Rx for Health Care: Pain

The politics of health care rests on a mass illusion: most Americans think that someone else pays for their care. Workers with employer-provided insurance believe that their companies pay. Retirees and the poor think that the government, through Medicare (retirees) and Medicaid (the poor), pays. No one has an interest in controlling spending, because everyone believes that it burdens someone else. Naturally, the health-industrial complex—doctors, hospitals, drug companies—has no interest. Higher health spending raises their incomes and profits.

In practice, the costs are mostly disguised. Because employer-paid insurance is not counted as income for tax purposes, most workers don't realize what they're getting (companies now pay about $9,000 for a family policy, reports the Kaiser Family Foundation). But higher insurance costs do limit wage and salary gains. From 2000 to 2006, average compensation for full-time workers rose by $3,500 after inflation, says economist Gary Burtless of the Brookings Institution. But $1,045 went to health insurance. Similarly, Medicare and Medicaid's effects get buried in the larger budget; since 1990, they've gone from 12 percent to 21 percent of federal spending.

People need to see and feel health costs. Politically, we need to create constituencies for spending control. Here are a few suggestions. First, make Medicare beneficiaries pay more; many retirees can afford more. Second, create a dedicated federal health tax to cover all government health spending (Medicare, Medicaid, etc.). If health spending rose, the tax would rise. People would know why. The tax could be an energy tax, a payroll tax or an income surtax. Third, eliminate the income-tax exclusion for employer-paid insurance and replace it with a tax credit of lesser value. Workers would have more pretax income, but they'd have to spend more after-tax dollars for insurance.

Note that these proposals take no position on how big, or small, the government's role should be. That's what we should debate. If (as many liberals desire) we went to a government-run universal system, then the health tax would be much higher. If (as many conservatives want), we relied more on market competition among health plans, people would see how much these cost. Either way, there'd be more pressure to address the messy conflicts between providing more health services and controlling spending.

Don't hold your breath. These proposals would inflict "pain," and candidates who embraced them would invite political ruin. Most Americans do not want to face the difficult political, economic and moral issues posed by unchecked health spending. There's a consensus for evasion that most politicians echo. The impulse is to blame some unpopular villain (drug companies, insurance companies) and to focus on a simpler problem—say, the uninsured. In some ways, this is less serious than it seems. About 40 percent of the uncovered are young (18–34); most are healthy and don't need much care.

But for all the uninsured, the cost of coverage is a major obstacle; that's still the nub of the matter. Health care is ultimately a political issue of making choices. The present politics of health care aims to camouflage the costs and skew the choices. Until we alter the politics—by exposing ourselves to the system's real costs—our debates will lead to dead ends.

© 2007