7 Reasons Why Universal Healthcare Won’t Work in the US

In one of last week’s posts, Could You Afford an $1875 COBRA Payment Every Month?, reader John touched on single-payer health insurance in a comment. I confessed that I’m coming around to the idea. But I’ve been doing some thinking since the comment exchange, and have come to the conclusion that universal healthcare won’t work in the US.

Don’t get the wrong idea – while I think that it could work just swell in theory, it’s the execution where I think it will fall apart. I was able to think of seven reasons why universal healthcare won’t work in the US. None of them require too much thought to imagine.

1. The Already High Cost Base of US Healthcare

According to the Centers for Disease Control (CDC), US healthcare costs reached $3.2 trillion – that’s -rillion with a “T”, not a “B” – in 2015. That represented a 5.8% increase over 2014, as well as a 17.8% share of the entire US economy. It works out to be $9,990 per person. All future projections see these numbers rising faster than the growth of the economy.

That’s a bunch of numbers, but I want to focus on the 17.8% of the US economy that healthcare consumes.

According to the Organisation for Economic Co-operation and Development, the average percentage of total gross domestic product (GDP) consumed by the average developed country in the world is just 8.9%.

That figure is for 2013, but having researched this information over the years, that percentage has held throughout the years. It’s the US where the percentage is rising most dramatically on a year-to-year basis.

Here’s the problem with that statistic…Europe and Canada are managing universal healthcare systems at about half the cost of the US on a per capita basis. As most of us know, costs don’t scale the way other relationships do. Too costly is too costly, and there’s no way around that.

To roll out a universal healthcare system with the type of cost structure that currently exists in the US would doom the system to failure from the very beginning. The US healthcare system is simply too bloated to be scaled back and managed. As well, the entire industry functions on the assumption of ever higher revenues. It will take years to reverse that dynamic, under the assumption that it’s even possible.

2. Doctors Will Exit the Field

7 Reasons Why Universal Healthcare Won’t Work in the US
7 Reasons Why Universal Healthcare Won’t Work in the US

One of the biggest reasons why universal healthcare won’t work in the US is that there’s no way it can work without severely restricting reimbursements to healthcare practitioners. We can look to Medicare and Medicaid as examples of this process already in motion.

As well, government being government, it won’t just fund healthcare, it will regulate it. Or more precisely, it will over-regulate it, to the point of exhaustion and failure.

I saw firsthand how the regulation process works. When I was in the mortgage business, I watched as the government encouraged overly aggressive lending practices, in the name of increasing homeownership. But when it was obvious that strategy was doomed to failure, they went too far in the other direction, and virtually shut down the industry.

When government gets involved, processes turn into convoluted flow charts. Government tries to address all ills and potentialities, and in the process it creates built-in conflicts and gray zones. Just look at the federal tax code for guidance. And while we’re at it, just look at Obamacare. It will be considerably worse with universal healthcare.

As doctors begin to realize that their incomes are being reduced, and their day-to-day operations are being closely monitored and controlled (I mean, much more than they are already), we’ll see a mass exodus from the profession.

It will likely take the form of early retirements, and fewer students going to medical school (and less willing to take on the six-figure debt levels needed to attend). The end result will be fewer doctors, and still higher fees for the services that are available.

3. The High Cost of Malpractice Insurance

This is something I learned about firsthand when I was working in public accounting. Accounting firms work with a lot of medical practices, and you get to see the expense side of a doctor’s existence.

It’s often true that the single biggest expense the practice has is malpractice insurance. We’re not talking a few thousand dollars a year here – it can easily be well over $100,000 per year, per doctor.

You can bet your house and your bank account that Congress is not going to do anything to limit malpractice litigation. That ruling body is comprised primarily of lawyers, and there’s no way to get them to support any kind of restrictions. Just look at all of the commercials for ambulance chasers on daytime TV. It’s big business, and it’s one of the primary drivers of the legal industry in the US.

No matter what anyone thinks, we can’t have universal healthcare without serious tort reform. If it doesn’t happen, and universal healthcare is still implemented, that’ll be another major reason contributing to doctors exiting the field.

4. The Uniquely American Pay-any-Price Mentality

America is the land of the unlimited. For the first nearly 200 years of our existence as a nation, we had abundant everything. Abundant land, workers, markets, energy, food – you name it.

Back in the 1960s, then President Lyndon Johnson even promised we could have it all. It was the guns-and-butter promises that we could both maintain the welfare state at home (his “Great Socieity”), while carrying on the Cold War against the Soviet Union and fighting the war in Vietnam.

It’s been the mentality in America ever since. A big part of it is supported by the monetary system, which probably not one American in 100 actually understands. The United States government issues the US dollar. It serves as the global reserve currency, which is to say that virtually every other currency in the world is tied to the dollar. This gives the US the “exorbitant privilege” of paying its foreign obligations in its own currency.

