Before World War II, most people paid cash to doctors. Many doctors were not wealthy, but those who were loyal to their patients and willing (and able) to stretch out their medical bills into regular payments were some of the most highly respected people in their communities.
Two forms of “health insurance” tended to exist:
- Local mutual aid societies or unions offered health insurance, using their own members as a risk pool.
- A group of doctors would form prepaid physician groups, charging members a low monthly rate for various future medical services.1
So: they decided that businesses could provide employer-sponsored health insurance (ESI) to their employees, and it would not count as income.
Cute.
In 1951, the IRS decided to "keep" this classification (remember, the military draft would not end until 1973), which, all the Very Wise Men agreed, was awesome.
Note:
- This provision was in place without benefit of Congress until 1954, since it was only a "regulation" and not a "law". (An inheritance from the American Progressives.)3
- Congress implemented a 25 percent deduction for self-employed health insurance premiums in 1987 and made it permanent in 1994. The self-employed received even better news in 2003 when premiums became 100 percent deductible. You read that correctly: self-employed little guys did not get the tax break that General Motors and General Electric employees were getting since 1943.4
- Many smaller businesses could not afford this kind of insurance at all.
- Only very large or profitable businesses were wealthy enough to keep retirees on this insurance, the rest had to kick them off. ESI never covered more than 70% of American households.
- For those who got kicked off their company's insurance, and who had therefore never saved money for health care, Medicare was created in 1965.
- Social Security cost 2% of an employee's paycheck in 1936,
doubling to 4% by 1954. From 1961 to 1971, it went from 6% to 10.4%. It
finally topped out in 1990 at 15.3%.
- Medicare was added to FICA (Federal Insurance "Contributions" Act, aka Social Security), which as of 1980 costs each employee 15.3%. FICA SS is capped ($137,700), so it is very regressive: it taxes low-earners more. FICA Medicare is uncapped.
The employee pays 6.2% for Social Security and 1.45% for Medicare. The employer “matches” that with 7.65% to FICA, the combined contribution totaling 15.3%. The maximum taxable earnings for employees as of 2020 is $137,700. There is no wage limit for Medicare.
Note also the following:
- The system is a lie. It misrepresents how much you actually make at your job. In other words, it violates Nobel Prize-winning economist Friedrich von Hayek's discovery of the pricing mechanism as an information exchange. This will become important later.
- After the 1970s, the idea of working for a single business for all your life began to die, fast. Technological innovation guaranteed that many businesses would become obsolete much quicker.
- ESI also penalizes people who have one or two part-time jobs. (This is not necessarily poverty. A factory worker trying to break into web design, say, could sensibly work both jobs part-time until they make it as a designer.)
- Since ESI only goes to people healthy enough to work, ESI discriminates against the elderly, the unemployed, children, the disabled, the chronically ill, and older job-seekers.
- ESI discriminates against the self-employed, since one person cannot negotiate a better insurance deal than General Motors or UPS.
- Thus, ESI inevitably favors Big Business and Big Government.
- If you're sick, and you change jobs or get laid off, you now have a "pre-existing condition." In other words, you've just made what is an emergency in anyone's life worse.
- Social Security does not provide enough for a cheap but comfortable retirement.
- If you are an employee, you are paying twice the FICA you think you are paying: 15.3%.5 (An additional tax, the Additional Medicare Tax of 0.9%, is levied on any income in excess of $200,000.)6
- For retirement, FedGuv offers 401(k)s which are basically "Wall Street LARPing". If I recited stories to you of real people who have retired only to see their 401(k)s collapse, you would sweat blood.
- According to my pay slips, my employer paid $11,000 a year for my health insurance. When a tooth cracked in half six months after I was laid off, I suddenly had no way to pay for it. I was employed there for six years. Does that make any sense?
- We used to have a Social Security Trust Fund. It had no money in it, just a pile of Treasury bills (T-bills, or debt notes) that said, in the fine print, "We the Government of the USA promise to pay this bill by taxing your children and grandchildren until they bleed from the eyes." Some people are still salty that this fake "Trust Fund" was eliminated.
