Healthcare spending: two questions

Last updated on: January 15, 2017 at 9:21 pm by Jane the Actuary

Healthcare spending: two questions 2017-01-15T21:21:13-06:00 Jane the Actuary

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Yes, another set of questions for readers. Easier to ask questions than pontificate, when I’m short on time to do the research to pontificate in an educated manner.

First:

In the past couple days, there have been two stories in my facebook feed about “lives Obamacare has saved”: the first, a woman who needed some kind of super-pricey weekly infusions in order to keep her unborn child alive and developing, which her healthcare provider told her were not covered until Obamacare mandated that insurance companies do so as a part of the benefits package (the article didn’t give any further specifics, so there’s no way of verifying); and the second, a man with recurring cancer that would have left him uninsurable, and, even with employer insurance that would have continued to cover him, would have blown through the 1,000,000 lifetime max that Obamacare now prohibits, with his various high-tech treatments.

The other day, Megan McArdle wrote an article discussing Trump’s plans to have Medicare “negotiate” drug prices, in which she pointed out that countries which implement drug price negotiations succeed only because they’re willing to walk away and leave drugs uncovered by their national health insurance programs if drug companies balk at their pricing proposals.

But the cold reality is that when Obama spoke of grandma taking the pain pill rather than getting the extensive surgery that would give a few extra months of life to a 95 year old, he was using an example for which there’s broad consensus. Single-payer systems go far beyond denying surgery to 95 year olds. I suspect that both of the stories above would have had quite a different ending in a single-payer system, with experimental or high-cost treatments being denied.

So, regardless of whether we have a fully-private system, a mix of public/private, or fully private healthcare system, should there be any limits on what sort of treatment we provide, and for who? Does a system like the NICE in the UK, in which each treatment is evaluated for the relative value compared to the next-best alternative, and in which older and less “socially valuable” people are less likely to be approved for treatments, have any place in the U.S.?

Second:

Bernie Sanders liked to promise us that he could give us a single-payer system funded by the “millionaires and billionaires.” But in practice, countries either fund their benefits through general revenues, with income tax rates that are higher than in the U.S. across the board, or with FICA-like taxes. For example, in Germany, you’d pay 7.3% of pay up to 50K, and your employer pays the same. In France, it’s only 0.75% of pay, but employers pay 13.14% of pay, and you’d better believe this factors into total compensation. (You can browse all of this at Social Security Programs Throughout the World.)

Hence, consider the individual who is not covered by an employer plan, and says, “I live paycheck to paycheck and can’t afford to buy health insurance; it should be provided for me by the government.” If a FICA-like tax were adopted, that person would be paying for healthcare at a rate of, say, 10% of pay. If healthcare was paid for from general tax revenues, you’ll have to have an increase in income tax rates, so that (except for those in poverty for whom deductions and credits cover all their taxes) you’re paying more to the IRS. Of course, in either case, you’d be paying as a percent of your income, rather than a flat amount regardless of income.

So my question to readers is this: what’s that income threshold below which healthcare should indeed be free to the individual, rather than paid for in some kind of taxes? And what’s a “fair” tax rate to fund healthcare?

Image: https://commons.wikimedia.org/wiki/File%3ADoctor_examines_patient_(1).jpg; By Unknown photographer [Public domain], via Wikimedia Commons

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