How much will you pay in Social Security and Medicare taxes over your lifetime? And how much can you expect to get back in benefits? It depends on whether you’re married, when you retire, and how much you’ve earned over a lifetime.
I recently published with Caleb Quakenbush “Social Security and Medicare Taxes and Benefits Over a Lifetime: 2012 Update” which updates previous estimates of the lifetime value of Social Security and Medicare benefits and taxes for typical workers in different generations at various earning levels based on new estimates of the Social Security Actuary. The “lifetime value of taxes” is based upon the value of accumulated taxes, as if those taxes were put into an account that earned a 2 percent real rate of return (that is, 2 percent plus inflation). The “lifetime value of benefits” represents the amount needed in an account (also earning a 2 percent real interest rate) to pay for those benefits. Values assume a 2 percent real discount rate and all amounts are presented in constant 2012 dollars.
While no major changes in Social Security or Medicare law have occurred since the last update, these estimates reflect alternative assumptions provided by the Center for Medicare and Medicaid Services (CMS) actuaries that lawmakers will cancel a draconian scheduled cut in Medicare payment rates to physicians and other scheduled spending reductions. The result is significantly higher projected lifetime Medicare benefits than current law assumptions would indicate.
Below is a sample table from the brief, for a two-earner couple both earning Social Security’s average wage measure. This set of calculations assumes that workers retire at age 65.
|Two-Earner Couple: Average Wage ($44,600 each in 2012 dollars)|
|Year cohort turns 65||Annual Social Security benefits||Lifetime Social Security benefits||Lifetime Medicare benefits||Total lifetime benefits||Lifetime Social Security taxes||Lifetime Medicare taxes||Total lifetime taxes|
More background information on these calculations can be found at: http://www.urban.org/socialsecurity/lifetimebenefits.cfm.
Democrats and Republicans Favor Medicare Cuts and Then Deny It
Medicare is taking on a primary role in the presidential race. The discussion often turns to whether the program should continue in its current form, with more direct government controls over costs, or shift its emphasis to vouchers or premium support plans. Let’s try to set the record straight.
Lowering Medicare spending growth over the next 10 years from, say, an additional $500 billion to an additional $400 billion means spending $100 billion less on covered services. It doesn’t matter for budget purposes the source of the saving. It is a benefit reduction.
Both presidential candidates claim to save money on Medicare without cutting benefits. President Obama says his reforms “will save Medicare money by getting rid of wasteful spending…that won’t touch your guaranteed Medicare benefits. Not by a single dime.” Meanwhile, Governor Romney promises that his “premium support” plan will save money while still providing “coverage and service at least as good as what today’s seniors receive.”
But politicians aren’t the only ones dispensing that free-lunch rhetoric. Even highly respected journalists and researchers get pulled into it.
Consider two New York Times stories. After the first presidential debate, Michael Cooper, Jackie Calmes, Annie Lowrey, Robert Pear and John M. Broder said that President Obama “DID NOT CUT BENEFITS by $716 billion over 10 years as part of his 2010 health care law; rather, he reduced Medicare reimbursements to health care providers.” A few days later, David Brooks cited an AMA study of a premium support plan put forward by vice presidential candidate Paul Ryan and Democratic Senator Ron Wyden, saying that “costs might have come down by around 9 percent with NO REDUCTION IN BENEFITS” [cap emphases mine].
Can you see what is going on? Politicians, reporters, and experts all recognize that cost growth must be brought under control. But they also want to suggest that benefits won’t be reduced—if only we go with a particular approach.
It’s one thing to say that we can spend $100 billion less on health care so we can use the money better for education or tax cuts or paying off our debt. But it’s another thing to pretend that we can get $100 billion more in educational benefits or money in our pockets and absolutely the same quality of health care.
We know from personal experience that certain medical procedures, at the end of the day, are worthless or worse. But there’s no budget line called “worthless health care” that our elected officials can bravely vote to reduce.
Instead, we are left with blunt instruments to control costs. A Medicare board may recommend or members of Congress may elect to cut payments to providers, as they have done many times in the past. One can argue such cutting may not produce a great loss in services, depending upon how providers and consumers react. But no loss whatsoever? Come on! Try lowering government payments for anything—rental vouchers, school lunches, highways—and see if the same services are provided.