Currently, "a male average earner who retired at age 65 in 2010 paid out $345,000 in total Social Security and Medicare taxes, but will receive $417,000 in total lifetime benefits ($464,000 for a woman)."7
Interest rates worked out by Calculator.net's Interest Calculator:
Yearly pay | $15.00/hr × 40hrs × 50wks ────────── $30,000 |
$20.00/hr × 40hrs × 50wks ────────── $40,000 |
"average" Social Security 0.903% interest (1.4% if female) |
Payout at current FICA rates |
× .153 ────────── $4,590 |
× .153 ────────── $6,120 |
────────── $8,625 |
Total payments | × 40 yrs ────────── $183,600 |
× 40 yrs ────────── $244,800 |
× 40 yrs ────────── $345,000 |
Interest | + $172,875 | + $230,499 | + $72,050 |
Total | ────────── $356,475 |
────────── $475,299 |
────────── $417,050 |
Cannon and Tanner of Cato.org reviewed the industrialized world's health care systems in Replacing Obamacare. The care they provide ranges from mediocre to poor, but all are brutally expensive.
How can America do better? First, we assume:
- People save money for emergencies.
- Assuming you don't get hit by a bus or die of a heart attack (really, quite rare), you will die of old age.
- Being old is just another health emergency: the elderly are unable to work as hard as they used to (or at all).
- You will probably need medical care to make sure you live to see old age in the first place.
- In other words, monies saved for retirement and monies saved for medical emergencies are identical. Once they took our retirement savings (FICA), of course they had to start socializing health care.
It's hard to convince some people to save money, out of their own short-sightedness, or out of sheer bloody-mindedness. But these are often the same people who hate their jobs and would like to retire early. Combining an HSA with retirement funds helps even undermotivated people save for medical emergencies and retirement.
Using retirement as a second use for a HSA funds, the HRSA, creates price competition. Perhaps only two-thirds of our 140 million households will look at a doctor's prices while weighing their retirement, but we don't need every last person to be a "super predator" consumer. We just need enough of them to force prices down.
Health Savings Accounts (HSAs) have been small accounts since Bush created HSAs in 2003 (revising a previous 1996 program). It's a typical GOPe plan: leave the fundamental disease in place, but slap a band-aid on top of it. Obamacare actually knee-capped HSAs, which still exist, but in a currently useless form:
- 2014, HSAs Under the Affordable Care Act. ACA better than feared over HSAs, but see below.
- 2016, HSAs Under Attack In Obamacare Exchanges. Remember, ACA was founded on the idea of filtering all your health care through a third party, an insurance company. This was mandatory and you could be fined for not having health insurance. HSAs clogged the process of taking your money from you at gun point and giving it to the insurance company.
- 2017, Nine Unfortunate Facts of HSAs. This is a damning list. The big one: you cannot buy insurance with your HSA (you can only pay for COBRA extension insurance, which is ungodly expensive).
- 2018, Obamacare’s Cost Sharing Is Too High, Even for HSAs. "Only 30 percent of plans sold on the federal Obamacare exchange meet the criteria of having both a high-enough deductible and a low-enough out-of-pocket limit to qualify as HSA-compatible."
By exploiting capitalism, and by pushing the responsibility and benefits of saving for your health care and retirement as low as possible:
- We create Health and Retirement Savings Accounts: HRSAs. Up to a cap, any deposits into them, and any earned interest, are tax-free. This cap is per dependent, say, $400,000.
- (We might want to add a proper retirement savings account, where you would pay 50% of income tax on deposits, and then half of income tax on withdrawals, up to another $200,000, but this is not the core of HRSAs.)
- You are not allowed to withdraw any money from your HRSA unless to pay for
- medical care,
- health/disability insurance, or
- retirement.
- We redirect FICA and your ESI (if you have any) to your new HRSA.
- You may donate freely to direct line descendants, or your direct forebears (parents and grandparents) with court permission.
- In fact, if you have kids, you will probably need to. If you and your spouse have two kids, and you've managed to accumulate $1,500,000 in your HRSA, and the two kids move out and get jobs, you will be presented with a whopping tax bill on $700,000 of your HRSA unless you take $700K of your account and put it into your kids' HRSAs.