It’s also the reason why we have inflation. All countries in the world create inflation by printing money. It’s the kind of thing that you can do easily with paper and digital money. But the more money that’s put into circulation, the higher prices eventually become.

Americans became very comfortable with the unspoken reality that our government can pay any price. Sure, about every two years we’re treated to a political battle over cutting the budget, but it’s really just theater. Neither party is going to balance the budget, because it doesn’t matter. The government can print or borrow as much money as it needs for whatever it wants to do. Whatever treasury debt the government can’t sell in the open market, will be purchased by the Federal Reserve, which is empowered to literally print money out of thin air.

The point is, Americans have become very comfortable with this arrangement. The sky’s the limit, and that’s what we expect from the healthcare industry. We want the best health care money can buy, and we want as much of it as we can get. At the same time, our expectation is that we won’t have to pay for it.

That’s a recipe for disaster. Yes, the government can print and borrow money. But it can only go so far at that, before inflation becomes obvious. They’re careful to make sure that it doesn’t reach that point. But should we get universal healthcare, it’s entirely possible that the financial printing presses will be rolling. When that happens, not only will we be paying higher prices for healthcare, but also for everything else we need to buy.

That brings up Reason #5, why universal healthcare won’t work in the US.

5. Taxes Will Explode

While the government loves some inflation – it’s even a stated target of the Federal Reserve – they don’t want too much of it.

Too much inflation means that the government loses control of the currency. And lots of bad political and economic outcomes can result from that. As a result, you can count on your taxes going higher after universal healthcare is implemented. And a lot higher at that.

Medicare is already costing the country $675 billion on an annual basis. Medicaid is costing $574.2 billion per year. That’s a total of about $1.25 Trillion per year.

Now imagine if the federal government has to cover all $3.2 Trillion of the US healthcare system – or whatever inflated number that will be in the future. That means that the government will need to raise an additional $2 trillion to cover those costs. Rest assured they’re not going to print and borrow $2 trillion per year just so that everyone can have cheap healthcare.

No, they’ll raise taxes. Substantially.

Currently, total federal tax revenues run at about $3.25 trillion. If we add an extra $2 trillion to the government’s expenditures, that will mean that the government will need to collect roughly 62% more in taxes than they are right now.

And that’s just to keep the current budget deficit from going any higher than it is right now.

Imagine that your taxes are going up by 62% so that you can have government-funded health insurance. And not just your federal income taxes, but also the FICA tax, including the half of that tax that your employer pays on your behalf. Do you still want that deal?

I’m pretty sure that I don’t. And we haven’t even factored in future increases in healthcare spending, or the negative effects that the next recession will have on government revenues. What it all means is that the numbers above are the best case scenario. Things can probably only get worse, not better.

6. Any US Univeral Healthcare System will NOT be Based on the European or Canadian Models

The US recently was ranked #11 out of 11 countries for quality of healthcare. I’m always dubious about these international ratings, because the pattern seems to be that they intentionally attempt to make the US look bad. But that doesn’t mean that we don’t have a lot to learn from other countries and how they operate.

But that’s the problem. Americans have always viewed themselves as something unique under the sun. We tend to think of all things foreign as being corrupt, and completely unworkable within the context of the American system.

But given what a wreck we’ve turned our healthcare system into, we could use a lot of instruction from foreign countries. After all, they’re able to provide universal healthcare at about half the per capita cost that we do. That means something big that we’re choosing to ignore.

Unfortunately, it’s unlikely that we will look at the universal healthcare systems in other countries for guidance. Instead, we’ll come up with our own convoluted system that pretends that no other universal strategy has ever been successfully implemented.

It’s been said that a giraffe is a horse designed by Congress; my guess is that any universal healthcare system devised by the US government will look a lot more like a wounded giraffe than a healthy horse.

7. Medicare will be the Likely Model for Universal Healthcare in the US

Rather than rely on universal healthcare models currently working in Canada and Europe, it’s far more likely that we’ll get a system that will be based largely on an expansion of the existing Medicare system.

Just like the health insurance that most of us carry now, Medicare doesn’t pay all of your medical bills. For example, under Medicare Part B, you must pay 20% of outpatient services costs, after you pay your annual deductible. For this reason, many people who are on Medicare also maintain a Medicare supplement, that pays the costs that Medicare doesn’t. There’s a premium for that as well.

Translation: don’t assume that universal healthcare will mean the end of premiums!

In fact, there is a monthly premium of $134 per person for Part B coverage, and possibly more for Part D (prescription drug coverage). And remember, these monthly premiums are not factored into the current portion of the FICA tax that’s used to pay for Medicare. It’s an additional cost to participants.

An expansion of Medicare to the general population would almost certainly include these premiums, in addition to higher income taxes. And that’s before factoring in the additional costs that will occur when the 74 million people who are currently enrolled in the Medicaid program are rolled into the national plan with its upgraded benefits.

And worth noting is the fact that some healthcare providers don’t want to even participate in the Medicare program, because of limits on reimbursements for services. How an expansion of the program to universal level will play out in this way is open to debate.

