Jim De Bree: On the failed health care legislation

I teach, as an adjunct professor, in the Masters of Taxation program at Cal State Northridge. Last Saturday’s class covered the 3.8 percent tax on investment income also called the “Obamacare tax.” This tax is imposed on the investment income of households making more than $250,000. The mechanics of the computation are complex to ensure that only people making more than $250,000 are taxed and that the tax only applies to certain categories of income above that threshold. The final slide in the presentation stated that these provisions would be retroactively repealed by the American Healthcare Act (“AHCA”). One of my students asked whether this is the tax that pays for Medicaid. It is apparent that the AHCA is really nothing more than a large tax cut for the wealthy, accompanied by huge cuts in Medicaid funding. The remainder of the provisions fail to make the substantive reforms required to improve the quality of our health care system and contain its runaway costs. By global standards, our system is by far the most expensive, and for many, the quality of care is substantively less than that afforded to citizens in other countries. This is the result of undue legislative influence of health-care providers, pharmaceutical companies and the health insurance industry. We should not resort to a single-payer system. But we do need to employ a structure used by other countries where insurance is a component to their health care delivery. We need to include everyone in a unified risk pool and base insurance costs on that pool so that insurance pricing is not discriminatory against the sick. Merely allowing insurance companies to sell across state lines does not accomplish meaningful reform because it merely aggregates a number of small higher-risk pools into larger higher-risk pools with similar demographics. Until risk pool demographics change, costs to participants will not improve. You cannot ask the insurance companies to do this without mandating participation by all. I realize that a segment of the right opposes such mandates on purported constitutional grounds, but the economic reality is that mandated participation is necessary to allow everyone to have affordable health care. If we do not employ this structure, the political groundswell will ultimately result in a single-payer system. Volume pricing for medical services and prescription drugs for everyone in the single pool is essential for cost containment. Other countries obtain quantity discounts by employing volume pricing strategies. Conversely, ours is a fragmented system where smaller segments of the market negotiate prices individually. This is one of the drivers of health care cost increases — particularly the cost of pharmaceuticals and new technology, which is a larger component of total medical costs every year. The FDA is the world’s de facto consumer protection mechanism. We have an extremely rigorous process to approve new drugs. It costs $1 billion to bring a drug to market in the U.S., and it is U.S. consumers who bear this cost. Foreign governments typically postpone approval until a drug receives FDA approval. Since the pharmaceutical companies do not spend as much money obtaining approval in foreign jurisdictions, they sell drugs cheaper overseas. We need to find a way to spread the approval costs globally. Volume pricing discounts are probably our best bet to accomplish this. Having a fragmented health-care delivery system not only affects the pricing of health care, but it significantly increases administrative costs. A centralized delivery platform will streamline the administrative process, reducing providers’ costs while eliminating the red tape patients experience managing claims. Many of the complaints about Obamacare are the result of structural flaws which are the inevitable consequences of lobbying by special interests. Republicans have complained about Obamacare for years. America hoped that the GOP had a solution that would improve the system. Clearly they do not. Republicans seek to gut the system by eliminating subsidies for our poorest people—many of whom are too sick to work full-time. Yet tax subsidies remain for employer-sponsored plans and those who can afford to fund health savings accounts. My fear is that, if the Democrats come to power, they are likely to propose a single-payer system that will not properly address the health care needs of our country. Perhaps where this ultimately will end is that we will have a single centralized basic mediocre health-care system in which everyone will participate that provides a safety net for those who cannot afford insurance. Those who can afford insurance would be able to get better care without taxpayer subsidy. It is truly a shame that we cannot think outside of the box to create a world-class health-care system that would be the envy of the world. The window of opportunity to do so is rapidly closing. Jim de Bree is a retired CPA who resides in Valencia.