Where Government Excels

By Paul Krugman
The New York Times, April 10, 2015

Like all advanced nations, America mainly relies on private markets and private initiatives to provide its citizens with the things they want and need, and hardly anyone in our political discourse would propose changing that. The days when it sounded like a good idea to have the government directly run large parts of the economy are long past.

Yet we also know that some things more or less must be done by government. Every economics textbooks talks about “public goods” like national defense and air traffic control that can’t be made available to anyone without being made available to everyone, and which profit-seeking firms, therefore, have no incentive to provide. But are public goods the only area where the government outperforms the private sector? By no means.

One classic example of government doing it better is health insurance. Yes, conservatives constantly agitate for more privatization — in particular, they want to convert Medicare into nothing more than vouchers for the purchase of private insurance — but all the evidence says this would move us in precisely the wrong direction. Medicare and Medicaid are substantially cheaper and more efficient than private insurance; they even involve less bureaucracy. Internationally, the American health system is unique in the extent to which it relies on the private sector, and it’s also unique in its incredible inefficiency and high costs.

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Comment:

By Don McCanne, MD

Next week, when the Senate returns from its break, they will likely approve House-passed H.R.2 – the “SGR fix” – a bill that is being used as a vehicle to move Medicare closer to privatization by taking small incremental steps in increasing Medicare premiums and deductibles – features that are more characteristic of private individual plans than public social insurance programs.

Paul Krugman reminds us that governments are better at providing health insurance. So we should reject the current bipartisan efforts that are moving us further in the direction of converting Medicare from a public insurance program into a premium support model (defined contribution vouchers) of a market of private health plans.

This week’s taxpayer boost given by the Obama administration to the private Medicare Advantage plans – the fourth such devious boost in the past four years – enhances the private plans to set them up as a model for privatized Medicare. Is there no stopping this?

Private Health Insurance Exchange Enrollment Doubled from 2014 to 2015

By Richard Birhanzel, Scott Brown, Joshua Tauber
Accenture, April 3, 2015

An estimated 6 million1 members enrolled in their benefits on a private health insurance exchange for the 2015 plan year, continuing a remarkable adoption trend in excess of 100 percent annual growth since 2013.

The mid-size employer segment of 100 to 2,500 employees is driving initial growth, as evidenced by the expansion of the consultant-led exchanges servicing this market.

Accenture forecasts enrollment of employees under 65 years old and dependents will grow to 12 million in 2016 and 22 million in 2017.

Accenture projects growth will remain on track to reach 40 million enrollees by 2018.

Two Early Growth Limiters Will Dissipate

Two key factors limiting private health insurance exchange growth in the initial years will dissolve in the near term: capacity constraints by a lack of mature solution providers and adoption delays among large employers.

Accelerators Are Emerging To Further Catalyze Growth

• Increasing administrative requirements: Employers face increasing administrative requirements each year under the Patient Protection & Affordable Care Act (PPACA), such as new minimum essential coverage reports due to the IRS (section 6055). These requirements add to an already substantial compliance workload (e.g., ERISA, HIPAA, COBRA). Private health insurance exchanges can significantly reduce these requirements with robust reporting and compliance services.
• Employer Mandate: The Employer Shared Responsibility Provision, more popularly known as the Employer Mandate, will compel employers to revisit their benefits strategy. Coupled with lower than expected SHOP enrollment, smaller firms in particular may increasingly consider the merits of private exchanges to deliver a simpler path to comprehensive coverage in a compliant fashion.
• Employers maintaining coverage: Many employers have not dropped coverage altogether, as some initially forecasted. In fact, most employees view health insurance as a critical employer-provided benefit, limiting some employers’ ability to drop or defund health coverage. Accenture’s 2015 Private Health Insurance Exchange Consumer Research shows that 76 percent of consumers see health insurance as the primary or an important factor for continuing to work at their current employer. As employers seek a compelling alternative, the private exchange model of reducing costs and administrative burden emerges as a clear favorite.
• Cadillac Tax: Finally, the 40 percent excise tax on high-cost plans, often termed the Cadillac Tax, will go into effect in 2018. This could affect as many as 38 percent of large employers and 17 percent of all American businesses3 if insufficient action is taken. Private health insurance exchanges will provide an ideal alternative to simultaneously migrate away from these legacy high-cost plans, and provide employees with new options to manage their health. Accenture expects private exchange enrollment to spike in 2017 as employers look to avoid these looming penalties.

