Breaking Down the 2020 Debates: Health Care

Posted on Sep 11, 2019 in Health, Planning, Retirement, Taxes

Breaking Down the 2020 Debates: Health Care

Whatever you might think about politics and politicians, decisions made in your state house, the White House and houses of Congress have an impact on you and your personal finances.

I’m writing this mini-series to break down the issues that come up during the Presidential debates in the months leading up to the 2020 elections. When candidates use buzzwords and scare tactics to win at the polls, we lose the real exchange about how we want our lives to look. You need to understand how a tax proposal, health care plan or student loan forgiveness could affect you.

Upfront I want to say that I offer this with no political agenda. My goal is to take the politics out of policy and try to outline what you need to consider in evaluating a proposal or a politician’s platform. What matters to me are the problems we all face, and solutions to them.

So with that in mind, let’s talk about health care. This a long post, so sit back, get a second cup of coffee (or something stronger), and let’s dive in.

WHAT IS HEALTH CARE?
Let’s start by separating the three components of this subject:
1. Health care insurance
2. Health care services
3. Health – your physical and mental well being

All three components have been touched on during the debates, but it’s the first part – insurance – that is the main focus at this point. Employer plans, the Affordable Care Act, “Obamacare” – this is what the “health care debate” has come to mean. That is: How do we pay for help to maintain, enhance and recover our health over the course of our lives?

We’ll start with an overview of the health care insurance system we have, a little history about how we got here, and the various proposals up for debate.

WHAT WE WANT
Here’s what I think most of us want when we think about health care:

• We want to live long, healthy lives.
• We want to prevent illness and understand that preventative care, check-ups and routine testing, can catch big health issues early and help us avoid them.
• We want quality medical care for accidental injury or the Big Issues we haven’t been able to avoid that treats us without bankrupting us.

WHAT WE HAVE
Our system is almost completely backward. Kristen Gillibrand, Tulsi Gabbard, and Marianne Williamson are all correct that we have a “sick care” system that emphasizes treating illness and not a health care system geared towards preventing it.  We see this in data like that from the OECD which shows that the U.S. has a much higher rate of hospital admissions for preventable diseases than in comparable countries.

In the U.S. we have FOUR health care systems:
• Government-paid / government-provided (the Veterans’ Administration (VA) system)
• Government paid / privately provided (Medicare)
• Privately paid / privately provided (Employer plans)
• Self-pay (the individual covers all costs)

Most countries incorporate everything into one system. Our patchwork arrangement was stitched together over time, during various presidential administrations and political regimes. The VA system was in place when Truman (1945-1953) introduced a proposal that 15 years later would become Medicare. When Eisenhower was president (1953-1961), only 9% of single elderly and 14% of elderly couples had insurance coverage for medical expenses.

Before Medicare, less than 15% of older Americans had insurance coverage for medical expenses

Eisenhower signed into law the bill that gave employers a tax exemption for workplace health insurance plans. The insurance industry does not want to deal with selling and administering plans to individuals, and the lobby behind keeping employer plans and their tax exemption is huge. Kennedy (1961-1963) introduced Medicare but it didn’t pass. It was under Johnson (1963-1969) in 1965 that Congress enacted Medicare under Title XVIII of the Social Security Act to provide health insurance to people age 65 and older, regardless of income or medical history.

Friend, colleague and adviser/physician Carolyn McClanahan notes that the concern at the time was coverage over cost; if the Congressional Budget Office (CBO) were to review the program today, it would not be found to be cost effective. Note also that there was no requirement that Medicare recipients pay into the system. The next time you cringe about “socialist” programs, consider that our wildly popular health insurance system for older Americans could be labeled this way. Put the labels aside and consider a program or proposal’s costs and benefits.

Sidebar: Interestingly, it was former President Truman and his wife former First Lady Bess Truman who were the first two recipients of Medicare

So here we are, 50 years after Medicare, and we are still battling two conflicted camps:
Coverage over cost (universal coverage) and Cost over coverage (lowest cost). The Democrats tend to fall into the first camp, Republicans into the second, and the emphasis in the second camp is not the total cost of the program, but the cost to the government.

What you should ask: When politicos are throwing around concerns
about the “cost” of care, ask “The cost to whom?” What we need to be concerned about is total cost to you in premiums, deductibles, out-of-pocket costs and taxes.

The first camp led us to the Affordable Care Act (the ACA, aka Obamacare) and the second is dismantling it in favor of a free market approach. So what does “Medicare For All” offer us?

