President Trump wants to do everything he can think of to free American businesses to invest more, hire more and, you know, make America great again. So why is he pursuing an outdated health-reform plan that’s a vestige of a bygone industrial era?
Trump, of course, wants to repeal the Affordable Care Act, passed under President Obama in 2010, and replace it with a different plan to be named later. But the giant battle in Washington over the future of Obamacare completely ignores the way America’s health care system shackles the entire economy. “Our manufacturers have a huge competitive disadvantage caused by the health system, because the manufacturers are providing medical care for all the employees,” Berkshire Hathaway (BRK-A, BRK-B) vice chairman Charlie Munger told Yahoo Finance editor-in-chief Andy Serwer at Berkshire’s annual shareholder meeting on May 6. “The European companies we compete against fob it off on the government.”
Healthcare has become such an explosive issue in Washington that Republicans and Democrats fight epic battles over relatively small parts of the healthcare system–while completely avoiding the biggest problems. Obamacare, for instance, extended coverage to an additional 19 million Americans or so. The reform plan passed recently by the House—and endorsed by President Trump—would probably reduce that number by a few million, if it ever passed the Senate. Loss of coverage would undoubtedly harm some of those people, which is why the fight over repealing Obamacare is so intense. Yet the portion of working-age Americans covered by employer-sponsored insurance—150 million—is nearly 8 times as many as those covered under Obamacare.
Employer-sponsored coverage works reasonably well, except for a couple things. First, costs are rising far faster than inflation in this part of the healthcare system, just as they are in Obamacare, Medicare and virtually every other program. Critics of Obamacare blame the 2010 law for soaring costs, but they’re wrong: healthcare costs began to soar in the mid-1980s, and the trend has been consistently worsening since then. When those rising costs hit employers, they pass them on to workers, one way or another. That’s why premiums, deductibles and co-pays have been rising for everybody, taking a bigger and bigger bite of the family budget.
The other problem with employer-sponsored coverage is what Munger is talking about. Most big companies must compete globally these days, and multinationals in Europe and Japan typically don’t have to devote an entire wing of the company to administering healthcare coverage. US companies have other advantages, but nobody designing a national healthcare system from scratch would ever put the burden of healthcare for millions on companies that might have expertise building cars, designing electronics or selling insurance, but have no inherent capability when it comes to healthcare.
The employer-sponsored system in the United States arose unintentionally out of government wage controls in the 1940s—meant to prevent runaway inflation—coupled with an exemption for benefits such as health care coverage. Since companies couldn’t offer raises, in many cases, they competed for workers by offering increasingly generous benefits. By 1960, the wage controls were gone, but employer-sponsored coverage had become widespread.
Back then, it wasn’t such a problem. As Berkshire Hathaway CEO Warren Buffett explained at the company’s annual meeting, healthcare spending accounted for just 5% of US GDP in 1960. Now, it’s 17%, which is 6 or 7 percentage points higher than in most other developed countries. “Medical costs are the tapeworm of American economic competitiveness,” Buffett said. “That is a problem society is having trouble with, and is going to have more trouble with, regardless of which party is in power.”
There’s one other important way the current system saps the US economy: You can’t take employer-sponsored coverage with you permanently if you change jobs or want to start out on your own. Economists worry that “job lock’’—holding onto a job for the insurance, even if you’d be better working at something else—may depress productivity by keeping workers out of jobs they’d be more effective at. It might also explain declining rates of entrepreneurship, another worrying sign for the US economy.
Portable benefits for more independent workers
One obvious economic trend is the fragmentation of the labor force: fewer people working for a single employer, long-term, and more people working as independent contractors without full-time benefits. Portable benefits, available no matter what your job, would give workers more freedom to find an employment mix that optimizes the return on whatever skills they have. Some economists hoped Obamacare would serve that purpose, though it’s not clear yet whether that has happened.
Munger—a Republican—told Yahoo Finance that the most business-friendly way to deliver healthcare would be “a single-payer system, with people being able to opt out into private systems that were a little faster or fancier, like all of Europe and Canada.” If you’re suddenly alarmed about the prospect of socialized medicine, don’t worry: there’s no chance Washington would ever listen to Munger and consider such a plan, absent some gigantic crisis.
Even Obamacare isn’t a single-payer system fully run by the government—which is probably why it’s so troubled. To avoid something that reeked of government overreach, the crafters of the ACA created a convoluted socialist/free-market hybrid that relies on federal subsidies delivered through artificial “marketplaces” meant to be more or less competitive. It would have been a lot easier, and probably more effective, to simply expand Medicare to working-age adults who can’t get coverage through an employer. But the government was so unpopular then (as now) that even Democrats felt government-administered healthcare was politically untenable. That’s why the federal subsidies under Obamacare are used to purchase insurance from private-sector companies.
Trump is focused on “repealing” Obamacare, and replacing it with something he claims would be better. The American Health Care Act, which the House recently passed, isn’t it, even if Trump supports the House bill, for now. The ACHA seems unlikely to survive the Senate, due to controversial provisions that would make coverage harder to get for low-income adults and people with pre-existing conditions. So it’s still not clear what kind of Republican plan will ultimately emerge.
What is clear is that Trump has no interest in any kind of health reform that goes beyond Obamacare, even if the current system is squashing competitiveness and living standards. Trump wants to “bring back” manufacturing jobs that were common 20 or 30 years ago, even though they’ve been replaced by machines or cheaper foreign workers. But he hasn’t talked about making US firms more competitive by giving them a break on healthcare. That’s one chronic ailment that will continue to afflict the US economy.
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Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman.