Fragmented Health Care System Makes Explicit Discussion of Tradeoffs Difficult

Kevin Drum’s observation that “[i] a national healthcare system, taxpayers who are footing the bill have to make decisions continuously about how much they’re willing to pay for healthcare” prompts a thought from me that the generational transfer element of Medicare makes it difficult to engage in these tradeoff calculations.

The way this works, recall, is that Medicare is a universal single-payer health insurance scheme for retired people. And it’s financed through payroll and income taxes. Consequently, there’s virtually no overlap between people who are paying taxes to finance Medicare and people who are benefiting from Medicare. Worse, people suffer from the illusion that Medicare is something they’ve already “paid for” via their payroll taxes in their working years. For Social Security this is approximately true, but for Medicare it’s not even close:

This is why Paul Ryan’s Medicare proposal features an arbitrary ten year delay before it’s phased in.

A more typical system would feature universal coverage starting at age zero and a large chunk of the financing would come from a Value Added Tax, which people pay whether they’re working or not. There’s still always an element of inter-generational transfer since old people consume more health care services on average. But there’s less insulation. If you cut health care spending right now, then right now the very same people will be able to pay lower taxes. Alternatively if you want to boost health spending right now, then right now the very same people will have to pay higher taxes. This hardly guarantees wise choices, but it frames what the choices are correctly.