Robert Messman, BSEE, MBA
A recent white paper by the HCAC Foundation proposes a surprisingly practical financing strategy for converting U.S. health care to a single insurer system. The plan, detailing eye-popping savings for Americans, would maintain the integrity of stock and bond markets by using an acquisition process under which the Federal government would buy out the health care insurance business of private insurance providers at an adjusted enterprise value in order to consolidate the industry under the proven low cost model of Medicare.
This, of course, fairly compensates those invested in the stocks and bonds of the private health care insurers while allowing Medicare to roll up the industry at a reasonable price. The goal is to provide national health insurance at an affordable price by eliminating the bloated costs of private insurers and installing an insurer better aligned with both the best interests of the public’s health as well as fair pricing for services and medicines.
The paper’s calculations show that for an approximate price of $714 billion, the consolidation of the pre-retirement insurance market would generate a potential annual savings of $405 billion per year for the economy. But since the savings would be spread throughout the economy, with significantly lower medical costs, insurance premiums and regulations for citizens, businesses and local governments, we need to determine how Medicare would responsibly fund the substantial acquisition price (without frightening deficit hawks) so that it could, over time, pay off its investment from its share of the savings. If this can be done, then the spectacular two year payback to our society should make this a high priority project among all of the Federal government’s funding priorities, especially from a capital budgeting standpoint. In other words if this can be financed soundly, this would be the kind of project that a government, which struggles to balance its budget and stimulate the economy, should undertake immediately.
Fortunately for this project, we happen to be living in a time of extraordinarily low interest rates. With rates hovering today below 2.5%, the government could, for example, complete the acquisitions with $714 billion in 10-year Treasury bonds and expect the annual amortization payments to be around $81.6 billion per year. The question, addressed below, is whether the direct benefits to the government would cover this debt service for the duration?
Among the direct financial benefits to the Federal government of the consolidation would the additional tax revenues resulting from the drop in tax-deductible health care expenses of businesses and individuals. Obviously, if businesses and citizens spend less on health care including insurance, their medical deductions go down and net taxable incomes—and tax collections-- go up.
Noting that the Federal Government subsidizes private health insurance coverage with tax exclusions, deductions, and credits, the Congressional Budget Office estimates the cost for these subsidies at $300 billion in fiscal year 2016. A single insurer system would cut health insurance premiums, deductibles and co-pays significantly due to a combination of the low (3-5%) overhead of Medicare and its ability to negotiate lower rates with providers. If the single insurer is also empowered to negotiate drug prices down to the level now paid by the VA—35-55% lower than current prices, Americans’ drug costs and related tax deductions would drop further. It is therefore reasonably safe to estimate that the Federal Government could save AT LEAST a third of the current tax subsidies or around $100 billion per year—more than enough to cover the annual estimated amortization costs of $81.6 billion. Also note that once the financing bonds are paid off in fact or theory, Medicare would become more solvent by the same annual $100 billion.
There is no denying that the Federal government will be acquiring a significant amount of health care costs from a consolidation. However, if it institutes an actuarially-based premium policy for the pre-retirement population (with appropriate subsidies for lower income enrollees) and negotiates the sensible but fair provider rates it has done for its senior customers, the system should not burden the Federal budget. However, there are huge opportunities to improve the Federal budget while still achieving some of Congress’s big objectives if we properly address the economics of health insurance consolidation on key parties.
Specifically, since a single insurer would relieve states of Medicaid costs (Colorado FY 2-16-17 budget allots $3.6 billion for Medicaid after Federal reimbursements) and greatly reduce costs for state and local government employee healthcare, why not then let the states fund much of their own infrastructure needs with a portion of these health care savings by reducing Federal assistance for these projects. It makes a lot more sense to let states manage local infrastructure projects than to have 50 state bureaucracies managing aspects of health care with difficult national portability and reduced negotiating power with providers. So Republicans would get a chance to shrink the Federal Transportation bureaucracy and budget in exchange for picking up a very efficient, consolidated-for-economies-of-scale national health insurance system.
Rep. Paul Ryan is reputedly the Republicans policy “wonk”, i.e. idea guru. However, his March 2017 health care bill appears to have been more of an excuse for a $1.4 trillion wealth transfer than health care reform. Specifically, it gave upper income earners and medical device and drug manufacturers a $600 billion tax cut over 10 years paid for by slashing $880 billion from Medicaid and support for expensive private health insurance. It is hard to understand why he would not opt for a single insurer model which would kill 3 birds with one stone by 1) making health care affordable and available to the broad population, 2) stimulating the economy from the savings flowing into Americans’ pockets, and 3) freeing up billions of dollars for states to self-direct an attack on their infrastructure problems free of Washington’s red-tape and bridge-to-nowhere inclinations. A single-insurer-driven healthier workforce might even provide the extra manpower needed for infrastructure projects in this tight labor market.
The Center for the Study of a Public National Health Insurance Plan (PNHIP) has proposed a business plan boilerplate that defines a financing tactic that drives equitable health care. This proposal recognizes that a free market for health insurance has failed, that consolidation of health insurance requires that commercial insurance products are acquired at enterprise value, that only a national public entity can accomplish this acquisition, and that the medical delivery system remain as a private entity. This defines a program of socialized insurance, not socialized medicine.
For the business plan white paper, go to Health Care for All Colorado Foundation (HCACF), The Center for the Study of a Public National Health Insurance (PNHI) at http://www.hcacfoundation.org/
Health Care for All Colorado Foundation
The Center for the Study of a Public National Health Insurance (PNHI)
789 Sherman Street
Denver, CO 80203