Latent Demand Will Ensure Growth

Consumers’ latent demand for choice and flexibility in a retail-like shopping environment, paired with notable early successes, are increasingly overwhelming capacity constraints and employer inhibitions. Employers’ drive to meet consumer expectations, spurred on by key accelerators, will lead to 40 million members on private exchanges by 2018.

http://www.accenture.com/us-en/Pages/insight-private-health-insurance-exchange-annual-enrollment.aspx

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Comment:

By Don McCanne, MD

Employers have discovered that they can relieve themselves of much of the burden and costs of administering their employee health benefit programs, while using defined contributions to shift more costs to their employees, simply by referring them to private insurance exchanges. This is really catching on now with over 100 percent annual growth in the past three years, and an anticipated enrollment of 40 million by 2018.

These are not the insurance exchanges established by the Affordable Care Act, but they are private programs established by insurers and other industry consulting organizations. As more costs are passed on to the employees, the adequacy of the plans will certainly deteriorate further. Most employees will find that their increasing contribution requirements for the insurance premiums plus their out-of-pocket costs will become less and less affordable.

We continue to hear from politicians and the policy community that we do not need comprehensive reform such as the single payer model since the implementation of the Affordable Care Act is working so well with large numbers of new enrollments in the various sectors of health care coverage. What is being ignored is that the insurance products are deteriorating rapidly, especially with the very large increases in deductibles and the further narrowing of networks of health care providers. That some lower-income individuals are receiving subsidies (often inadequate) will provide little solace for the majority who find that their costs are becoming ever less manageable.

This explosion in the growth of private insurance exchanges further advances the ideology of those who wish to place patients in charge of their own spending by making them bear an ever increasing share of health care costs. This shift from solidarity to individual responsibility will be devastating for individuals with future health care needs. And now the venerated employer-sponsored coverage is becoming a major part of the problem.

Changing to a single payer national health program would remove control of health care financing from external players such as employers and place it in our hands through our own elected public stewards. The three trillion dollars that we are already spending is more than enough to provide quality care for everyone. We just have to make sure it is being spent on patients rather than on a glut of administrators and insurers who are eroding the protection provided by private insurance.

‘Cadillac tax’ the next big Obamacare battle

By Brian Faler
Politico, April 6, 2015

A mix of business groups and labor unions are pushing to tee up the next big Obamacare fight: killing its so-called Cadillac tax.

Though the nickname suggests it will apply to a select few, experts say a majority of employers could eventually face the prospect of imposing what will be the first-ever tax on health care benefits.

At issue is a 40 percent excise tax on the health benefits companies provide their workers above a certain threshold. In 2018, the tax will hit insurance and related perks valued at more than $10,200 for singles and $27,500 for families. So for family benefits worth $30,000, the tax would apply to the $2,500 that’s above the limit.

Unions, which often have generous health benefits and have opposed the tax since the law’s inception, say the looming levy is already becoming a factor in their contract negotiations.

“Employers are coming to the table asking for cuts in benefits based on their preliminary projections around the tax,” said Shaun O’Brien, assistant policy director for health and retirement at the AFL-CIO, which backs repeal.

The National Education Association, which is also demanding the tax be rescinded, issued a report Thursday complaining it would disproportionately hit women and older workers.

Congress pegged the tax threshold to a relatively slow measure of inflation. It’s linked to the consumer price index plus 1 percent, even though medical costs typically grow much faster. Private health care spending per enrollee will grow by an average of 5.6 percent annually over the next decade, according to the Congressional Budget Office, while inflation will increase by 2 percent per year.

About one-third of employers will be hit by the tax in 2018 if they do nothing to change their plans, according to a March survey by Mercer, a benefits consulting firm. By 2022, almost 60 percent will be facing the levy.

“‘Cadillac tax’ is really a misnomer,” said Beth Umland, Mercer’s director of research for health and benefits. “Potentially any employer could be hit by this tax.”

Former Obamacare adviser Jonathan Gruber, in one of the now-infamous videos that emerged late last year, said rising medical costs ensure the Cadillac tax will eventually all but eliminate the break companies get for providing health insurance.