- You or your employer are allowed to pay more into your HRSA, up to, say, 30% of your income that year, up to a certain cap, say, $30K a year.
- We outlaw ESI and 401(k)s. Also employer pensions except to military (and maybe police), since we may need to guarantee the military's loyalty and obedience. You want to play the stock market? Fine, but use your post-tax earnings, please.
- All government officials, elected or appointed, would be on HRSAs, just like you. They would have a direct interest in making HRSAs work.
- Retirement cuts in at 65. We just divide your total HRSA by how many more months you are going to live, and you can withdraw 80% of that. (In case you beat the stats.)
- If you discover you have a disease that will kill you at age 50, you can apply to a court to access your savings early or adjust your FICA rate.
- You might go your entire working life without making more than 5-6 claims on your health insurance. You would need HI only for true emergencies (broken bones, cancer, cardiac arrest, disability, &c.), but you would still get the tax benefit for all your other medical care.
- Since spending more on health care would make it harder to retire, intense price competition for medical care would ensue. Currently, your doctors, your employers' insurers, and hospitals conspire to drive prices up.
- The current U.S. national debt is $23 trillion. If we take $345,000 as the average FICA pay in, and halve it, for 140 million households, we get a little over $24 trillion. Paying our current "owed" FICA into people's HRSAs would double the U.S. debt.
- But: the Federal deficit would fall, since most entitlements would cease. (Social Security and Medicare ($1.3 trillion a year alone), Medicaid, Obamacare, State Children's Health Insurance Program, &c.)
- Many people would start spending immediately: the sick, the old. However, many people would start saving more. (Putting more into Social Security gets you a little, saving more into your HRSA gets you a lot.)
- An HRSA system would immediately lower the cost of borrowing money. Austrian economics says the solution to stagflation is saving more money.
- A five-year amnesty for pre-existing conditions would accompany the establishment of the HRSA system.
- A HRSA system would immediately incentivize a strong dollar. "Quantitative easing" would end.
- The private HRSA banks would stop borrowing money from the Federal Reserve. They would have plenty of cash reserves (and would probably own a lot of T-bills).
- Did you know FedGuv controlled how many hospitals and ERs are allowed to operate in any area? Shouldn't the market decide that? That would save a lot of money. Many health care regulations would need to be repealed.
- Wouldn't this benefit mostly rich people?
- The more money rich people put into HRSA, the less tax benefit they receive. Once they hit the cap, they would pay full income tax. If they start throwing cash into their children's and granchildren's HRSAs, they will simply be guaranteeing that all their descendants will be paying the full income tax.
- How would you pay back the $24 trillion?
- We would lose FICA and Medicare receipts, but we would no longer be paying out FICA and Medicare. We could also close a lot of other health care entitlements. We'd also be paying a lot less interest on the national debt, since the cost of borrowing would drop.
But: If the cost of health care drops, investment in more profitable economic sectors would take off. It would be necessary to either trim the U.S. budget or temporarily raise the income tax. However, since the cost of capital would be driven down, this would not crush economic growth. - Can we test this first?
- It should be possible to leave half of the states in FICA/Social Security/ESI/ACA, and let the other half experiment with a HRSA system.
-
Chapin, Christy Ford, May 2020. "How Doctors Broke Health Care and politicians made things even worse," Reason.com. ↩
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Wikipedia, Health insurance in the United States, late 2019. ↩
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U.S. Health Policy Gateway. "VI. Key Issues: Financing and Delivery >> C. Health Financing," accessed May 2020. ↩
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healthinsurance.org. "Self-employed health insurance deduction: Deduction for the self-employed isn’t new," accessed May 2020. ↩
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IRS. "Social Security & Medicare Tax Rates" (historical). ↩
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IRS. Topic No. 751 Social Security and Medicare Withholding Rates. ↩
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Whelehan, Barbara, Jan. 7, 2011. "Social Security benefits vs. taxes," from the Urban Institute. ↩