Similarly, suppose that Congress puts more Medicare recipients into a premium support system, like Medicare Advantage–type plans run by health maintenance and similar organizations. The system then limits the growth rate of payments to those groups. Again, there’s less money to go around.
Both the regulatory and voucher approaches have a precise accounting correspondence. If the government spends $100 billion less, then it purchases $100 billion less in services and makes $100 billion fewer payments to providers.
Back to the presidential and vice presidential debates. Directly trying to control prices for individual services may not have the same effect as trying to control the total amount paid for all services under a premium, and vice versa. But no candidate can deny that he favors benefit cuts relative to today’s unsustainable promises.
To add to the confusion, each side talks as if some idealized system of cost control or premium support exists. Almost inevitably, we will be taking ideas from both approaches. We’ll cut back on high reimbursement rates when we believe the effect on actual services would be moderate and, at the same time, use limited budgets to encourage providers to operate more efficiently. For instance, we might lower the payment rates for many operations faster and simultaneously induce more Medicare recipients to opt into groups like Kaiser-Permanente that make many allocation decisions within a fixed budget.
Ferreting out the truth in this Medicare debate also requires looking beyond health care. Benefit losses in health care must be contrasted with benefit gains elsewhere. Yet even health care will likely be much worse if we continue to borrow hundreds of billions of dollars more from unfriendly nations and let excessive debt inhibit economic growth.
Bottom line: both parties favor cutting Medicare benefits, or, more accurately, slowing down the rate of benefit growth. The issue isn’t whether but how this can best be done.
For almost anyone following closely our presidential candidates’ statements, it is absolutely clear that each pledges more than he can deliver. As a result, we must vote for the candidate who can better govern after over-promising.
Consider especially the big three items driving upward the budget deficits: growth in health costs, growth in retirement costs, and the tax cuts that keep passing our bills and related interest costs onto future generations. One simply can’t balance the long-term budget without dealing with these three. Yet both Obama and Romney remain largely silent about what we might have to give up in these arenas for years to come.
Social Security reform? “We can easily tweak the Social Security program while protecting current beneficiaries, ensuring that it’s there for future generations,” President Obama says. “[I am not] proposing any changes for any current retirees or near retirees, either to Social Security or Medicare,” Governor Romney proclaimed at the first presidential debate.
Medicare? The president fights to retain long-run hopes for “well over $1 trillion” in cost savings that he thinks are in Obamacare. But the Congressional Budget Office says that Obamacare raises health costs overall and that any long-run savings are just that, long-run, as well as uncertain. Romney would replace Obamacare and restore additional Medicare-directed spending. CBO numbers say that simply abandoning Obamacare would add to the deficit since the bill also includes tax increases and other measures that more than offset the health cost increases.
As for premium support or vouchers versus traditional Medicare, the candidates do engage in a debate, but generally over changes that would be phased in at some time long distant from when they need to tackle the deficit. Taxes? Romney proclaims that his reform would reduce revenues or at best be revenue neutral: “We are not going to have high-income people pay less of the tax burden than they pay today. […] I do want to bring taxes down for middle-income people.” He would also cut tax rates by 20 percent and “keep revenue up by limiting deductions and exemptions,” or perhaps he would do less, if those limits don’t supply enough revenues. Obama, in turn, holds with his promise from the last campaign for no tax increases for anyone making less than $250,000. Analysis after analysis shows that keeping this promise would entail only modest progress on the deficit.
Discretionary spending? Although not one of the big three drivers of our budgetary problems, both candidates would pare it dramatically as a share of GDP, but their campaigns only emphasize what they would protect. Obama would invest in education, and Romney now likes Pell grants, though he would give Big Bird some liposuction. Romney says he would somehow maintain a higher defense budget than Obama.
