April 3rd, 2012
10:00 AM ET

The costs of overturning Obama's health care reforms

Editor's Note: Robert J. Shapiro is co-founder and chairman of Sonecon, LLC, a private firm that advises U.S. and foreign businesses, governments and non-profit organizations. He served as U.S. Under Secretary of Commerce from 1998 to 2001. The following post was originally published in The Globalist, an online world affairs magazine.

By Robert J. Shapiro, The Globalist

It has been clear for some time that, without major reforms, the U.S. healthcare system will soon impose unmanageable and unsustainable burdens on millions of middle-class Americans.

By 2016, the average family is expected to earn about $54,000. In that year, moderately-priced health insurance for a family of four will cost about $14,700. Employers will pick up much of the tab for most middle-class families.

But all of those employer payments come out of people's wages and salaries. So, adding the value of that coverage to the average family's income in 2016 - $54,000 + $14,700 = $68,700 - we see that the cost of health insurance alone will soon claim more than 21% of an average family's annual resources.

On top of that, the average U.S. family's co-payments and other uninsured expenses are expected to come to another $5,100. The average family also pays payroll taxes that help cover other people's health care - 2.9% of their wages for Medicare ($1,566). They also pay perhaps $1,000 more in federal and state taxes for Medicaid and Medicare costs not covered by the payroll tax.

Add all of that to the cost of their insurance, and health care will claim $22,366 from an average U.S. family in 2016, or 32.5% of their adjusted income of $68,700. Why should the average American family have to pay nearly one third of its annual income for a healthcare system that will, by 2016, claim about 18% of GDP?

Part of the answer is that the average worker earning $68,700, a manager making $150,000, and the CEO earning $5 million all pay roughly the same $14,700 for their family coverage. The result is that middle-class families spend a much larger share of their income on health care than wealthier families.

That is very different from other countries such as Germany, where health insurance costs are assessed as a percentage of income (up to a certain level). Thus, lower income earners pay the same share of their income to have health care as people who are financially better off.

Despite these stark economic realities and pressures, much of the commentary on the Supreme Court case focused on trying to interpret the questions, gestures and tone of the Justices in hopes of divining which party and vision of government will likely prevail. This would seem to be, at most, of secondary importance. Moreover, any such divinations are notoriously unreliable in controversial cases.

One of the reasons why health insurance costs middle-class families in the United States so much is that their bill includes a good share of the costs of treating those without insurance. A reasonable estimate of the costs of treating the uninsured that are passed along to average policyholders is about $300 per person, or $1,200 for a family of four.

President Obama's plan to end those pass-along costs by mandating universal coverage was, of course, the central issue in last week's arguments at the Supreme Court. Behind the high-minded debates over principle lies the harsh politics of who is to pay for it. The Obama Administration's reforms shift most of the costs of the uninsured to the government.

These costs ultimately will be financed through non-payroll taxes - the personal and corporate income tax - that in turn fall disproportionately on higher-income Americans.

That is the choice, and it helps explain the vehemence of the partisan battle over the mandate: The President's reforms will shift tens of billions of dollars in annual costs from middle-class families with private insurance to more affluent taxpayers.

Bending the cost curve

Tax battles aside, let's look at the larger picture, from the point of view of national competiveness and cost effectiveness.

Covering the uninsured should reduce the cost of their care, at least over the long term. Uninsured people are much more likely to suffer strokes, for example, because they are much more likely to have undiagnosed hypertension, diabetes and high cholesterol.

Among people with cancer, the uninsured today are much more likely to be diagnosed later, and so require the most expensive interventions.

After Clinton's healthcare reform failed in 1994, it was 15 years before another President and Congress took up the issue again.

Uninsured people also are less likely to recover fully from many injuries, making them more likely to suffer subsequent medical problems that require more treatment. Ensuring that everyone has insurance, therefore, should reduce those costs.

The reforms now being reviewed by the Supreme Court include a package of measures that may begin to slow the rising costs of health care. These measures range from the push to establish uniform electronic medical records, to a more results-based reimbursement process for doctors and hospitals, and steps to encourage them to adopt more cost-efficient medical protocols and practices.

To be sure, the reforms do not include the most controversial and partisan cost-saving measures, including tough medical malpractice reforms and an option for public insurance in places where competition among private insurers is weak. Still, they are a beginning.

