An economist clarifies the fundamental issue in reform
Princeton University Office of Community and State Affairs, 2005 Symposium of New Jersey Issues
April 15, 2005
The Unhealthy State of Health Insurance for American Children
Uwe E. Reinhardt, Ph.D.
A numerical illustration:
Assume that the total gross compensation of a low-skilled worker is now $30,000 and will grow at 3.5% per year for the next decade to about $42,300.
Assume next that the health insurance premium for that worker and his or her family grows at “only” 8% per year, from $10,000 now to about $21,600 ten years hence. That’s 50% of the wage base just for health insurance.
Employers will respond to these trends in two phases:
1. Initially they will shift more and more of the cost of insuring their workers onto the workers themselves.
That won’t solve the problem, of course. It merely shifts the burden of health care from the well-to-do to the poor and from the healthy to the chronically sick. The small wage base of low-wage workers would still have to carry the financial burden of modern health care, and that wage base is just too small a donkey to carry that burden.
2. Eventually they will stop providing health insurance to their employees altogether.
The question then is whether Americans in the upper half of the nation’s income distribution will be willing to pay higher taxes to subsidize those in the bottom third of that distribution, or whether the latter will simply be priced out of health care.
http://web.princeton.edu/sites/pucsa/pucsa_reg/Agenda.htm
Comment: We spin our wheels debating employer mandates, individual mandates, consumer empowerment, and innumerable other policies that might influence costs and coverage. But before we can rationally discuss changes that would make health care accessible and affordable for everyone, we must first answer the question that Prof. Reinhardt poses. Are Americans in the upper half of the nation’s income distribution willing to pay higher taxes to subsidize health care for those in the bottom third of that distribution? If not, we should stop wasting our time and accept the fact that the bottom
third will simply be priced out of health care. It’s as simple as that.
But first we need to be certain that Americans do understand that this is the fundamental issue so that the answer is a truly informed choice. Another quote from Prof. Reinhardt suggests there is great risk that we may not like the answer:
“Government budgets are statements through which a people expresses its moral values. Even as we speak, Congress is poised to abolish all estate taxes on the well-to-do, while it is cutting budgets for Medicaid and other poverty programs. Could there be a clearer statement on the dominant moral values of the American people than the federal budgets of 2001, 2003 and beyond?”