These candidates are not the first to try to tell us how much they will do for us or at least how they will absolve us—particularly the woe begotten middle class—from sharing in any future budgetary fix. Their complication, even compared with previous presidential elections, is that their new promises stack onto an extraordinary and unprecedented number of unsustainable promises already put into law. I understand why they are scared to death to tell us what reforms might really be required; we voters often jump on the honest candidate and, hence, bear some responsibility for what we get. But that means that in deciding for whom to vote, we must speculate on just which pledges either candidate would violate.
Should we prefer the candidate more willing to declare “oops” once elected?
Do we vote for the one whose future contradictions we believe will be less likely to affect our favorite interests?
Do we favor the politician more adept at dissimulating his past statements?
Consider many of the recent budget agreements and systemic reforms that required us to give up something. Reagan abandoned his opposition to removing tax breaks both in the budget agreements and the major tax reform legislation he signed. He also reversed his previously successful efforts to provide zero and often negative tax rates on some investments. Clinton abandoned his pledge for a tax cut soon after being elected. George H.W. Bush famously abandoned his “no new taxes” pledge. And while poor H.W.’s dissimulation efforts were unsuccessful, conservative and liberal pundits still place Reagan and Clinton high in their respective pantheons.
The president is the only elected official who represents all the American people. The office demands a higher order of integrity and just plain arithmetic discipline than does the role of candidate. In the end, therefore, we probably pick whomever we think better recognizes that the switch from candidate to president is more of a leap than a transition.
Recent newspaper articles have highlighted autism studies that lean toward genetic causes on the one hand and environmental on the other. One notes correlations with the age of fathers and the genetic mutations that we all inherit but that increase with a father’s age. Another suggests that we have a weakened resistance to germs because we aren’t exposed to as many in our cleaner, less outdoor society. Most of us are also familiar with past studies that failed to find evidence for the popular thesis that immunizations given to young children increase the probability of autism.
These autism studies are mere examples of the many types of epidemiological research that try to investigate outbreaks of disease, assess exposure risks, or figure out why certain populations seem to be more or less immune to various health threats. The research often looks for both good and bad exceptions to averages. Malcolm Gladwell’s introduction to his popular book Outliers, for instance, points out the “Roseto Mystery”: the studies by Stewart Wolf and John Bruhn on why people living in Roseto, Pennsylvania, have relatively fewer heart attacks and live longer than those living elsewhere.
Progress? Yes. Yet someday these one-off studies will be likened to the late Middle Ages when it comes to medical science research. Not for their conclusions, but for the years, and, in some cases, decades of ex post data gathering required before any conclusions are reached.
Imagine a different world, in which data on these populations had already been transferred through electronic health records to the Centers for Disease Control (CDC) or a similar agency. In the world of big data, one doesn’t always work from casual observation to hypothesis to painstaking data gathering—sometimes guessing at the right sample populations to begin following, perhaps for years and decades into the future. In this imagined world, much data on them and on many comparison populations would already have been gathered.
Research, of course, is always somewhat haphazard. You never know what you are going to find, and when you find it, you need to determine whether “it” is genuine or an anomaly. But with large amounts of data already available, the odds of finding “it” and proving “it” are magnified.
In this new world, research could also proceed from computer-generated detections of correlations to hypothesis and theory, rather than the other way around—in some ways reversing the traditional methodology of modern science from Descartes onward. Thus, correlations at times are found even when not originally hypothesized, and discoveries may abound. Although some relationships may simply reflect random chance—flip a coin enough times and heads will eventually pop up 20 times in a row—rechecking is easy by testing different subsets of big data sets.
With so many relationships to be examined, whether with traditional or new methodology, new understandings can proliferate, as well as quicker rejection of hypotheses that cannot be substantiated. For autism, for instance, we would know much more quickly about its prevalence in different geographic regions with different environmental exposures and about the effectiveness of various interventions, from diets to drugs to early educational efforts.
Similarly, we would uncover much earlier warning signals, whether of a sudden flu epidemic or an increase in the prevalence of Alzheimer’s or heart disease by region, sex, race, or other characteristic.
For several years I was privileged to work with a group of very fine doctors, researchers, lawyers, economists, and other health care experts on the National Committee for Vital and Health Statistics. Its primary interest then––and, to some extent, now––was to expand the use of electronic health records (EHRs).