After Bill and Hillary Clinton's push to reform health care failed in 1994, it was 15 years before another President and Congress took up the issue again. If the Supreme Court unravels what they did, it almost certainly will be many more years before anyone tries again.

The economic consequences of that scenario would be severe. The number of uninsured people and families will continue to grow. The costs of their treatment will continue to squeeze coverage and increase the costs of private insurance for most middle-class families.

And without measures to "bend the curve" of medical cost increases, average families will find themselves forced to spend one-third or more of their real incomes on their health care.

The views expressed in this article are solely those of Robert J. Shapiro.

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Topics: Health

soundoff (18 Responses)
  1. pmcdonald

    Don't be dumb. Why not just have a cheaper health service like every other country in the world. 30 of which have better health outcomes too. Its not hard. Don't be dumb.

    April 3, 2012 at 10:10 am | Reply
    • George Patton

      Quite true pmcdonald, quite true. Prior to Obamacare, our healthcare system was a national disgrace where only the wealthy could afford heath coverage while the middle class was being charged ever more than they could pay. If these right-wing Repubicans get their way, and that may very well be the case, the middle class will shrink even faster!!!

      April 3, 2012 at 12:06 pm | Reply
      • j. von hettlingen

        In Scandinavia health care is a public service. Yet patients have to contribute to the costs too. The compulsory health insurance in Central Europe is widely accepted as a good model. Everybody has to buy a package ranging from basic to first-class treatment. Those wealthy people pay more as they want better services.

        April 4, 2012 at 4:16 am |
    • P. O. Carl

      I would like to ask this question. Why should healthcare be a for profit business?

      April 3, 2012 at 11:32 pm | Reply
      • Patrick

        is it?

        April 4, 2012 at 1:02 pm |
      • Hahahahahaha

        Yes Patrick it IS!!! Have you just crawled out from a rock? Hahahahahaha

        April 10, 2012 at 10:49 am |
  2. Bob

    All good data, but with a statistical flaw. $54,000 may be the average salary in the US, but very few people earn that much. The average is biased strongly upward by the wealthy.
    On the other hand, all of the cost burdens remain the same, in dollar amounts, for those earning less, even far less, and thus take up a much larger percentage of their earnings.
    The picture is even bleaker than Mr Shapiro paints it, I fear.

    April 3, 2012 at 10:16 am | Reply
  3. Fred

    Let’s face it…health care and pharmaceutical companies are paying the republican millions and millions to fight this new law because it would reduce their huge profits. Of course all the politicians have great insurance paid by the American people so why not help the big pharmaceutical companies as long as they finance their campaigns.?

    I agree with the idea like in Germany or Finland where you pay a percentage if your income just like you do with social security and medical. At the same time the medical world should maybe try to get into the 21th century. In the business world everyone has been trying to cut back payroll and expenses the last couple of years to stay in business. They implemented one stop shopping where one companies carries most of the products. They cut back on payroll where one person does the job of two people or the computer replaced two jobs. In the medical field they are still operating the old fashion way. You call for an appointment which can take up to three months sometimes just like in a social healthcare system and it can take up three months to see a specialist. And people don’t want the social healthcare? It is already here. Once you finally see the doctor his assistant takes your blood pressure and temperature and delivers your file, he makes a few notes and returns the file to his assistant who again turns it to another girl who makes a few notes and maybe sets up another appointment then turns it over to another girl who handles the billing I assume.

    Why can’t they be computerized just like most companies out there. The computer should be set up so that it can do all the billings automatically. The files should be handy when the doctor opens your file. He can even set up your appointment. All other industries had to cut back and do more with less. In the medical fields it just keeps growing and they just keep passing on to the consumers. What are they going to do about it?

    April 3, 2012 at 8:10 pm | Reply
  4. Pete

    Thank you Mr.Shapiro for your enlighting explanation of ACA bill and its benefits if its passed.Trouble is we have the SCOTUS justices,taking on partisan political sides,like last weeks ruling on strip searchs for even minor traffic violations,a 5-4 verdict,with republican justices supporting the ruling.We have the justices,making public displays of their disrespect for our commander and chief at recent gatherings where the president has spoken.This is apalling,because it shows that racism is still a strong part of our political process,with Sen.Mitch McConnell leading the way.Saying in public on the senate floor his only endeavor was making our POTUS Obama ,a one term president.That in many peoples eyes,especially mine is called TREASON,and it should be treated as such.This political divide is because of color,not by partisan thinking,plain and simple.There is total disregard for this president and his work.THERE IS NO PLACE FOR RACISM IN POLITICS,so tell the republicans to put their white hoods and gowns away and think for our country,color aside,we all bleed red.Like Mr.Shapiro said ,we have this chance of getting more affordable,reliable healthcare,so don't waste this chance.So don't let the presidents color deter us from something we've asked for as a civilized country for years.You republicans know ,if this were presented by your elustreous leader Bush,you'd be cheering Amen from the mountain tops,so stop being so hypocrital and racist,we're all one color AMERICAN,isn't that what its all about....

