Giuliani’s free market cure for health care
Light posting, lately – I’m working on other things. Things related to this story, actually.
Giuliani recently discussed his planned reform for health care in which he proposed, amongst other things, a $15,000 tax deduction for families ($7,500 for indviduals) to buy private health insurance instead of getting insurance through employers.
He also stated, erroneously, that American medical care was the best in the world. I’m very tired hearing that one. He also got away with saying the socialised medicine would bankrupt America. It’s done wonders for the rest of us: why would America be the only country in the OECD to cock it up? Is Giuliani promising thoroughly incompetent government? Sounds like it.
Here is what Americans pay for health care:
And here is what Americans get:
That something needs to be done should be a given: American health care financing is just not cost-effective.
On, then, to Giuliani’s plan. It has been criticised already, as has the coverage. However, that was because the New York Times has neglected to mention cost – which they’ve done for Democratic proposals. It isn’t hard.
To conduct a brief intellectual exercise: using data from the US National Bureau of Labor Statistic, the number of people employed in the United States is approximately 126.8 million. Using the average of $7,500 per worker, Rudy Giuliani’s plan will cost just over $951bn.
Here’s something else: The pharmaceutical industry is among the most profitable in the United States. In 2005 they had an average profit margin of 15.7%, according to the Fortune 500. Private hospitals had a 5.2% profit margin in 2004. In 2005, Life and Health insurance had profit margin of 10.3% and Insurance and Managed Care 7.1%, also according to Fortune 500.
Using only the Insurance and Managed Care average, 7.1% or $67.5bn of the Giuliani plan’s money will be profit for private insurers, rather than health care for Americans. Add to that figure analysis that shows private overhead expensese are around one third of total, compared to less than 4% for Medicare (this is commonly criticised by people who say Medicare does not need to advertise, for example – nor does a single payer, making the criticism redundant).
This means that using a single payer in a public system, rather than retaining private financing in a market system, could save around $275bn. Using Giuliani’s figures – already significantly higher than per capita expenditures in 2004.
So here’s what I want people to be asking:
- Why does Giuliani think the solution belongs in the free market, when it will mean up to USD300bn will go to shareholders, as cash, instead of to Americans, as health care?
- Why does Giuliani think the solution belongs in the free market, when removing insurance from an employer basis will most likely worsen risk pooling of health insurance, thereby increasing costs?
- Why does Giuliani insist that ‘choice’ is best, when Americans currently enjoy less choice than most of their OECD counterparts? Even the current system has generated escalating out-of-pocket expenses: having the choice of insurance plans whose premia you cannot afford does not count.
The short answer is that free-market conservatism does not suit health care financing. To libertarians, not being forced to hold health insurance you don’t want is worth any degree of inefficiency, but that’s about it. American health care has fewer beds, physicians, nurses, than public systems, and delivers less health, in less equal distribution, than public systems. The jury is, by and large, in on this one.
Of these, I prefer the risk pooling question. Giuliani’s plan will have quite a large impact on risk pooling in American health insurance, and I’d like to see someone ask him if he even knows what risk pooling means. Does he have a plan to shore the private market up with changes to risk-rating laws, or re-insurance? Inquiring minds, etc.