Many associate electronic health records with better transmission of information from one hospital, doctor, or other health care provider to the next. After Katrina, for instance, we were all appalled at the inability of victims to have their medical records available to those treating them in neighboring jurisdictions.
Others recognize that EHRs make it easier to detect sources of individual health problems. Thanks to EHRs, most pharmacists now get computer-generated information on drugs that contravene each other; doctors can plug symptoms into computers that spew out lists of possible causes, including some they might have neglected, forgotten, or never learned.
But, for many of us on the committee, we ultimately hoped to create a world in which much faster, more thorough, and more comprehensive public health research could be performed on the causes and possible cures for disease, malignancies, and chronic health conditions, outbreaks of new health problems, and local or regional stories of failure or success in places like Roseto. How many, when reading a story about a place like Roseto, realize that in today’s world we shouldn’t have to wait decades to accidentally discover such geographical variations?
In a talk I gave several years ago at the National Academies, I argued that we may achieve real progress only when consumers begin to demand these improvements. What if a subset of parents of autistic children demanded that their children’s health records be gathered together at the CDC or some other place? They would work with IT professionals, medical researchers, doctors, and teachers with special knowledge of autism to create common data fields. With enough participants, data provided by only a subset of cases would be sufficient for some research.
Add to these parents of autistic children the children of parents with Alzheimer’s or simply people like me who know the auto-immune problems that my children could have inherited from both sides of the family. What if we were to rank our doctors and their practices by how well they participate in such shared data gathering? What if some foundations helped organize these consumers?
In the end, organizing consumers so they can demand the possible may be more important than all the money in the world, which is what we seem to be spending on health care already without the progress we can and should be making.
We are on the cusp of great possibilities in health research, a scientific revolution of sorts. Big data, electronic health records, and government committees provide some of the wherewithal, but we’ve got to make the leap.
In a recent column I asked how the health sector might respond to an increased demand for health care if it were subject to normal competitive pressures. I particularly took issue with whether there was a doctor shortage or a broader misallocation of resources and noted that the lack of competition in the health care market is a major reason prices are so high.
Given the comments I received, I need to clarify one point: while I think we will see more competition in the future, it won’t arrive deus ex machina. It can and should accompany real reform that slows the growth of health costs.
These competitive forces aren’t ever going to come into play without budget constraints in government health programs. Interestingly, a budget constraint is an important component of almost all major reforms, whether it involves premium support or Medicare for all.
I reached a similar conclusion after reading a CBO report a few months ago. CBO examined 10 major Medicare demonstrations aimed at enhancing the quality of health care and improving the efficiency of health care delivery and found that most of these programs have not reduced Medicare spending. It wasn’t that the incentives in those experiments were bad ideas as much as they often weren’t designed in any way to prevent savings leaking out somewhere else. More services or higher prices elsewhere can easily offset some particular efficiency improvement.
Consider also why CBO wouldn’t give the Obama administration the saving it wanted to be scored for experiments authorized in 2010 health reform. In his new book on the budget, Wall Street Journal editor David Wessel notes this disagreement between OMB director Peter Orszag and CBO director Douglas Elmendorf. The administration’s experiments had no real budget constraints that would lead health providers to respond to the incentives to provide more for less.
But don’t misunderstand. With budget constraints, some experimental efforts are much more likely to succeed; indeed, that’s the nature of competition. Successes are also imitated. Then we move from win-lose to win-win, with potentially large compounding effects on reducing the rate of growth of health costs.
In their article “Doctor Shortage Likely to Worsen with Health Law,” Annie Lowrey and Robert Pear report on claims of a future shortfall in the number of doctors. I was thinking about this recently when, for the first time ever, a dermatologist offered to have a nurse perform my checkup. In all likelihood, this nurse did as good a job as the doctor, perhaps even better; she certainly took more time. I’m sure she got paid less, though I’m not sure that costs passed along to the insurance company were any lower.
Is there really a doctor shortage? Or does the Lowrey-Pear article reveal one of the major problems with health care in this country: that if this were any normal industry or market, nurses and other providers would be competing with doctors to fill needs and provide services at a lower cost.
