Philadelphia Reflections

Comparatively Easy Financing for the Uninsured

Paul Krugman

Paul Krugman has been quoted as saying "Health Savings Accounts will increase the number of uninsured while benefitting only the wealthiest taxpayers." In fact, financing healthcare for the uninsured is pretty simple, if it would use Health Savings Accounts for pre-funded insurance. To do the very simple math (mind the zeroes, please), giving or loaning $5000 to 30 million uninsureds would cost a total of $150 billion dollars, or fifty billion a year for three years. By contrast, the annual deficit of Medicare alone is $250 billion. We'll get to the quibbles in a minute or two, but because most people aren't accustomed to dealing in numbers so large, let me introduce the jab that financing permanent health insurance for the uninsured would be quite a relief, compared with the unsustainable costs looming for the Affordable Care Act. The Federal Reserve currently spends $80 billion, every month, purchasing treasury bonds which perhaps few private investors should buy. The HSA subsidy cost would not be entitled to tax exemption, so it would actually be somewhat cheaper than $150 billion after-tax. This isn't a monthly cost we are describing or an annual one, it's a one-time expense, spread over three years.

To repeat the refrain, this one-time expense if invested would comfortably fund the average lifetime health costs of the uninsured population, except for one thing. The clients would have to buy a high-deductible health insurance policy (but only during the years the account is building itself up after being used), paying benefits in audited costs, not posted charges. People eligible for a subsidy would probably invade the fund for small expenses more than tax-sensitive people do so the statistics on existing use may be skewed. There would be startup administrative costs. State laws mandating small-cost items would have to be re-examined. Before all this cost shifting became popular with hospitals, the AMA offered its members a $25,000 deductible for $100 annual premium.

Yes, there would be an annual in-flow of new uninsured being born or imported, and so there would likely be a mechanism for recapturing the loan from those who move out of the subsidy category, structured so as not to act as an incentive to remain uninsured. No one can possibly predict future cures for disease or their cost/benefit, but that is true of any system. We hope the cures will increase and their costs will go down, but we certainly can't promise it. We can safely predict that reducing the cost of the uninsured would reduce everybody's liability for them, including the wealthiest. But also including minimum-wage earners, for whom a proportional reduction would be much more beneficial and welcome. And -- the 30 million recipients of this subsidy would undeniably be better off. It would, however, be entirely sensible to use part of any savings to reduce the national debt from earlier borrowings.

It would, however, be entirely sensible to use part of any savings to reduce the national debt from earlier borrowings. Furthermore, newspapers relate we have 7 million people in jail, and we steadily produce replacements when they are released. There is a constant inflow of new citizens mentally retarded enough they will never be self-supporting. The local school district where I live spends 8% of its budget on what it calls "special services for the mentally handicapped". The uninsured will always be with us. The American public is spending, and will always be spending, a great deal more on charitable healthcare than it gets credit for. We probably should be spending even more on these problems, but universal health insurance isn't going to do the job.

Without much doubt or dispute, the most serious problems with implementing this funding innovation would come from unanticipated effects, about which its opponents would be happy to expatiate without help from its proponents. In general, unanticipated effects begin to appear slowly, and if we remain alert, they may be minimized. But what about the unanticipated beneficial effects? If we really succeeded in wiping out the main causes of health cost, what then? Since an awful lot of people are employed within 17% of gross domestic product now spent, what in the world do we do with them if the expenditure is seriously reduced? Come to think about it, you really have me, there.

Originally published: Wednesday, September 04, 2013; most-recently modified: Wednesday, May 15, 2019