Government drives up healthcare costs

Government drives up healthcare costs

Obamacare didn’t do what supporters said it would. Its expanded regulation of health insurance did not lower the country’s healthcare costs, or the costs of the typical family. So now, Democrats are doubling down on more government control and more spending. Many Democratic presidential candidates are supporting a single-payer system for healthcare — but without any attempt to keep the costs of such a system under control.

In 2008, Obama said that “In an Obama administration, we’ll lower premiums by up to $2,500 for a typical family per year.” That didn’t happen. Family health insurance premiums per year went from $4,968 in 2011 to $14,016 in 2018.

Supporters of government-funded single-payer healthcare systems claim they will save money by cutting out the middleman — the health insurer. Such savings are largely mythical, and more than offset by additional expenses created by a single-payer system. That’s why Senator Elizabeth Warren’s “Medicare for All” Plan has a staggering $52 trillion price tag.

It is healthcare providers (like hospitals), not insurers, that account for almost all the cost of your health insurance. The insurer makes a very small profit margin. And it weeds out and prevents fraudulent claims. Medicaid spends a smaller percentage of its budget on administrative expenses than a typical health insurer, but it is worse at detecting fraudulent claims, so there is a lot of Medicaid fraud.

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European countries spend less on healthcare than America does, regardless of whether they have single-payer healthcare systems or not. That’s largely because they pay providers — such as doctors and nurses — much less (in both single-payer and non-single-payer countries). Converting to a single-payer system is unlikely to change the fact that American healthcare providers are paid much more than European ones.

That’s because American healthcare providers are good at defeating attempts to slash their pay. Most of them don’t mind taxpayer-funded healthcare. But they fight attempts to limit its cost, by getting Congress to repeal cuts to doctors’ Medicare reimbursements. Healthcare providers are politically better organized in the U.S. than in most of the world. America is a healthcare lobbyists’ paradise.

The nurses unions that support single-payer healthcare are not going to accept pay cuts if single-payer becomes a reality. The American Medical Association’s leadership supported the passage of Obamacare, but it didn’t support cutting doctors’ reimbursements afterwards to reduce the cost of Obamacare’s expansion of Medicaid.

No one has yet come up with a viable way to fully pay for a single-payer system in America. Senator Elizabeth Warren at least tried. She came up with $20 trillion in proposed new taxes to partly pay for her “Medicare for All” plan — taxes on individuals, financial firms, large corporations. But these taxes weren’t enough to pay for the actual cost of her plan.

Warren’s healthcare taxes included an $8.8 trillion payroll tax increase, which economists say would be borne by the middle class. They also included a new 50% capital gains tax (on top of existing taxes) on increases in home values and other assets that high-income people hold. They would have to pay this tax on those assets, even if they never sell them (this is known as a tax on “unrealized” gains). If your income were in the top 1% in a given year, and your home’s value went up, you would have to pay half the increase in value. That would be true even if you never sold your home, your income in other years was much lower, and you were nowhere near being a billionaire. If you didn’t have enough savings to pay this tax, you might have to sell your home to pay it (in which case, you would have to pay the additional taxes levied on home sales by the state and federal governments).

Warren also proposed a 6% annual wealth tax on billionaires that would eventually wipe out much of their wealth, and thus raise less and less money over time to pay for healthcare. Once you tax away a billionaire’s wealth, you can no longer raise money by taxing it.

Wealth taxes often backfire. That’s why nearly all European countries have repealed their  wealth taxes on the rich. The taxes raised less money than expected, reduced economic growth, and required a small army of accountants and bureaucrats to administer (billionaires often own illiquid assets that are hard to value).

Government involvement in health insurance tends to increase its cost over time. Before the federal government got involved in health insurance in the 1960’s, healthcare was much cheaper, notes Jacob Hornberger. Most people had access to affordable healthcare. But in 1965, Medicare and Medicaid were enacted. After that, healthcare spending rose rapidly, and so did the health insurance premiums of people not covered by Medicare and Medicaid.

But government financing of healthcare seems to not improve healthcare outcomes. Life expectancy has been falling since 2014, even as federal financing and regulation of healthcare has increased. The core elements of Obamacare went into effect in 2014.

Some doctors and economists predicted that Obamacare would harm health outcomes by making the healthcare system less innovative and more bureaucratic. The Economic Policy Journal predicted in 2012 that “life expectancy will decline under Obamacare.” In 2009, the dean of Harvard Medical School, Jeffrey Flier, predicted that Obamacare would cost lives by harming life-saving medical innovation. In 2013, doctors wrote in the Wall Street Journal that Obamacare is “bad for your health,” and that it would eventually have a devastating effect on medical innovation by driving down investment in medical devices.

Today, Medicare provides financial security for the elderly by paying for much of their major medical expenses. But it and Medicaid haven’t measurably increased Americans’ life spans, even though spending on these federal programs rises every year.  Hornberger argues that these programs caused an explosion in health care costs and paper-pushing:

Before Medicare and Medicaid, the United States had the finest healthcare system in history. Healthcare costs were low and stable, to such an extent that most people didn’t even have major medical insurance. That’s because they didn’t need it. Going to the doctor was like going to the grocery store. How many people have grocery insurance to help them cover soaring grocery costs? Healthcare costs were just as low and stable as grocery store prices, so there was no need for major medical insurance.

At the same time, healthcare inventions and innovations were skyrocketing. Doctors loved what they were doing, and, equally important, the poor were being treated by both doctors and hospitals, purely on a voluntary basis.

Hans Bader

Hans Bader

Hans Bader practices law in Washington, D.C. After studying economics and history at the University of Virginia and law at Harvard, he practiced civil-rights, international-trade, and constitutional law. He also once worked in the Education Department. Hans writes for and has appeared on C-SPAN’s “Washington Journal.” Contact him at [email protected]


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