You Pay for Warren Buffett's Medicare

Posted: Apr 13, 2012 12:01 AM
You Pay for Warren Buffett's Medicare

The president is barnstorming around the nation hoping to enrage voters at the injustice that the wealthy pay fewer taxes than the middle class. "Now that's wrong," Obama objected, "That's not fair."

It also isn't true. According to the National Taxpayers Union, in 2009, the top 1 percent of earners paid 36.7 percent of income taxes. The top 5 percent paid 58.6 percent. And the top 10 percent paid more than 70 percent. Social Security and Medicare taxes fall more evenly on all income groups (except the poor) but are lower. Further, Obama had the opportunity to repeal the Bush tax cuts he claims to find so odious when his party controlled both houses of Congress, but he chose to extend them instead.

This is political demagoguery of a high order, attempting to achieve re-election by whipping up class envy and finding "kulaks" to scapegoat.

While it isn't true that the rich are not paying their fair share, it is true that you are subsidizing Warren Buffett's Medicare. This is but one of the many injustices and inefficiencies of our current health care system that will only worsen if Obamacare is not repealed or overturned by the Supreme Court.

The one and only thing that Democrats and Republicans agree on regarding health care in the United States is that costs are too high and rising at an unsustainable rate, though Democrats engage in denial on the subject of Medicare's solvency. Yet with the very next breath, Democrats nearly always argue that the pre-Obamacare health system was a "free-market" system that failed.

On the contrary, the pre-Obamacare health system was already badly distorted by government. The open-ended Medicare entitlement, which pays for every medical expense incurred by the elderly, without regard to income, is an invitation to overuse. Consumers have no incentive to shop for value and thus, have no idea what the care they receive even costs. Medicaid is even worse.

Those with employer provided insurance (about 80 percent of the population), likewise have no incentive to economize on health care consumption or shop for value, since someone else pays the bills.

People who do not work for large employers face prohibitive prices for individual health insurance policies. This is partly due to the absence of the tax exclusion offered to employers. But two other factors also drive up the cost of individual policies and leave too many people without coverage. State-imposed mandates on insurance coverage -- requiring those expensive items such as substance abuse programs, pregnancy, childbirth, and other expenses may be part of any insurance package -- drive up the cost of insurance. Whereas a pure catastrophic plan could be quite inexpensive for a young, healthy purchaser, many states prevent insurance carriers from offering them. Additionally, because government is subsidizing so much of the care in the broader health marketplace, prices are higher than they would otherwise be.

James C. Capretta and Robert Moffit propose a series of reforms in National Affairs that will tackle all of these issues.

Like Paul Ryan, they would transition Medicare to a defined contribution or "premium support" model. Each elderly person (excluding those above 55 at the time of passage) would receive a stipend with which to purchase a health insurance plan. Those who wished to pay more out of pocket for more generous plans would be free to do so. The Ryan plan envisions offering subsidies on a sliding scale -- more for the poor than for the wealthy. Why should we be paying for Warren Buffett's Medicare?

Capretta and Moffit further propose changing the tax treatment of health insurance to provide a tax credit to individuals rather than to employers. In one stroke, this would introduce cost-consciousness to a system that has conspicuously lacked it, as the consumers of care would be the ones shopping for coverage. The Heritage Foundation (yes, that supposed bastion of class privilege) has even proposed offering a non-refundable tax credit that would be phased out for the wealthiest.

As for those with pre-existing conditions who cannot get coverage (a much tinier percentage of Americans than the Democrats would have you believe), high-risk pools can be subsidized at a fraction of the cost of Obamacare.

Republicans missed an opportunity to reform health care in a free-market direction during the early years of this century. If the court spares us from Obamacare, they may get a rare second chance and thus avoid the rationing, crippling expense and decline in quality for which we are otherwise headed.