Despite its title, the article actually cites professionals making three different claims. First, there will be a shortage of doctors, presumably nationwide. Many more people will become insured under the new health laws, and the baby boomers are aging, so demand is up. The Association of American Medical Colleges estimates that in 2015 the country will have 62,900 fewer doctors than needed.
Second, mismatches abound. Although in great demand, primary care specialists get paid a lot less than specialists; as a result, medical schools are producing fewer general practitioners as more students choose to specialize. Some regions and localities have far fewer doctors per capita than others.
Third, we’re going to have to allow nurses to provide more care. As one doctor notes, we’ll have “to use the resources that we have smarter.”
Think of any other sector of the economy that experiences an increase in demand. For instance, we decide we want more heirloom tomatoes (or early childhood education, or, at one time, cars). Initially, there aren’t enough heirloom tomato growers (or early childhood teachers or steel mills to provide metal for the cars). Suppliers of goods and services respond in various ways, including providing alternatives: other vegetables, noncertified teachers, aluminum. At the same time, competition usually leads to cheaper ways of providing services to these markets. Indeed, in just about every industry except health, above-average growth in the quantity of goods and services provided is accompanied by below-average growth in prices or even price declines. Think of computers or cell phones.
So it’s hard to assess the first claim of an overall shortage. Relative to what? Every market makes adjustments all the time. That doesn’t mean there’s a shortage, unless we think we have to do things the same way and at the same price that we used to—which is the opposite of progress. I suppose if the old, landline phone companies could require that all phone services be provided over wires, there would be a shortage of telephone service as well.
As for mismatches, some exist in any industry and market. But they are especially out of whack in health care because of the crazy way we compensate. The government is clearly a partner here, given its 60 percent share of the market once we count Medicare, Medicaid, tax subsidies, and other subsidies, including for medical students and hospital training. In any case, educating more specialists who settle in popular cities where the ratio of doctors to patients is high won’t do much about the shortage of primary-care physicians or doctors in remote regions.
The third claim—that nurses may have to provide more care—is quite on the mark. But this is a plus, not a minus. Alternative providers of medical goods and services can extend well beyond nurses. What about allowing competitive offices to use yesterday’s MRI machines that have slightly less than the latest gadgetry? Making even greater use of generic drugs? Giving greater leeway to the Walmarts of the world to provide health care checkups? Converting more routine tests into procedures handled by well-trained and specialized, but lower-cost, technicians? Making medical student subsidies exchangeable for years of providing services for less compensation in poor communities or places with a shortage of health care providers? Heck, why not expand the skin cancer checkups being offered at baseball games?
Another way to save money would be to lower America’s high ratio of specialists to primary-care physicians. About a third of all doctors in the United States are primary-care physicians, compared with half of doctors in other industrialized countries. The abundance of specialist doctors in the United States has sometimes been referred to as an “artificial shortage of doctors.” Specialists are also more costly than doctors with general practices.
While we’ve already made headway on some of these alternatives, they are only harbingers of what must come so we can both rein in health costs AND get maximum care out our health care dollars.
What prevents these competitive forces from coming into play? Several things. The inaccurate notion that we all will receive the maximum amount of the best health care available, no matter what the cost. The threat of us suing doctors for malpractice if they don’t give us every possible treatment. The open-ended nature of our government health care budgets. The denial to most workers and Medicare recipients of the ability to save some cash by choosing a lower-cost insurance plan. The perverse incentives created by fee-for-service medicine. The monopolization of certain markets by some hospitals and providers.
Yes, many forces are blocking progress. But their day is coming to an end. When it comes, we will see a lot more care provided nontraditionally. Often it will be less costly. Sometimes it will even be better. That day will not see the end of the eternal (and necessary) debate over building an even better health care system, but it will likely open us up to fresh ideas. Regardless, I doubt that our future health care will be stymied by a shortage of people being paid several hundred thousand dollars a year through the fees and taxes of the average worker and taxpayer.
