with Josh’s (the 2000 page details). What is mind boggling is how many commentators here do not see that this is a working plan in many countries around the world, many poorer than us. Either we give some form of UH or we assign the poor and elderly to premature death; and make many poorer. And, as you note American business is at competitive disadvantage. Doctors could still earn a decent living, insurance cos. could be smaller, and we could be better off. But America, sadly, has decided that Cain was correct and that we should stand in the face of God and question being our brother’s keeper.
Cathleen Cooks Stuff
Monday 4th of March 2019
Have a very separate thought over the universal single payer healthcare vs. individual healthcare (I know some Canadians that absolutely HATE their system due to the government prioritizing different treatments as the best because its the most economical rather than the best for the patient). Maybe a tie-in with a physician on the current ridiculous financial and legal constraints put on medical professionals to help explain the costs of medical care would illuminate the differences between a "free market" and a "single payer" system. Further (and my real intention for this comment, but I got sidetracked)---health insurance companies, like most companies, float the money from premiums into investments that throw off money. This premium money doesn't have to be spent until a subscriber actually makes a claim. (learned this reading the older letters to Berskshire Hathaway shareholders from Warren Buffet). This make the company the most money---and the less % they have to pay out, the more they can keep. In contrast with other insurance companies' (home, car, indemnity, and re-insurance), health insurance currently keeps the most % of their money- as you have said above. So saying "poor insurance companies!" its actually not that poor. They make money no matter what.
Monday 4th of March 2019
Great article! The only change I would recommend is making the Medicare tax an employer expense only. The current 1.45% paid by the employee would also be paid by the employer. So the total Medicare tax for employers would be 4.9% and employees get a tax cut!!!
What are your thoughts on funding Medicare4All through a VAT?
Monday 4th of March 2019
I think I mentioned in the article that the additional payroll tax would apply to the employer only.
I'm not a big fan of the VAT as it becomes very easy for the government to raise taxes at any time without the general public feeling it. However, this is only a personal preference.
Monday 4th of March 2019
Immigration must be comprehensively addressed in order for this plan to work. Legal residency, citizens and illegal immigration have to be strictly defined and laws enforced as to who is covered. For those who do not qualify, they would still be covered under EMTALA unless the law is amended and care received at emergency rooms and is among the most expensive. People who do qualify and continue to seek non emergent care at emergency rooms will also have to be addressed. Compensation for providers will also be affected and is a whole other can of worms. Payroll tax revenue will vary from year to year as employees are laid off during recessions or due to automation or outsourcing. I think you have thoughtful ideas as to how cover the payment issues, which desperately need reformation, but, as always, the devil is in the details. I don't want the perfect to be the enemy of the good. I would like for insurance and medical care to be separate from the government so that healthcare is not always subject to the whims of corrupt politicians and political winds.
Monday 4th of March 2019
K, I think we are muddying the water by mixing immigration with tax law and healthcare reform. Of course you would need a valid SSN (or medical card similar to your current insurance card) for treatment.