by Don McCanne, M.D.

The United States has by far the highest level of health care spending of all nations. According to Milliman, the average health expenditures for a typical working family of four is now over $22,000 — more than one-third of the median household income. (1) Since most families cannot afford to pay that amount, it is no wonder that, in our obsession with private insurance solutions, we have developed an administratively complex, wasteful, fragmented system of financing health care — a system that is being expanded and perpetuated by the Affordable Care Act.

The problem of health care costs is compounded by a trend of the past few decades in which our gains in productivity are not going to the workers, but rather they are moving up to the wealthiest individuals in our society. This is the theme of the current documentary, “Inequality for All,” featuring former Labor Secretary Robert Reich. (2)

The continued increase in health care costs without a commensurate increase in family income has exacerbated the inequality between the very wealthiest and the rest of us, by making health care less accessible as it becomes less affordable.

Economists Thomas Piketty and Emmanuel Saez have demonstrated the enormity of this inequality. In the three years since the Great Recession, the top 1 percent has captured 95 percent of the gains made through the modest growth in the economy, leaving the remaining 99 percent of us with only 5 percent of the gains. (3) Although health spending has temporarily slowed during these three years, it will still remain a major burden without either providing a much greater share of the productivity gains to the workers and their families, or fundamentally changing the way we finance health care. Really, we should do both.

Correcting the inequality will be a major task that will require a fundamental change in our attitudes and politics. These changes would be possible if enough of us nurture a sense of social justice. If we expect our economy to become more robust we will have to have more consumers. Purchases by the wealthiest 1 percent can never sustain our economy. The economy is for all of us, not just the wealthy.

We need public policies, including more progressive tax policies, to reduce this highly inequitable redistribution of funds that is going to the wealthiest of us. Politicians who are scornful of “redistribution” should keep in mind that redistributive tax policies that have been proposed are designed to only partially correct today’s massive redistribution of workers’ productivity gains to the unearned incomes of the wealthiest of us. We need a social compact that promotes fairness – not necessarily equality, but equity.

Regarding the flawed way we finance health care, a solution to that is much easier. We have to acknowledge that the Affordable Care Act perpetuates our terribly inefficient and wasteful system of paying for health care.  It is a system that is not readily amenable to legislative patches. In fact, the Affordable Care Act is simply an omnibus bill of patches that created even more problems than it solved.

People are losing their choices of physicians and hospitals as insurers switch to narrow networks to try to extract payment concessions from the remaining “preferred” providers. The actuarial value of plans are decreasing to keep premiums from rising as fast, which simply means that the insurers shift more of the burden of paying for health care from themselves to the plan beneficiaries — the patients. We are seeing an acceleration of the conversion to high-deductible plans, especially the silver and bronze plans that most will be purchasing from the exchanges, but also in plans offered by employers who are trying to control the costs of their health benefit programs — that is, employers are controlling their own spending as they shift more costs to the pockets of their employees who need health care services.

So what changes might we want to see in health care financing that would reduce inequality in our country? 

Since health care costs are too high for most families to pay their proportionate share, we need progressive financing based on ability to pay. The easiest and most equitable method would be to fund our entire health care system through progressive taxes. Without going into detail, tax policies should consider earned income, passive income, wealth, perhaps carefully targeted consumption, and policies that would have positive incentives in addition to simply collecting revenue. Although the Affordable Care Act uses subsidies for exchange plans and Medicaid to move us closer to financing based on income, it falls far short of being truly equitable.

Assuring that everyone is included regardless of wealth or income would also reduce inequality. The Affordable Care Act is projected to leave 31 million without any coverage - hardly an egalitarian outcome.

Improving quality standards for a health care system that includes everyone also reduces inequality by ensuring that lower-income individuals receive the same quality of care that the wealthy expect. (Optional elegant amenities do not define quality.) Although the Affordable Care Act includes proposals for experimental programs — some promising, some not. Again, they fall short of effective administrative and other system improvements that we already know would improve quality.

Improving allocation of capital expenditures would improve access for those currently underserved by ensuring adequate capacity while preventing wasteful excess capacity. This improved access, again, would reduce inequality.

Medicare is a program that already has some of these features, but it does need improvement. Particularly, it does not function as well as it could in our existing highly fragmented system since it does not have enough authority or ability to coordinate improvement with the other payers. All other nations with successful health care systems have proven that the government must play a major role in regulation of health care financing.

We could take a giant step forward toward reducing inequality by replacing our current health care financing system with a single payer national health program — an improved Medicare that covers everyone.

That’s the easy step. Then we could start working on increasing rewards for those primarily responsible for productivity — the nation’s workforce. Let’s consider returning the 95 percent of gains to the 99 percent of us who are the primary producers and consumers in our economy. The top 1 percent could still thrive on 5 percent of the gains. (Okay, maybe that needs to be negotiated.) One twentieth of the gains in our economy going to one hundredth of our population is still short of equality, but you have to admit that it would be much more equitable than what we now have. And equity – fairness – is what really counts. Besides, what cut for the 1 percent is really fair – to them and to the rest of us? (consider clarifying or deleting this last sentence).

Suggested Resources:

1.  2013 Milliman Medical Index 

2.  Documentary, “Inequality for All,” with Robert Reich 

3.  Saez, Emmanuel, “Striking it Richer: The Evolution of Top Income in the United States (Updated with 2012 preliminary estimates),” September 3, 2013

4.  Reich, Robert, “How the Republican Tempest Over the Affordable Care Act Diverts Attention from Three Large Truths,” November 22, 2013 

1,196 words

Tag lines: Affordable Care Act, affordability of care; uninsured, underinsured, inequality, health care financing, equity; choice of physician and hospital, Robert Reich, Thomas Piketty, Emmanuel Saez, improved Medicare for All.