As an economist, perhaps I shouldn’t be writing this piece. In delivering the opinion of the Court on the Accountable Care Act, Chief Justice Roberts makes an indirect attack on economists: “To an economist, perhaps, there is no difference between activity and inactivity…But the distinction would not have been lost on the Framers, who were ‘practical statesmen,’ not metaphysical philosophers” (p.24). Nonetheless, I will turn here not to the practical issues decided by the court—such as how the individual mandate is a penalty, not a tax that must be paid before people can sue, but is a tax, not a mandate, for being held constitutional, while penalties on states that forgo a Medicaid expansion are unconstitutional because they represent a “shift in kind, not merely degree” (p. 5). Instead I turn to metaphysical issues surrounding many quandaries that remain, such as how the new health laws can be administered, how budgets can possibly be sustained, and whether we can solve any of this mess without some bipartisan cooperation.
In upholding the health mandate and striking down the requirement that states expand Medicaid coverage or lose funds, the Chief Justice cites CBO figures of $4 billion a year for the revenue impact of the mandate (p. 33), $100 billion a year for the cost of the Medicaid expansion (p.46), and $3.3 trillion as the Medicaid funding that was threatened if states did not comply (p.51). The size of these numbers raises the question of whether the fight over this particular individual mandate was all it has been cracked up to be, even relative to the overturned requirement that states accept the Medicaid expansion. At one level states are fully funded for a while to accept the expansion, but some may fear the long-term costs. Then, again, why not just let Medicaid recipients go onto the federally funded exchanges? It will be interesting to see what CBO estimators make of this shift.
The size of the mandate is also small relative to the employer mandate that was not a part of this court case and to the cost of health insurance more generally. Much of the mandate’s impact, in my view, would come from its influence on people who really hate to pay penalties (oops, taxes that we call penalties or mandates), regardless of whether they might make economic sense.
An upcoming issue with the mandate is its enforcement. In a recent article in Tax Notes Magazine, law professors Jordan M. Barry and Bryan Camp lay out the limitations IRS would have assessing liens and levies on those owing the additional tax at the end of the year, concluding that many resistant taxpayers can avoid paying any penalty they owe. It’s long been understood by tax professionals that collecting taxes is better done as the income is earned and before it is spent elsewhere.
A separate tax collection problem arises with respect to subsidies that will be available to those on the new health exchanges. Households are given tentative subsidies based on tax data that can be over two years old. When household income or employer or marital status or unemployment or number of dependents changes, the taxpayer can apply to have the amount adjusted. There are very limited ways of auditing these revised claims, so taxpayers can end up paying another set of penalties when later they are found to have gotten too much assistance given their incomes. Whether that type of setup can be administered with any degree of fairness or accuracy sits right below the radar screen.
Nowhere, as best I can tell, did the court address (or need constitutionally to address) the “metaphysical” budget issue of why health reformers imposed “penalties” on individuals not buying insurance, states not maintaining or expanding Medicaid coverage, and employers not providing insurance. It’s simple. Absent constraining costs, which were not a principal focus of the act, federal taxes were the only alternative.
The health care system, however, had become so expensive (at 18 percent of GDP and 21 percent of personal income) that no member of Congress, Democrat or Republican, would ever suggest tax rates high enough to cover those costs for most people. In effect, the Court may suggest that elected officials can get around their constitutional problems by taxing and subsidizing more, but, as a practical budgetary matter, they can’t.
Underlying all of this are the uninsured. It doesn’t matter whether President Obama or Governor Romney wins the election. There is no way to go back to a system that left tens of millions of people uninsured and the number rising every year.
I see no way out of this mess without bipartisan efforts that are currently lacking. For instance, the individual mandate (penalty, tax, friendly persuasion, whatever) could be better administered, and a more powerful incentive for purchasing health insurance provided, by making coverage a condition for getting certain other benefits such as the child credit or itemized deductions. This type of design would be even less likely to raise any constitutional objection and be consistent with both Republican and Democratic principles. Meanwhile, any subsidy system, whether on the exchange or elsewhere, needs to be better designed so that enforcement isn’t so onerous on the taxpayer or the IRS. Most importantly, of course, the dilemma that is health care can’t be solved without forcing each government health program or tax subsidy to face some budgetary constraint. But I guess those are the types of things we metaphysical philosophers worry about.