WHAT IS “MEDICARE FOR ALL”?
If you are confused about what they’re talking about when they say “Medicare for All,” it’s with good reason. There are TEN VERSIONS of health care insurance reform that fall into four broad categories:

Single-Payer (“Medicare-for-All”):
1. Jayapal (D-WA) and
2. Sanders (D-VT) – Single-payer programs covering all US residents, plus long-term care coverage, replaces all private health insurance by extending Medicare.
Public Program with Opt-Out (“Medicare-for-All-Who-Want-It”):
3. DeLauro (D-CT) & Schakowky (D-IL) – Makes Medicare a private option; individuals are auto-enrolled in Medicare for America, a new national health insurance pro-gram, but can opt-out in a year when they have other qualified coverage; employers can continue to offer group plan coverage or pay 8% of payroll for employee cover-age in Medicare for America; Medicare Advantage plans are retained.
Public Plan Options:
4. Cardin (D-MD) – Extends ACA, giving individuals the option to buy a federal public plan (i.e. Medicare); private and public coverages are retained
5. Bennet (D-CO)/Kaine (D-VA)/Delgado (D-NY) – Similar to #4
6. Schakowsky/Whitehouse (D-RI) – Similar to #4
7. Merkley (D-OR)/Richmond (D-LA) – Similar to #4 with employers able to offer a federal public plan
Medicare Buy-In:
8. Stabenow (D-MI) – Individuals can buy into Medicare at age 55; Medicare Advantage plans retained
9. Higgins (R-LA) – Similar to #8
MedicAID Buy-In:
10. Schatz (D-HI) /Rep. Lujan (D-NM) – States can offer a public plan option based on Medicaid

The Kaiser Family Foundation has created a side-by-side comparison of the competing proposals (current as of May 2019) with a futher breakdown of the details: Get KFF’s Side-by-Side Comparison

From a personal finance perspective, you care most about (1) what is a plan going to cost you, and (2) what benefits do you get with it. From a public policy perspective, we have to think about program costs, and cost containment.

WHO PAYS?
The short answer is, we all do. Directly and indirectly. A lot of people stop listening to the debate out of fear that their health care costs will increase or they will lose benefits with any kind of change. You need to think comprehensively about all the ways you pay for health care coverage, and whether you might get better or more comprehensive coverage under a new proposal.

It’s likely you are paying more for the coverage you have today than you did even a year or two ago. According to the National Conference of State Legislatures, in 2018 the average annual premium for employer-based family coverage rose 5% to $19,616 for by 3% for single coverage, to $6,896. Single employees carried 18% of their premium cost and workers with family coverage carried 29% of their cost, on average.

And it costs all of us by skipping preventative care and developing chronic disease.

How it Works Now
Under our current crazy quilt of coverage, if you’re over 65 and covered by Medicare, you still have premiums to pay; if your income in retirement is above certain thresholds, you’re paying a Medicare surcharge on top of that.

If you’re working, you’ll pay 1.45% of your gross wages with no income limit to Medicare as part of your payroll taxes. (Wages include things like RSU vests – you’ll pay $1,450 to Medicare on a $100,000 vest.) If you make over $200,000 (or $250,000 as a married person), you’ll pay an additional tax of 0.9% on earned income over those thresholds to Medicare, and another 3.8% on net investment income over thresholds.

In addition to your 1.45%, your employer is kicking in another 1.45%. If you’re self-employed, you’re paying the full 2.9% (and possibly + 0.9% + 3.8% over the above-noted thresholds). In case that’s hard to follow, you can find more detail on how these taxes work here.

If you’re working, you may have health care coverage through your employer – though 40% of workers do not. Even with an employer plan, you’ll still pay a portion of the cost for that, and your share has been growing as the costs of health care grow. If you’re self-employed, you’re paying into Medicare and covering your own health care insurance costs at market rates.

On top of your premiums and expenses up to your deductible, a portion of your federal taxes beyond payroll taxes goes to Medicare, and you have out-of-pocket costs for things your plan doesn’t cover as well.

Other Costs
The other ways we pay are through choices we can’t make without losing health care coverage:
• if you want to retire early (before age 65), you’ll have to factor in how to cover health care insurance costs before Medicare kicks in;
• if you lose your job, you’ll be paying the full costs of your insurance coverage (COBRA allows you to continue coverage, but not at the rate your former employer subsidized – you’re paying the full cost);
• if you want to leave your job to start a business, you’ll be doing the same, covering the full cost of your insurance as well as the cash burn of your business;
• if you’ve been covered on a spouse’s plan and want to leave a marriage when you don’t have a job that provides health insurance, you’ll have to find a way to pay for your health insurance.

Or you go without coverage, and we are right back to the problem of avoiding preventative care and facing potentially bigger problems down the road, a burden we all bear. All of these costs stifle the free movement of people and business and innovation.