Economists in both parties have been pushing the idea for decades as a way to slow health care costs, because it amounts to a cap on benefits.

That’s a good thing, many say, because overly generous insurance shields beneficiaries from costs, which encourages them to use more services, driving up prices for everyone else. It’s also a matter of fairness, some say, because forgoing taxes on health care benefits amounts to a major break for those with jobs offering coverage.

“Capping the tax benefit for employer-sponsored health insurance, I think, is a great idea,” said Len Burman, head of the nonpartisan Tax Policy Center. “Providing an open-ended subsidy for health insurance, which encourages people to get plans that do less to restrain spending, contributes to rising health care costs. Most economists who’ve looked at health care spending have concluded that.”

Congress’ independent budget scorekeepers have said Obamacare won’t add to the deficit, and why the tax will be tough to repeal. The levy, which is projected to generate $87 billion over a decade, ramps up slowly, but is estimated to eventually produce so much money that it alone will cover the cost of providing insurance subsidies through the program’s exchanges.

http://www.politico.com/story/2015/04/obamacare-health-care-cadillac-tax-116659.html

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“What Does the ACA’s Excise Tax on High-Cost Plans Actually Tax?”: An NEA-Commissioned Report by Milliman

National Education Association (NEA), March 13, 2015

Why Did NEA Commission an Actuarial Firm to Assess the Excise Tax on High-Cost Plans?

Always suspecting the term “Cadillac Tax” to be highly misleading, NEA hired the actuarial firm Milliman to determine whether the excise tax on high-cost plans is really a tax on overly generous health plans. In addition, NEA has a much higher percentage of older and female workers than the national workforce, so we asked Milliman whether the tax corrects for the impact of age and sex on premiums.

What Does the Excise Tax Really Tax?

The actuaries found that “although the excise tax is often referred to as a tax on overgenerous health benefits, it is likely to be a tax based on factors other than benefit richness and beyond the control of health plan members.”

For example, Milliman tested the relative impact on premiums of plan benefits and other factors. The actuaries concluded that, compared to their benchmark, geography had a potential 69.3 percent impact on premiums, meaning that area-specific health care costs alone could boost a $9,189 premium in 2018 to $15,556. Among their other findings: Premiums could increase by as much as 15.7 percent for plans with provider networks that have low negotiated discounts for doctors, hospitals, and others. In contrast, plan benefits in the study only increased premiums by as much as 6.2 percent.

The excise tax was designed to push employers to cut employees’ health benefits, but with factors other than health plan generosity driving tax liabilities, the resulting benefit reductions will be arbitrarily damaging to millions of employees and their families.

What Role Does Geography Play in Generating Tax Liabilities?

Milliman concluded that geography-related premium differences will “lead to much higher premiums and substantial taxable costs in many parts of the country.” When the actuaries tested benefits typical of gold- level health insurance exchange plans, they found that plan members’ location alone would trigger the excise tax in many places, even when the same gold-level benefits in other places would not.

They found, for example, that the premium for a gold-level plan in San Francisco, California, would be 37 percent higher than the exact same plan’s premium if it were in Huntington, West Virginia. In fact, they found striking disparities all over the country.

Does the “Age and Gender Adjustment” Correct for the Impact of Age and Sex on Premiums?

Congress knew that the excise tax on high-cost plans could be unfair to women and older workers, but Milliman concluded that the tax’s attempt to fix the problem “fails to compensate for the impact on premiums of age and sex in many parts of the country.” As a result, health plan members’ age and sex could contribute to excise tax liabilities. It also means that women and older workers could be disproportionately hurt by tax-spurred benefit cuts.

http://www.nea.org/assets/docs/Actuarial_Study_on_Excise_Tax–In_Brief–March_13_2015.pdf

Milliman – Full report: http://www.nea.org/assets/docs/Milliman–What_Does_the_Excise_Tax_Actually_Tax.pdf

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Comment:

By Don McCanne, MD

The Affordable Care Act’s “Cadillac tax” is a 40 percent excise tax on spending on employer-sponsored plans that falls above a given threshold. It has three primary purposes:

1. As the revenues from this excise tax increase through the years, they will eventually pay much of the costs of the subsidies provided through the exchange plans, 
2. The tax should eventually displace much of the current regressive tax expenditures that subsidize employer-sponsored plans, and 
3. The tax should incentivize employers to reduce health benefits offered to their employees, thereby making employees better health care shoppers by increasing their exposure to out-of-pocket costs when accessing health care.