This column was originally published in the Fiscal Times and is reposted with permission.
Regardless of how the Supreme Court decides the constitutionality of the individual mandate, the health care debate is now reignited. If the mandate is sustained, the Accountable Care Act enacted under President Obama still has too many kinks to remain unaltered. If it’s thrown out, a return to the unsustainable system with growing numbers of uninsured is not a solution. Yet no fix is possible as long as elected officials dodge the basic arithmetic of health care.
As for the individual mandate, ignore the constitutional briefs for the moment. Ignore also how a mandate helps address problems that arise if insurance companies must offer coverage regardless of prior conditions and people otherwise are tempted to wait until they are sick to buy it. Instead, let’s see how a mandate fits it into the broader arithmetic of paying for health care.
Here are the numbers: The United States spends about 18 percent of its economic output (GDP) on health care each year. That comes to about $23,000 of health care spending per household. The CBO estimates that in 2016 a family of four with $60,000 in total income and benefits would spend, or have spent on its behalf by employers or government, about a third of that amount on health care. If all federal and state government health spending and subsidies were covered with a flat tax on total adjusted gross income nationwide, the required rate for its health policies alone would be about 18 percent. If the government were to cover all health costs, that rate would climb to 32 percent. With all this in mind, lawmakers determined under health reform that the maximum a family should pay for health insurance when bought from an exchange is about 10 percent of its income.
Of course, we are already spending much more on health care than what politicians say we can afford to pay, so where does all the extra money come from? Medicare taxes and income taxes pay to cover those on Medicare, Medicaid, and other government programs. Workers get significantly less cash compensation when working for employers providing health insurance. We borrow a lot from China and other foreign countries, and, more recently, from the Federal Reserve.
The system is cracking from this simple disconnection between what we pay and what we think is the most we should pay. And no recent health reform effort can be understood without seeing how that disconnection drives the policy choices.
No one, Democrat or Republican, is willing to collect enough taxes to cover even the government’s current costs—much less the costs that would arise with greater government provision. No politician will level with the public about the true cost required to support our existing health programs and tax subsidies. More taxes have limited sway for other reasons as well: while we do need to start paying more of our bills for broad budgetary reasons, why should additional tax dollars be spent on such an expensive health system rather than other social priorities?
The Affordable Care Act attempted to cover new costs without adding significantly to tax burdens. The individual mandate was one way it tried to force us to pay, at least for ourselves. The law also included an employer mandate designed to prevent employers from dropping employee health insurance (since many employees’ tax subsidies are worth far less than the new exchange subsidies that cover insurance costs above 10 percent of family income). Congress also tried to box in states to contribute as much or more than they already do to Medicaid, another part of the constitutional debate.
None of those efforts, however, tackle the original sin driving health costs. Whether dealing with the old or the young, the government’s health programs are open-ended. Both we as customers of health care and our doctors, drug companies, and other providers are empowered to spend more on our care and, as a result, increase taxes on others or impose costs on others within our insurance plans. Both political parties are afraid to take this power away from us or health providers. Only very tentatively has Congress tried to empower boards to constrain costs, or to convert Medicare to more of a premium support or voucher system—and only with an outcry from one political party whenever the other is the first to suggest that anyone anywhere might get less. The political contradictions abound: Democrats want premium support for the young and oppose it for the old; Republicans want premium support for the old and oppose it for the young.
Meanwhile, as costs keep rising, more people either can’t or won’t pay for their health care and turn to others for their support—either through government programs or just showing up at the emergency room and letting the insured cover those costs.
Extend the arithmetic beyond health care, and other budget problems reveal themselves as well: a dramatic reduction in the share of government spending for children, education, and investment; limited growth in take-home pay of middle-income workers as employer-provided health insurance costs rise rapidly; and a decline in government’s flexibility to respond to the next emergency, attack, or recession.
The Supreme Court may well throw some balls back into the air, but how much will it resolve? For the most part, very little. It remains a math-less debate.