Health care snatches the same portion of our purses as income taxes did in 1981 when Ronald Reagan famously slashed rates. So why did Reagan’s party punt on legislation to alleviate the crippling burdens health-care costs put on citizens?
In 1981, most Americans felt the burdens of taxation directly. Today, most Americans feel the burdens of health-care costs indirectly.
We feel the same pinch. We just don’t know who or what to blame.
The effect of indirect funding in health care plays out not unlike income-tax withholding. We hate the taxman when he cometh for the lump sum in April. When he sneakily siphons from every paycheck, we do not lose our tempers because we do not realize that we lose our money.
When you never held the money they withheld, the hit feels less tangible, more abstract.
For the 160 million Americans covered by employer plans, private insurance buffers them from grasping the high cost of care. If employers paid insurance companies less, they could afford to pay employees more. Workers lose thousands of dollars in income every year because of the bloated costs incurred by the American health care system. But they don’t see the dollars spent so they don’t conceive of the dollars gone from their paychecks. Because workers don’t generally conceptualize inflated insurance costs as lost income they do not react in the way they might to an onerous tax hike. The effect, however, is the same.
For the 130 million Americans dependent on Medicaid and Medicare, a somewhat similar situation occurs. A third party, in this case the government, pays the bills — or at least the bulk of them. Medicaid, because many of the recipients never paid into the system from which they derive benefits, doubly buffers those enrolled in the program. They pay neither income taxes nor hospital bills, so they remain oblivious to the cost of the programs and their care. No real disincentive exists to curtail individuals or hospitals from abusing the system.
The out-of-sight-out-of-mind quality that colors health care economics diminishes when expenses come out of pocket. For private insurance, premiums, deductibles, and copays can accomplish this. For public welfare programs masquerading as insurance, compelling recipients to cough up some contribution also helps to curb medical inflation.
The hardly revolutionary idea of making people pay, even if but a portion, upon every visit for the services they receive helps not merely to raise awareness of the exorbitant costs of health care. Of greater importance, it serves as a check against runaway medical inflation. Everyone relies on the health care system when serious maladies arrive. A third party picking up the tab for just about everything, whether the government or a Cadillac plan, encourages abuse.
When massive bureaucracies get stuck with a bill of $30 for an aspirin or $85 for a piece of cloth dubbed a sling, they pay. It’s not the bureaucrat, working for the government or an insurance company, who pays, after all. When hospitals present individuals with the bill, or even a portion of the bill, they get angry and revolt.
The cost of passing on bills to third-party payers remains quite high. The total price tag for health care in the United States now exceeds $10,000 per American annually. No country spends such a massive portion of its wealth on its health (and gets so little in return). The anemic growth experienced for decades in the United States, vis-à-vis what Americans experienced in the latter half of the 20th century, comes as a mystery because the exploding cost of medical care remains largely hidden.
Republicans looking to roll back the clock to 1981 and jumpstart the economy by tax reform miss the point. Reducing health-care inflation is more of a priority for this economy.
Hunt Lawrence is a New York-based investor. Daniel Flynn is the author of five books.