“Cadillac tax” is a label that creates the impression that the excise tax is applied primarily to plans with exceedingly generous benefits that only the wealthiest amongst us would purchase – a sector that could easily afford the excise tax. That is not true. According to the Milliman study commissioned by the NEA, the tax may apply to the baseline Blue Cross and Blue Shield standard benefit option offered through the Federal Employees Health Benefit Program.

What we have traditionally considered to be standard health plans – “Chevy plans” – are now considered to be “Cadillac plans.” These are plans that union members have paid for through forgone wage increases – wage concessions merely to maintain standard health care coverage, not “Cadillac” coverage.

This attitude that standard coverage is somehow a “Cadillac” plan shows how much the definition of standard coverage has deteriorated. Under the Affordable Care Act, the benchmark plans in the exchanges are silver plans with an actuarial value of 70 percent (patient pays 30 percent of costs) whereas standard employer-sponsored plans formerly had an actuarial value closer to 90 percent (patient pays 10 percent of costs).

What is particularly alarming about the Milliman study is that they show the tax will be applied inequitably based not only on the generosity of the benefits, but also based on factors over which employees have very little control such as age, sex, geographical location, the size of the risk pool, and the industry in which they work. Lower-income individuals with lower actuarial value plans under these circumstances could still be assessed the excise tax. That is really unfair. It is also possible that these factors could allow high-income individuals with very generous plans to escape the excise tax.

So let’s look again at the three purposes of this excise tax:

1. An unfair tax is being used to fund administratively-complex subsidies in exchanges that were designed to revitalize the private insurance industry. Instead, the dysfunctional, inequitable, multi-payer system should have been replaced with an equitably-financed, efficient, publicly-administered single payer system.
2. The regressive tax expenditures that subsidize employer-sponsored plans do need to be eliminated, but they need to be replaced with equitable progressive financing – the type of financing that characterizes a well designed single payer system.
3. Requiring individuals to assume control of health care spending as a means of controlling costs has become a pathological obsession within the policy and political communities. Requiring patients to spend money that they do not have is a blunt instrument that prevents patients from receiving beneficial services that they should have. Costs can be controlled more effectively through an administratively efficient single payer system that provides prepaid health care with first dollar coverage.

There is growing bipartisan support to eliminate this unfair tax, but then what would happen? Both parties would search for new revenues to replace the tax while leaving in place this overpriced system that serves us so poorly that was perpetuated and expanded by the Affordable Care Act. What we really need instead is a single payer national health program.

Fact Sheet: Moving Medicare Advantage and Part D Forward

Centers for Medicare and Medicaid Services (CMS), April 6, 2015

On April 6, CMS released final updates to the Medicare Advantage and Part D programs through the 2016 Rate Announcement and Call Letter. The finalized policies will continue to strengthen the growing Medicare Advantage program, and continue the successful implementation of the Affordable Care Act’s reforms that improve quality and provide greater protections for beneficiaries and value for taxpayers. 

Recent Trends in Medicare Advantage and Part D

• Enrollment continues to grow – MA enrollment has increased by 42 percent since passage of the Affordable Care Act in 2010 to an all-time high of more than 16 million beneficiaries, with nearly 30 percent of Medicare beneficiaries enrolled in an MA plan.
• Plan quality continues to improve – In 2015, 60 percent of MA enrollees will be enrolled in a 4 or 5 star plan, compared to an estimated 17 percent back in 2009.
• Premiums remain affordable – Average premiums today are lower than before the Affordable Care Act went into effect, dropping 6 percent between 2010 and 2015.

