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

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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 Society”), 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. Government is careful to maintain pretty inflation numbers. 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…

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 Universal 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 )

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13 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.

  5. Nice article, I new Obamacare was a farce, I never could find the real numbers, Google loves to hide things like this. Too bad we could not get this out to the masses so maybe they would stop freaking out about the cancellation of such a bad plan. The middle class has been killed by it and I think that is exactly what they wanted to happen.

  6. I completely agree with you Rick, Obamacare was set up to fail so it could be replaced by universal coverage. As I wrote in the article, I don’t see that working here either. Our healthcare system is entirely chaotic, and no one wants to give anything up to make it more equitable. Basically, it can’t work in a country where people are so delusional that they think they can have unlimited healthcare at zero cost, and unlimited ability to sue. It’s almost as if healthcare represents the culmination of America’s greatest social ills.

  7. Well said. I also dislike the entire “preexisting conditions” since a majority of our preexisting conditions are due to our own actions, diet, smoking, drinking etc. We should not have to supplement your bad habits. I believe if you have a BMI of over 40 and or you smoke or drink like a fish you should pay more and not just a little but a lot more, If you keep getting speeding tickets your car insurance goes up. I go out to eat and I watch people that are obviously 75-100 pounds over weight eating a full plate of garbage and all I can think is that why my insurance rate is so high. We have become a nation that our own actions no longer have consequences, it is other peoples fault and our governments responsibility to fix it.

  8. Just because a family with a combined income of $90,000 can afford the monthly premiums Universal Healthcare would incur, doesn’t mean a poor family that only brings in a combined total of $30,000 can. I mean, imagine the worst case scenario were to come true, is the government going to force these people out of a house into prison just because they ran out of money? I know some people don’t like to hear it but companies like walmart and mcdonalds believes in paying their workers the lowest minimum wage they can get away with in every state. Most of these workers are dependent on food stamps just to survive.

  9. Hi Jake – I agree on all fronts. Personally, I’d love it if we could get a workable universal care program going. I just don’t see it working for all the reasons cited in the article. First and foremost, I don’t see “The System” ending the healthcare gravy train by capping spending. Nothing that’s been done thus far has even attempted cost control, and we have to believe there are entrenched reasons why that’s happening.

  10. As far as Social Security and Medicare go, it wouldn’t be a drain on the US, if presidents and Congress didn’t borrow from ithe funds. Why shouldn’t people above $112,000, continue to pay into both Social Security and Medicare? My and my husband’s pre-existing conditions are not from a bad lifestyle. I had 2 tumors of the spinal cord that disabled me from my accounting job. My husband had stage 4, advanced, metastatic cancer with none of the factors that cause it.
    I agree with some of the points made: tort reform, and doctors not going into the profession because of limited income. We’re having the best luck with Medicare and a great supplement. We haven’t argued about what is covered and what isn’t with our insurance company.

  11. Hi Nancy – I’ve heard the Medicare/Medicare supplement mix is just about the best health insurance package there is. But I wonder what it will look like in 5 or 10 years. As far as borrowing from the trust fund, government wants money wherever it can get it, enough will never be enough. The trust fund itself was always a sham because it’s always been invested in US Treasury bonds, which means the government raised taxes to pay for a phantom trust fund that was always being used to pay for government borrowing from the day the trust fund was established. Put another way, there is no trust fund. If the government has to start tapping the phantom trust fund, they’ll have to borrow from the marketplace or the Federal Reserve to pay off the T-Bonds.

    One other point, there’s no longer a ceiling on Medicare taxes, only the retirement fund, so that avenue has already been partially taken. I agree with you though, a lot of people have health conditions that are none of their fault. I think the medical industry exaggerates the effects of behaviors on cancer. Cigarettes yes (who doesn’t know putting smoke in your lungs is toxic???), but as far as the others (eat this, don’t eat that) I highly doubt it. A certain number of people are going to get cancer, which is also true in animals – and they’re certainly not eating junk food and coconut oil and the other oft-mentioned suspects.

  12. Whether or not we WOULD take from other countries models is a key factor… Why wouldn’t we? Instead of writing defeatist articles about “why we can’t do it”… How about trying to think of ways we can, and promote that. Speak against the bloated American attitude and recommend that we try to learn from other countries that are making it work. Find ways we can implement that into our system. Yes, there are likely to be issues and problems to which we will have to come to a solution, but that’s how it is with any change… and we definitely need a change. The costs of medical care in this country have become insane! So much, so, that we’re all convinced that “health insurance is a good/necessary thing”… so we pay thousands of dollars a year into something that doesn’t necessarily help enough… even with insurance, the bills can stack to unaffordable rates, and deters people (like myself) to seek medical care if/when they feel they need it… and people are DYING because of it.

    Why the hell anyone is against universal health care, in this insane country of inflated medical costs and increasing number of people dying due to inability to pay those costs, just blows my mind…

    Yes, regulating costs will affect the income of medical care providers, and yes, that will likely make a lot of them quit… but all I hear when I hear that is it will weed out those whose motivations are purely financial, and make room for those who sincerely care about helping people… which, to me, sounds like a system where you’d receive BETTER care.

    Also, about the debts being racked up from the education, is why there’s talk about “free education”… I’m not sure how that would work, but many of the schools are about making money, and prestige, etc.. rather than caring about educating people… Again, I admit I don’t necessarily know all of the obstacles we would face in trying to implement that kind of system, as well, but just as in anything, we start with a goal, and we work towards it. We face obstacles and come up with solutions to overcome them. All the “can’t do” talk is just frustrating.

    Also, with free health care, there’d be no need for insurance. Insurance companies are born from a system of inflated health care costs… and without the health care costs, the need for insurance would be null and void. Hence, the money we all (mandatorily) put into health insurance could be reallocate towards the system of universal health care.

    Again… I admit I don’t know exactly the best way to go about it, and the answers to every obstacle we might face… but we never know that. When the emancipation proclamation was passed, they couldn’t have thought of every possible issue that was going to arise, and have the solution for it… we see something as wrong and we fix it… focus on the goal and come up with workable solutions for obstacles we face, in the process. One good way to start WOULD be to look to our fellow countries and how they’re making it work and try to implement that here, as best as we can…

    All this article is, is a big “can’t do” attitude to something that NEEDS to happen. People are dying because they’re afraid to, or can’t afford to, get the proper medical care because of the insanely inflated medical costs in this country. You don’t even get TO the hospital and you’re already facing hundreds, sometimes thousands, of dollars in costs for the ambulance ride, alone.

    This system isn’t working. We need to find a better way.

  13. I agree the current system isn’t working Brian, but we’re not ready for universal coverage. Mind you, I’m not against it. But the current bloated structure, and the status quo attachment to it will make universal unworkable. Before we can get to a universal system, the one we have needs to unwind. I don’t see that happening through the legislative process. More likely, economics will force change. Things will likely get messy in the interim. But there seems to be no public or political consensus beyond finding more money to keep the current bloated system going.

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