Health Care Vouchers: a Market-Based Approach that Would Cost Little or Nothing

According to One More Political Blog, Michael Moore has been embroiled in a debate with Sanjay Gupta about health costs in Cuba:

"Dr. Gupta, CNN's chief medical correspondent, claimed that Moore fudged the facts in SiCKO by saying that Cuba spent only $25 per person per person on health care. Of course, it turned out that Moore did no such thing; he had given the correct figure, $251".

$251 is ten times $25, but both numbers are low relative to American health costs, which are twenty-five times as much again.

How much does the US already spend on health care for the poor? In 2005 Newsmax.com wrote:

"The extension of taxpayer-funded Medicaid to the working poor has led to the largest expansion of a government entitlement since the Great Society was launched in the 1960s.

"The soaring costs of Medicaid – which will more than double this year to close to $330 billion since 1999 – is largely due to legislation that extended Medicaid coverage to many Americans who have low-paying jobs."

Medicaid does not include Medicare, health insurance for the elderly, so it understates health cost transfers. According to the Census Bureau, there are 302,648,273 Americans as of this writing, so let us assume 305 million this year. Thus, very conservatively, Americans spend $330,000,000,000/ 305,000,000 = $1,081 per capita on health care for the poor. If we add Medicare, which according to the Heritage Foundation will cost $454 billion in 2008, America now spends more than $784 billion on health care for the poor and elderly, or $2,570 per capita in cost ($784 billion/305 million), compared to Cuba's $250 per capita on health care for everyone. In addition, according to the American Enterprise Institute, corporate tax deductions for health insurance were worth $188.5 billion in 2004. Moreover, according to Monthly Labor Review, in 2006 state and local government employees' health insurance averaged 10.7 percent of payrolls, which according to the Census Bureau were $61 billion for March 2007. Multiplying by 12 months and taking 10.7 percent yields $78.3 billion. David S. C. Chu, undersecretary for defense readiness, estimates the total cost of military health benefits to be $39 billion. The cost of the Federal Employees' Health Benefits Plan to the federal government is about $22.3 billion in 2007, according to John E. Dicken, director of health care for the government accounting office. Civilian Government employees pay 28 percent of the cost and the federal government pays 72 percent. If we add these costs:

Medicaid: $330 billion
Medicare: 454 billion
Corporate tax deductions: $188.5 billion
State and local government: $78.3 billion
Military: $39 billion
Civilian federal employees: $22.3 billion

The total of $1.112 trillion in government cash and tax expenditures divided by 305 million Americans is $3,645 per capita. According to Kaiser Permanente health care costs in the US amounted to $2 trillion in 2005, divided by 305 million Americans is $6,667 per capita. Thus, roughly 55% of total health costs are already covered through government plans and subsidies.

The Cuban per capita cost for national health insurance amounts to only 10.28% of the per capita cost of current American contributions to the poor and elderly. Yet, the Democrats and Michael Moore argue that we contribute too little money to health care for the poor. Of course, much of US health care costs is due to mismanagement, unnecessary operations regarding prostate cancer, cardiac bypass and heroic end of life treatments. More fundamentally, providers and health care professionals enjoy a combination of artificially induced monopoly through licensure and other entry restrictions coupled with artificially stimulated demand. Such waste, mismanagement and rent extraction by professional interests will unquestionably be increased under a national health insurance scheme. There is already ample corruption and abuse arising from the regulated and third-party-financed system. A publicly financed American health care system, much like New York's Medicaid system, will be a Pandora's box of corruption and mismanagment.

Government cash and tax expenditures are already the bulk of the cost of universal health coverage. If a tax credit scheme were to exclude the top twenty percent of households earning over $86,867 in 2003, then the per capita government expenditure of $4,633 (1.1 trillion divided by 244 million and excluding the 61 million in the top twenty percent)is 69 percent of the average per capita health insurance cost of $6,667. This is nearly the 72 percent that the federal government covers for civilian government employees. Moreover, the $6,667 reflects a considerable degree of mismanagement. Four months ago I called the Cigna Insurance Company in New York and learned that Cigna offered New Yorkers individual coverage coverage for $198 per month ($2,376 per year), with family coverage costing roughly twice as much. If the CIGNA rate were applicable to everyone, which it is not, we would already be paying for national health insurance simply through Medicaid and Medicare spending. As Phil Orenstein of Democracy Projectpoints out in a recent blog, there is significant waste in the health system, especially in government plans, so the true cost (excluding massive mismanagement) may be closer to the $2,376 than the $6,667.

As Phil Orenstein also has blogged, Rudolph Giuliani has proposed tax incentives of $7,500 to individuals and $15,000 to families to help pay for the costs of private health coverage that they choose themselves.

I would suggest that vouchers aka tax credits are the way to go. Tax credits could be paid for via the termination of Medicare, Medicaid, government employee plans and through avoidance of double counting via the termination of corporate health insurance deductibility. A tax credit voucher, or dollar for dollar tax abatement, would replace Medicare, Medicaid, government employee plans and corporate tax deductions. For individuals who pay less in federal taxes than the voucher amount, a reverse or negative income payment could cover it. This would not cost taxpayers much because Medicare, Medicaid, government employee plans and the corporate tax deduction cover much if not all of the cost of a tax credit that would cover everyone. Even if average costs are $7,500 per person, and exceed savings from terminating Medicaid, Medicare, government employee plans and corporate tax deductions, additional savings could accrue by encouraging insurance schemes that limit payments for unnecessary treatments and bureaucracy.

The cost and coverage problems associated with health insurance are primarily managerial. They could be solved through market competition and redistribution of the monies already expended on health care, much of which goes toward unnecessary care, waste and mismanagement. These could be reduced because the vouchers could be set at a level for a plan that excludes various kinds of waste, such as unnecessary operations and futile end of life care.