America’s accidental healthcare system

The USA has a very inefficient healthcare system that is also the most expensive in the world. About two-thirds of the population receive health insurance as employer-based benefits. Benefits are not taxable, and came into being as a way to attract workers when wages were frozen during the second world war.

FT columnist Rana Foroohar has written an excellent column that explains why the system works so poorly and why neither Obamacare, nor the Republicans’ proposed replacement, can mend it.

America has a healthcare market that is not anywhere close to what Adam Smith would have considered functional. It has almost no price transparency (you don’t get a bill until weeks or months after you’ve made treatment choices), is controlled by vested interests (doctors, pharmaceutical and insurance companies) who exert monopoly power against the businesses and consumers they are supposed to service, and is highly fragmented and inefficient.

All this contributes to the fact that the economic implications of rising health costs on not just individuals, but American business itself, have been poorly understood. In the 1950s, healthcare made up only 7 per cent of total worker compensation; today, it’s 20 per cent. Given that, it is no surprise that as healthcare costs in the US have gone up, wages have stagnated.

Rana Foroohar, “Employers can help fix American healthcare“, Financial Times, 20 March 2017 (metered paywall).

Turkish-American journalist Rana Foroohar (born 1970) is the FT Global Business Columnist.

Ms Foroohar calls on employers to ‘help fix’ the broken healthcare system. She ignores the single-payer solution because it “is still an ideological leap too far for US business.” But Medicare for the elderly, and Medicaid for the poor, exist. These (despite opt-out provisions) are single-payer systems that cost less than employer-based insurance plans. Reform of US healthcare can be done with a simple reduction of the age of eligibility for Medicare from 65 years to zero. Employer-based benefits could continue for benefits not covered by Medicare, such as private or semi-private hospital rooms. Importantly, they could also be taxed as part of employee remuneration.

One Response to “America’s accidental healthcare system”

  1. Michael Littlewood says:

    The proposed solution looks quite a lot like what we have here in New Zealand and, I am sure, elsewhere. Until employers are engaged in the reform process in the US, nothing much can happen. Getting rid of the tax break on premiums should be part of the solution (the position in New Zealand). They should be taxed as part of salary.