Health insurance for the elderly and the working middle class

Health insurance for the aged

The aged already have national health insurance for acute care: Medicare. The aged, however, still spend a significant portion of their medical expenses out-of-pocket, approximately 17 percent. They would like lower out-ofpocket payments for their medical expenses, particularly for outpatient prescription drugs. Given the high voting-participation rate of the aged, the closeness of the 2000 presidential election, and the electoral significance of Florida with its many elderly voters, both political parties competed to provide the aged with a prescription drug benefit. In 2003 the aged received a very expensive prescription drug benefit. However, the drug bill is complex, difficult to understand, and contains large copayments and deductibles. Despite the drug bill's impact on the deficit, there will be political pressure by the aged to make the drug benefit more comprehensive.

In coming debates over reducing the federal deficit, health care reform, and ensuring Medicare's financial solvency, the aged will lobby for maintaining their existing Medicare benefits, that is, traditional Medicare, while pressuring legislators for enhancing the drug benefit. If the federal deficit were not a political problem, the aged would next like to have financial protection against the high costs of long-term care. Low-income aged must rely on Medicaid for their long-term-care needs. Middle- and high-income aged do not want to spend down their assets to qualify for Medicaid if they incur large long-term-care expenses. Rather than purchase asset protection (long-term-care insurance) through the private market, middle- and high-income aged would prefer government long-term-care insurance so that their cost can be shifted to others.

The approach presidents and legislators have used to receive the political support of the aged has been to gradually increase their health coverage, for example, by expanding Medicare to include home health care, additional preventive services, respite care, prescription drugs, and even lifestyle drugs (e.g., Viagra). The aged have not paid the full cost of those benefits. Consistent with the self-interest theory are the large subsidies provided to the current aged, regardless of their incomes, by imposing a large financial burden on future generations, at a time of large federal deficits and impending Medicare insolvency.

Health insurance for the middle class

Visible redistributive issues, such as national health insurance, require the political support of the middle class. The middle class has a disproportionate amount of political power because political parties cannot form a majority without those in the middle. Legislators would respond and enact national health insurance if a national health insurance proposal had widespread support from the middle class. Therefore, it becomes important to determine the objectives of the middle class with regard to national health insurance. Until the mid-1980s, the middle class was insulated from the rising costs of medical care. Employers paid the employee's health insurance premium for a traditional indemnity health plan, which permitted the employee and the employee's family to go to any fee-for-service provider and pay very little out-of-pocket costs.

Employer health insurance contributions on behalf of the employee are not considered part of the employee's taxable income. The beneficiaries of employer-paid health insurance are primarily those who are in higher marginal income-tax brackets, namely, those with higher incomes. If the employer increased the employee's wage by $10,000, the employee would have to pay federal, state, and Social Security taxes on that additional $10,000. The employee would be left with approximately $5,500. (Assuming the employee is in a 31 percent federal tax bracket, pays 7 percent state income tax, and 7.5 percent Social Security tax.) These tax savings are greatest for employees in the highest income-tax brackets. If, instead of giving the employee a raise of $10,000, the employer purchased, on behalf of the employee, $10,000 worth of health insurance (with before-tax dollars), the higher-income employee can receive almost twice as many medical services and reduce their out-of-pocket expenses.

Employer-purchased health insurance has been a form of subsidized national health insurance for middle- and high-income groups. Thus, medical care costs did not represent a serious financial risk to the middle class. They were at greater financial risk for the long-term-care needs of their parents. The lost federal tax revenue (foregone federal and Social Security taxes) from employer-purchased health insurance was about $188.5 billion in 2004. These lost taxes could more than pay for subsidies to cover the uninsured. (Yet neither political party proposes limiting these tax subsidies as a means of financing national health insurance for the poor. In addition to middle- and high-income groups, unions, health insurers, and health care providers are all strongly opposed to a tax cap on employer-paid health insurance.)

President Clinton viewed the 1992 election as a mandate to introduce comprehensive health care reform. According to various polls, the middle class expressed a great deal of dissatisfaction with the current health care system at that time; however, the polls did not indicate any consensus on what type of reform the middle class favored. Middle- and high-income groups already had subsidized national health insurance. "Half of the voters . . . said they were willing to pay an additional $20 a month to support a national plan that would provide health insurance coverage to all Americans, but only 24% were willing to pay an additional $50 per month." Willingness to pay higher taxes also varied by the type of tax. Sin taxes being preferred over income taxes (consequently President Clinton proposed an increase in the cigarette tax).

The public was clearly unwilling to tax themselves sufficiently to provide comprehensive health insurance for everyone. The middle class was more concerned with their own rising insurance premiums (which meant lower take-home wages), the fear that they would lose their insurance if they became ill or changed jobs, and the greater restrictions placed on their choice of provider by managed care organizations. The middle class basically wanted what they previously had - traditional indemnity insurance with free choice of provider - but at a lower cost.

The only way for the middle class to have unlimited access to care and to the latest medical technology at subsidized premiums is to shift the rising cost of health care to others; however, that is just not possible. Paying hospitals and physicians less limits their willingness and ability to absorb rising costs. Shifting costs to other population groups is also difficult; those with low incomes could not afford to pay the increased taxes to subsidize the large middle class and their medical costs. It is unrealistic to expect the small percentage of the population with very large incomes to bear the enormous medical costs of the entire middle class. Thus, it is not possible for the middle class to achieve its goals by shifting its costs to other groups. The inability of the middle class to achieve unlimited access at a reduced cost, however, has not prevented some politicians from claiming it can be done. Single-payer advocates claim that reducing administrative costs and removing profit from health care will save sufficient funds to provide universal health care to all, free access to all health care providers, and at no additional cost.

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2. Medicare Prescription Drug Coverage
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3. Financing Social Security and Medicare
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4. Medicare Advantage contains five different types of health plans
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5. Competition between Medigap and Medicare Advantage
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6. Health Insurance firm Medicaid Managed Care
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7. Medicare services providers and physician capitation
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