Closing Thoughts…

Don’t get the wrong idea, I’m not looking for ways to torpedo the idea of universal healthcare. I’m even glad that John brought the topic up. Given the high COBRA payments that my family is currently paying each month, as well as the fact that I’m self-employed, we would certainly benefit from a universal system – maybe more so than most families.

In addition, I’ve often thought that universal coverage would make it much easier for people to change jobs or go into business for themselves. Universal coverage would mean they wouldn’t have to worry about losing employer subsidized coverage.

For all of those reasons I’d love to see a workable universal healthcare system implemented in the US. But based on the realities of the current system and common expectations, I think it’s likely that we’ll get something that’s even more dysfunctional than what we have now.

What are your thoughts on universal healthcare? Canada and Europe have it, in fact most countries in the world have it – but do you think that it can work in the US? And if so, how could it overcome the seven problems I’ve listed?

( Photo by juhansonin )

4 Responses to 7 Reasons Why Universal Healthcare Won’t Work in the US

  1. Great analysis, Kevin. I’ll relate to a couple examples why you are right that single payer won’t work here. First. when my in-laws had Alzheimer’s I was on an internet support group that included a lot of Canadians. They related that when looking for a facility to care for their loved one. Apparently the government would pick up the cost but also chose the facility based on which one had a vacancy first. It might be the worst facility and it might be hundreds of miles from their family. The only way to avoid that problem was to be self-pay which, as you can imagine often was cost prohibitive. Secondly, too many people who would ordinarily not bother going to the doctor, might now go with every sniffle or bruise, a practice my in-laws did until they got ALZ because as much as medical need, it became their social network. They looked at it as free because their insurance premiums and Medicare was taken out of their benefit checks so they rarely received a bill for out of pocket expenses.

    What is usually not mentioned in arguments in favor of single payer is the confiscatory tax rates in countries where it exists. For example, Norway has a tax rate in excess of 70%. If you make a million a year, maybe you can afford that, but if you are making #40K a year, that doesn’t leave a lot for rent groceries and utilities. And finally, from a cynical point of view, do you really think that the care will not be rationed on a basis of how costly the treatment is, age of the patient, likely outcome of the treatment or even the political party affiliation of the patient. Just look at the IRS targeting conservative organizations and individuals. Enough said.

  2. Hi Kathy – You’re hitting on points I hadn’t thought about, and I’m glad you did. I think universal will be a giant boondoggle if it’s ever implemented. Your point about rationing is one I hadn’t even considered but it could easily be Reason #8. I think we’re heading toward rationing anyway, but under a universal system there will be no appeal. Govt will say NO and that will be the end of it. It will happen as soon as they hit a budget crisis, then all bets are off.

    Good point about people abusing the system too. A lot of people have that “I’m gonna get mine” mentality whenever someone else is paying the bill. It’ll be that way with universal healthcare. The greed at the feeding trough is disgusting, and that will certainly be the case here. I’ve seen it with people on public assistance. They get in line for every benefit, rather than trying to improve their circumstances with a healthy dose of DIY. We certainly don’t need any more of that.

  3. The tax rate increases you talk of will also be on those currently paying taxes. Not the ones that will be the biggest beneficiaries of universal coverage/care. The weight on our backs will be even heavier to bear. What was it that Margaret Thatcher once said? Oh yeah…”The problem with socialism is that you eventually run out of other people’s money.” Also consider that most countries with universal care have higher tax rates as you pointed out, and much smaller populations than the US. For instance, there were roughly 32 million people in the US that did not have coverage prior to AHCA that are now covered. That is 8 million more than the entire population of Australia. And lest we forget, quality of care will be nothing like it is today (not even close). Think lengthy wait times to visit your primary care (measured in weeks if not months instead of days). Waiting for a hospital bed, waiting for ER care. All of it will dramatically increase. But hey, it’s worth it right? I mean if you don’t have any coverage today, you have nothing to lose, and the more you can get, the better right? Congress will promise the world to get the votes, and then either not deliver, or bankrupt the country in the process.

    I too believe the health care system needs drastic overhauling, but handing the reigns entirely over to the government is absolutely the worst decision that could be made. Reform the system from within. Reduce costly regulations that cut other insurers out of markets. Allow insurers to compete for business across state lines, making insurance more portable and cost effective. Tort reform is a MUST! Stop using the US as the private R&D piggy bank for all these drug companies that charge 500% more for drugs here than in other countries. Consider direct care options with local doctors and providers (think co-ops). There are other solutions that don’t involve overbearing Uncle Sam making your every decision for you!

  4. Hi Patrick – I hadn’t even considered how the tax burden would be concentrated on the shrinking base of people who actually pay taxes. That’s a good catch and another brilliant reason why Universal coverage won’t work in the US. I’m afraid our healthcare system is to fat to be reformed in any meaningful way. Now we can only sit back and take bets as to when it will blow up and be replaced by a system that’s remotely workable.

Leave a reply