2016 Rate Announcement

Expected Average Change in Revenue
  1.05% – 2016 Advance Notice
  3.25% – 2016 Rate Announcement

Effective Growth Rate
  1.7% – 2016 Advance Notice
  4.2% – 2016 Rate Announcement

Updated Growth Rate

The 2016 rate announcement reflects an underlying per capita growth of 1.9 percentage points of additional FFS spending for 2014 and 2015 and 0.6 percent for 2016, and 0.1 percent for the assumption that Congress will enact the pending legislation to permanently fix the SGR. The updated growth rates reflect the Office of the Actuaries’ best estimate of Medicare spending and are not the product of discretionary CMS policy. The underlying per capita FFS costs continue to demonstrate a historically slow health care growth rate and that growth rate remains below the per capita gross domestic product growth rate. Initial information from Medicare actuaries suggests that contributing factors behind the change from the preliminary growth rate include higher than expected spending on inpatient hospitalizations and some intermediary services such as therapy, rural health clinics and federally qualified health centers.  As always, when changes occur, we’ll continue to watch developments closely and work to understand these factors in greater detail.

Value-Based Contracting

In January 2015, the Secretary announced the Administration’s vision for moving the health care system toward paying providers based on quality rather than the quantity of care they provide. In the Call Letter, CMS continues to signal an intention to begin working with plans participating in Medicare Advantage to better understand, through a voluntary effort, the extent to which they use value-based payment models to compensate providers offering services to their enrollees.

http://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2015-Fact-sheets-items/2015-04-06.html

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Seniors Love Their Medicare (Advantage)

By Meghan McCarthy
Morning Consult, March 30, 2015

Whether enrolled in traditional Medicare or Medicare Advantage, Morning Consult polling shows Americans aged 65 and older expressing high levels of satisfaction with their federal health benefits. But when asked about individual pieces of their insurance—like prescription drug coverage, the benefits that are covered, and preventive care—seniors using Medicare Advantage reported higher satisfaction rates, sometimes by double-digits.

The poll of 3,975 seniors found that 85 percent of seniors on traditional Medicare said they were satisfied with their plan, compared to 88 percent of seniors on Medicare Advantage.

Despite registering nearly identical satisfaction levels for the overall programs, 80 percent of seniors on Medicare Advantage said they were satisfied with the overall cost of their plans, compared to 68 percent of traditional Medicare seniors. The gap in satisfaction appeared in every individual measure, with Medicare Advantage proving more popular every time.

Robert Berenson, a Medicare expert at the Urban Institute who previously served on the Medicare Payment Advisory Commission, said seniors on Medicare Advantage often get more benefits and have to pay less out of pocket, because the federal government ends up paying more per beneficiary when compared to traditional Medicare.

“Medicare Advantage plans provide better benefits, and overall costs are less, but plans get paid more—with favorable selection—to be able to do that,” Berenson said in an interview. A March MedPAC report found that Medicare Advantage plans would be paid 2 percentage points more than traditional Medicare in 2015.

Berenson also noted that traditional Medicare often covers the sickest and poorest seniors, and they might have a more negative view of their insurance, and health care in general.

With more seniors signing up for the program, insurers are getting more help from Congress to pressure the Obama administration to protect payment rates from any reductions.

http://morningconsult.com/2015/03/seniors-love-their-medicare-advantage/

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Comment:

By Don McCanne, MD

CMS has done it again. For the fourth year in a row, CMS has used innovative methods to boost the payment rates for Medicare Advantage plans, more than compensating for the required reductions in overpayments mandated by the Affordable Care Act.

Although this year’s Advance Notice called for a 1.05% increase in Medicare Advantage revenue, CMS has responded to an intensive campaign orchestrated by AHIP – the insurance lobby organization – by increasing revenue by 3.25% instead. Members of both parties in Congress were involved in this lobbying function – 239 from the House and 53 from the Senate.

Although many factors are considered when determining payment increases for Medicare Advantage plans, this year’s surprise discovery of new funds was predominantly in the updated effective growth rate of fee-for-service (FFS) Medicare – a rate of 4.2% as opposed to their Advanced Notice estimate of 1.7%. They explain that this is their “best estimate” of FFS Medicare spending and “not the product of discretionary CMS policy,” though they say, “the underlying per capita FFS costs continue to demonstrate a historically slow health care growth rate.”

This continued overpayment to private Medicare Advantage plans has allowed the insurers to offer greater benefits with lower out-of-pocket costs, and that is what has made the plans popular – demonstrated by a 40 percent increase in enrollment between 2010 and 2015. Little is said about the fact that the majority of the overpayments are retained by the insurers for administrative costs and profits. Robert Berenson confirms how these overpayments have made the plans more popular in polls such as that from Morning Consult, whereas “traditional Medicare often covers the sickest and poorest seniors, and they might have a more negative view of their insurance, and health care in general.” The Happy Healthy are in the private plans, and the Sad Sick are in traditional Medicare.

