What a disappointment! I went to McDonald’s prepared to see a happy place. I was ready for smiley faces, faces so joyous that old Ronnie McDonald would look like he had gone a month without his Zoloft in comparison. I thought the Affordable Care Act would provide everyone on the other side of the counter with a look of sublime, health-insured confidence. But there was no visible sign.
Maybe later. Maybe never.
So now that the health care finger-pointing season has gone into overtime, I’d like to point out a fundamental fact that has been overlooked by everyone: The real problem with health care is that it costs too much. No matter how much the Washington mandarins finagle the costs with mandates, faux controls and subsidies, it’s still more than the country can afford. Health care doesn’t cost so much in other countries because it isn’t practiced or administered in the same way as ours.
You can understand the cost problem by considering some very basic facts. Let’s start with how much income you can have and still be eligible for a subsidy from the federal government under the Affordable Care Act. The subsidy extends to incomes as high as four times the poverty level for the size of your household. In 2013, that would be an income as high as $45,960 for an individual to $94,200 for a family of four.
If you visit the Internal Revenue Service website and check out the chart on the distribution of income (most recent data is for 2010), you’ll find that you were in the top 50 percent of all earners, regardless of marital status, if your income was over $34,338. According to a calculator on the Kaiser Family Foundation website, a family of four at this income level, with a 50-year-old earner, a spouse and two children, would pay $1,290 of the $12,275 premium — a subsidy of $10,986. For the same family with a 30-year-old earner, the premium would be $8,975 and the subsidy would be $7,685. In both cases, the family payment is limited to paying 3.76 percent of income. (All of these figures assume a silver plan and a non-tobacco-using family. Premiums can be increased as much as 50 percent for tobacco users.)
The truly important fact, however, is that the cost of the unsubsidized premium — the amount of money required to distribute the risk of actual health care costs — would be a staggering 26.1 percent of income for the younger family and a mind-numbing 35.7 percent for the older family. To put it in some perspective, the IRS data tells us that the average income tax rate for the top 50 percent of all households is 13.06 percent.
Even when we go upscale — to the $69,126 annual income level that marks entry to the top 25 percent of households — health care costs are absurd. At that income level, the same four-person family with a 30-year-old earner has an unsubsidized premium of $8,975. That’s 13 percent of income. The same family with the 50-year-old worker has an unsubsidized premium of $12,275. That’s 17.8 percent of income. Here, the IRS data tells us that the average tax rate paid by all households in the top 25 percent is 15.22 percent.
There are two important facts here. The first is that the cost of health care is larger than the reach of our entire income tax system. The second is that however the dollars are sliced, the cost of health care is more than all but the most affluent people can afford. It’s also more than the country can afford. The notion that we can solve this problem with a subsidy from a government that is already broke is simply ludicrous. Can’t be done. Won’t happen.
Is there a solution? Yes, I believe there is. It’s radical. It will destroy many institutions that won’t be able to adapt. It’s something we haven’t seen in health care for decades — it’s called price. If we had to pay the price of our care, we might negotiate it. We might not buy it. We would consider alternative treatments. If possible, we’d shop the cost. Do that, and the price of care would, however imperfectly, decline until it met what we are able to pay.
This isn’t a crazy idea from a deranged newspaper columnist. You can read how and why restoring price to health care will work by reading John C. Goodman’s Priceless: Curing the Healthcare Crisis (The Independent Institute).
SCOTT BURNS is a principal of Plano-based investment firm AssetBuilder Inc. His e-mail address is firstname.lastname@example.org.
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