    April 4, 2012 at 10:15 am | Reply
  5. Benedict

    I wonder if this year‘s election is more about Obama‘s race teh anything else! Obamacare is the biggest political statement by any leader for decades and the GOP can‘t wait to abolish it! It seems that blackman with big ideas ain‘t good enough for America!

    April 4, 2012 at 6:33 pm | Reply
  6. Rz

    Is it possible that equipment manufacturers, suppliers, and service contractors to the medical industry (Tyco) are almost like the MIC to the government ? Is it possible that pricing and costs to the medical industry might be a little inflated? Are hospitals and the medical industry also too wasteful ? Are the medicines overpriced?

    It seems to be that when it comes to health, safety, and protection, the motto is "spare no expense". Including the country club memberships and Maseratis.

    April 4, 2012 at 9:11 pm | Reply
  7. Timmy Suckle

    I kissed my way up to VP at a health insurance company. Now I take over $500,000 of your health care dollars for NO VALUE ADDED to your health care. And that’s just me. Now think about how many other VPs, Directors, Managers, etc. are at my company alone. Now multiply that by thousands of others at hundreds of other health insurance companies. From 10 to 25% of your health care dollars go towards administration that adds NO VALUE to your health care. But my company’s PAC dollars will continue to fool you little people into thinking that a single payer system will be bad. Little people like you are so easy to fool. Little people also don’t realize that a single payer system is the ONLY system that would allow little people (as an entire country) to negotiate better health care prices. Little people don’t realize that the Medical Cartels already know that. And that is the reason why the Medical Cartels spend so much PAC money from the hospitals and doctors lobbying against a single payer system. Some little people say that a single payer system would cost you little people more. But if that were true, then wouldn’t the hospitals and doctors WANT that extra money? Yes they would. So why do the Medical Cartels lobby against a single payer system? It’s because the Medical Cartels know it would allow little people to negotiate better health care prices. And that’s what the Medical Cartels are afraid of. Period.
    But us big wigs at insurance companies, hospitals, and pharmacy companies don’t ever need to worry about health care no matter what it costs. We get our health care paid for one way or another by you little people. And we get the little people that work at our companies to contribute to our PACs. And us big wigs say it’s to protect the little peoples’ jobs. But in reality it would be in the little peoples’ best interest to NOT contribute to the PAC. Again, little people are so easy to be fooled. I won’t ever have to worry about losing my job with so many little people being brain washed by the Medical Cartels’ PAC money. Not only that, the Medical Cartels’ PAC money is used to elect so many republicans that will never allow a single payer system. Republicans have always fought against any meaningful health care reform. But that’s what our Medical Cartels’ PACs pay them for. Politicians can be bought so easily.
    Pretty soon the only people that will be able to afford health care is us big wigs. And that’s the way it should be. We don’t want you little people using up the resources when we need them. And once again, I thank you little people for capping my SS tax at the $106,800 level. Now I only pay 1.3% SS tax and you little people pay 6.2%. Also, thank you for extending my tax breaks. I’m using the extra money on my vacation houses.

    April 10, 2012 at 10:50 am | Reply
    • Fred

      Your comments prove that there is a lot of waste in the medical field and not to mention all the other waste that is going on like spiked medical bills from hospitals inconsistent pricing etc. I don't think that little people are fools, they just can't compete with Medical Cartels.

      April 23, 2012 at 10:06 pm | Reply
  8. truesoy

    Mr. Shapiro is delusional; why?
    Because the figure of $14,700. 00 per year in premiums for the average family in 2016 is 'pie in the sky' dreaming. Simply, that is impossible when the average yearly health insurance premiums for a family today is somewhere between $18,000.00 and $26,000.00, depending on the insurance company, and the location of the insured; therefore Mr. Shapiro is somewhat off the mark.

    Sincerely,
    Truesoy

    April 13, 2012 at 7:42 am | Reply

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