It has been said that a political centrist is disgusted equally by ideological hardliners such as Elizabeth Warren and Ted Cruz. Many should pass this test. Unfortunately, as Chuck Todd outlined last month, over the past two decades the “center” of American politics has been “hollowed out”, with the American electorate increasingly divided into these two hard-line ideological camps. According to Todd’s data, the ideological overlap of the general public has fallen from 33% in 1994 to just 7% in 2014; while from 2002 to 2013, the ideological overlap in the House and Senate has fallen from 137 and 4 to 7 and 0.
Todd cites the advent of “micro targeting” by political campaigns as the primary culprit. Respectfully, I disagree, as I believe there is a far bigger force at work: A social media tsunami that was launched by Facebook in 2004, accelerated by Twitter in 2006, and fully unleashed by Apple’s iPhone in 2007. The Facebook/Twitter/iPhone triumvirate has allowed American (and global) citizens to curate political commentary highly customized to their ideological preferences, thus hardening partisan beliefs. It is only human nature to seek like-minded crowds; social media simply made it infinitely more convenient. “Micro targeting” merely rode the wave.
While in the aggregate the positives of social media appear to outweigh the negatives, for political discourse social media is quite toxic, as faceless communication elicits boldness otherwise not present around the family dinner table or the corporate water cooler. Early on in life we are taught to share on the playground, put the team above self in sports, and work as a group in school projects, all of which require face-to-face interaction and collaboration. By relearning these early-life principles, I firmly believe that upwards of 75% of the American electorate can and should come to an operational agreement on the vast majority of “partisan” political issues.
As a way to drive the dinner table and water cooler discussion toward 75% agreement and do my part in helping to restore the “center” of American politics, I would like to advance a bipartisan operational framework for reforming one of the most ideologically-driven parts of our economy: The “non-group” healthcare insurance market (i.e. non-employer-based healthcare insurance).
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The ideological extremes of the healthcare debate are well represented by Bernie Sanders in 1985 and Paul Ryan in 2017. In a 1985 interview Bernie Sanders praised Fidel Castro for giving Cuban children healthcare; and in the March roll-out of the AHCA Paul Ryan declared that “The people who are healthy pay for the people who are sick.” In short, Sanders believes healthcare is a fundamental right, and therefore the federal government should fund it and run it; whereas Ryan believes healthcare is not a fundamental right, and therefore the free market should fund it and run it.
Bernie Sanders is correct in that the United States has made healthcare an operational right by deeming it illegal to turn the uninsured away from emergency medical services. And as explained in the following paragraphs, Sanders is also correct in that the federal government should fund the non-group healthcare insurance market. Where Paul Ryan is correct is that the free market should run the non-group healthcare insurance market, as the weight of federal bureaucracy by definition stifles effective and efficient implementation.
For back-of-the-napkin American dinner table non-group healthcare insurance reform discussion purposes, my proposal is: Let the federal government fund it and the free market run it.
Because the free market operates within a “return on investment versus cost of capital” framework, the federal government’s core competency is funding services that generate a return on investment below the free market’s cost of capital. Homeland security, an economic safety net and environmental protection, for example.
Without a mandate to purchase coverage, the vast majority of the healthy uninsured population will voluntarily remain uninsured, thus robbing private non-group healthcare insurance providers of vital premium income. As such, left to its own devices the non-group healthcare insurance market is a quintessential example of a market that does not generate an acceptable return on investment to the free market.
With regard to running the non-group healthcare insurance market, providing states nearly unfettered ability to implement a federally-funded non-group healthcare insurance program is a win-win framework for unleashing free market forces. Naturally, common sense federal regulations must be put into place to ensure appropriate consumer protections; but tailoring benefits to age and health, mandating reasonable work requirements, and perhaps placing federal funds into consumer-controlled HSA accounts are all free market options that would maximize the federal government’s return on investment.
The current configuration of the Medicaid market is instructive for purposes of calculating the cost of covering the approximately 28.4 million individuals currently uninsured (per the CDC). According to the New York Times, in 2016 Medicaid covered 74 million Americans for a total cost of $532 billion, or approximately $7,200 per person. Applying the $7,200 figure to 28.4 million brings the total cost of covering the uninsured to approximately $204.5 billion. To be safe, let’s up it to $10,000 per person: That is $284 billion, assuming the federal government foots the entire bill.
According to the Federal Reserve Bank of St. Louis, US nominal GDP is approximately $18.9 trillion and the federal government runs an annual deficit of just over $400 billion. Tacking on $284 billion to cover the 28.4 million uninsured would bring the federal deficit to 4-5% of GDP. Hardly a formidable figure in the context of 5% nominal GDP growth and a 3% 30-year Treasury yield.
With the US economy as its “balance sheet”, the federal government is in possession of the strongest balance sheet in the global financial system. Look no further than its incredibly successful management of the Great Recession of 2008: As Warren Buffett is fond of saying, while the private sector was “deleveraging”, the US federal government was the only entity available to “lever up”.
The federal government’s financial strength is relevant to the non-group healthcare insurance reform discussion, because as a society we have a choice: We can either choose to spread the cost of caring for the uninsured insidiously throughout the economy, or we can efficiently centralize it on the strongest balance sheet in the world.
Let’s gather around the dinner table and corporate water cooler and agree to the following with regard to the non-group healthcare insurance market: Let the federal government fund it and the free market run it.