The march to Medicare privatization moves forward, aided and abetted by both Democrats and Republicans in Congress and in the Administration. Enabling better benefits and lower beneficiary costs for private Medicare Advantage plans, while leaving those in the traditional, less expensive FFS Medicare program devoid of these additional benefits, continues to incentivize the shift to private plans. Next week another step forward will occur with the enactment of the “SGR fix” which will expand somewhat the use of premiums and deductibles in the traditional Medicare program, but not in the Medicare Advantage plans.

Where is citizen action on all of this? Are we headed to “Medicare for None” with “Private Plans for All.” Keep in mind that the purpose of privatization is to shift the costs of health care from the government (collectivism) to individuals (freedom). That surely cannot be what Martin Luther King Jr meant when he dreamed of being “free at last.” What are we doing to his dream?

Americans Don’t Feel the Slowdown in Health Costs

By Drew Altman
The Wall Street Journal, March 31, 2015

National spending on health care and insurance premiums has risen at historically low rates in recent years. But… even when spending and premiums experienced record-low growth in 2013, only 3% of Americans said health costs had been rising slower than usual, and 52% said they had been growing faster than usual. The American people are not out to lunch; their view of the problem of health costs is very different from that of experts.

In more than 20 years of regular polling on health-care issues by the Kaiser Family Foundation, I have found that Americans with coverage care about:

• Their premium costs, or the share of premiums they pay if they have employer coverage;
• Their deductibles and other forms of cost sharing, especially when deductibles have been rising steadily;
• Their drug costs (this is particularly an issue for the chronically ill, who use a lot of drugs);
• Whether their insurance covers the services they think they will need;
• Whether they can go to the doctor or hospital they want without having to pay more. People are more willing to accept a lower premium for less choice if they do not have a regular doctor or hospital;
• The hassle and red tape in health care and health insurance. Increasingly, people care about getting information to be informed about their health and make smarter insurance and health care decisions.

Two other things stand out:

• Seniors care a lot about Medicare and sometimes vote on the issue.
• And Americans overall don’t care as much as experts do about improving quality and eliminating unnecessary care. In general, people think that quality is good and they want more care not less.

Drew Altman is president and chief executive officer of the Kaiser Family Foundation.

http://blogs.wsj.com/washwire/2015/03/31/americans-dont-feel-the-slowdown-in-health-costs

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Comment:

By Don McCanne, MD

People want health care coverage that works for them, but they are very concerned about their direct costs, including insurance premiums, deductibles and out-of-pocket expenses for their pharmaceuticals. They rightfully complain about these costs, yet how often do you hear them complain about their payroll deductions for Medicare? They want Medicare to be there when they retire.

They also want reasonably comprehensive benefits and they want to be able to select their own health care professionals and hospitals for their care without being financially penalized for doing so.

Yet the Affordable Care Act was designed not to cater as much to patients as it was to take good care of the private insurers. Other systems that spend much less than we do often eliminate deductibles and much of the other cost sharing. Instead of premiums, many systems use equitable taxes to fund the system. And most do not limit choices of physicians and hospitals to those selected by the insurer.

So the Affordable Care Act, along with the innovations of the private insurance industry and modifications that employers are introducing into their plans, brought people exactly what they do not want: higher premium payments, higher deductibles, and more limited choice of physicians. It is true that a minority of our population receives subsidies for premiums and deductibles for insurance obtained through the exchanges though with more limited choice, but for the majority, premiums, deductibles and choice are all worse.

About 60 percent of health care is already paid for through our tax system, and most of those taxes are not transparent. When we pay taxes for other important government functions we do not receive an itemized tax bill breaking out each tax expenditure. The amount over what we are already spending that would be required to fund a comprehensive system for everyone could easily be absorbed into the tax system.

People would be more satisfied if they received the health care that they need when they needed it, and they knew that it was being paid for through a tax system that was fair to everyone. Of course, that is the way a single payer national health program would work. Let’s start taking care of the health needs of the people instead of the business needs of the insurers.