THE HURDLES OF REFORM
A lot of the discussion about these new proposals centers around cost. And it should: our current system is not only not effective, it’s not sustainable. All the costs you have that are noted above are still not covering the cost of care. Medicare premiums and payroll taxes only cover about half the cost of the program. The balance of what’s needed comes out of the federal budget, and each year the share of your taxes going to pay for Medicare increases. In 2018, Medicare cost $582 billion, accounting for 14% of the federal budget and making it the second largest federal program.  And Medicare does not cover vision, dental, or long-term care.

A major scare tactic in the health care debate is that the new plans will cost you more. During the second presidential debate in July, Elizabeth Warren got it exactly right when she refused to be pushed into saying taxes would rise under a Medicare-for-All plan just in order to get a sound bite for the nightly news. Whether you would pay more in taxes is a red herring. That’s not the only cost you have. What you care about is your total cost for health care coverage.

If I am paying $10,000/year for health insurance with a $6,500 deductible, and someone says I could reduce my premiums to $8,000/year and lower my deductible to $5,000 if I pay $1,500 more in tax, my total annual cost for health care falls by $2,000 (and by even more if my expenses exceed $5,000), for an additional $1,500 in taxes. That $500 net savings is real money to me. Sign me up.

What you should ask: When fear-mongers are raising the issue of higher taxes from insurance reform, ask “What is the TOTAL COST to me?” You pay premiums, deductibles, taxes and co-pays; you need to be concerned about the total cost to you.

Not taking into account total health care expenses is often a costly mistake in retirement planning. According to Fidelity’s Annual Retiree Health Care Cost Estimate, a 65-year old couple retiring in 2019 can expect to spend $285,000 in health care and medical expenses throughout retirement, compared with $280,000 in 2018. For single retirees, the health care cost estimate is $150,000 for women and $135,000 for men.

Some of the proposals would result in substantially greater federal tax revenue, but not from you. Plans that remove the burden of health care coverage from employers also remove the tax deduction Eisenhower gave them for that expense. What happens when you lose a tax deduction? You pay more in taxes. Without the cost of having to provide an employer plan, businesses will pay more in taxes. McClanahan calculated the additional tax revenue to be $250 billion per year.

There are also protectionist obstacles to changing our system. With plenty of profit being made by insurers and fee-for-service specialty care providers, those factions and their lobbyists will do their best to maintain the status quo.

Changes in insurance plans isn’t a complete solution, though. The way we deliver health care in the U.S. has to change, too. We spend $3.2 trillion annually on health care in the U.S and 25% to 30% of that is overhead, while overhead in other countries runs 5-15%. By McClanahan’s calculations, we could provide primary care to all just by reducing overhead to 15%.

What you should ask: When you hear that “we can’t afford” a particular proposal, ask “Since the cost of our existing health care system is unsustainable, what is your proposal to reduce overhead costs?”

REAL REFORM
We started this discussion with the two primary concerns of the cost of care and the benefits you can receive. So far we’ve discussed is insurance coverage for individuals and families; none of this addresses the cost of the health care system, meaning the medical professionals, clinics and hospitals that deliver care, and the range of benefits for which you may be eligible under different plans.

Fixing our health care system mean changes not only in insurance options, but in the administration and delivery of medical care. Watch for who mentions these as the debate continues:
• Moving from four systems to ONE (like Canada);
• Using a single billing system (like France);
• Removing primary care from insurance, providing it as a public service (through Community Health Centers (like Spain);
• Developing a nationalized electronic database for our individual medical information, removing it as an asset that belongs to a specific insurer or hospital network, and shifting its focus from billing to patient history (like the VA ”blue button” system here in the U.S.).

These are all big ideas, but they are not new ideas. Preventative care is not an insurable event, it is something each of us needs and makes more sense to be offered outside of an insurance program. A hybrid system that combines a public-provided “primary care for all” for preventative medicine with public and private options for everything else would give us a couple of things:

All Americans would have the preventative care needed to stay as healthy as possible
We preserve choice for health care beyond basic preventative medicine by offering both public and private options for specialists and care that requires hospitalization
Competition can drive down costs further by having a not-for-profit provider like a public option in the mix to force down costs of for-profit organizations.

It’s hard not to get swept up in the histrionics that make up political debate. Getting to the root of a proposal or plan, and understanding how it might affect you, is the only way to really protect your interests. When the candidates turn to health care, you’re now knowledgeable about the 10 flavors of “Medicare-for-All,” savvy enough to ask about whether they mean single payer, a public option, or a buy-in, and sharp enough to look past labels to the actual plans, to evaluate what they might mean for you.