Lessons from the French President about American Health Care Spending

Last weekend, political newcomer Emmanuel Macron became the new President of France. He’s got some ambitious plans. President Macron seeks to strengthen the economic fortune of the European Union (EU) by creating a common budget to be followed by its member nations. Such a plan could create a disciplined, streamlined fiscal infrastructure across EU nations, enabling the EU to improve its stature on the global economic stage.

Here’s the problem: France is kinda the economic enfant terrible of the group. Under the Stability and Growth Pact, EU nations are supposed to maintain a deficit to Gross Domestic Product (GDP) ratio at or under -3%. Yet France has been in violation of this agreement for years. In 2016, the country’s deficit to GDP ratio was about -3.4%. If Macron wants his economic proposals for the EU to be taken seriously, he’ll need to stimulate the economy and rein in spending on the country’s generous social programs.

As Americans debate the proposed American Health Care Act (AHCA), we, like the French, will have to consider making some difficult choices related to spending and social programs. Like France, our deficit to GDP ratio in 2016 was high, at -3.2%. The United States isn’t trying to link its economic future to that of its neighbors (quite the opposite), but we still have motivation to control spending: our phenomenal debt. Our country is almost $20 trillion in debt, the highest debt load of a single country in the world.

Economists can debate the pros and cons of deficit spending when interest rates are low, as they currently are. The thought is that “money is cheap” so it’s wise to invest in programs that stimulate the economy now. That would make sense if:

  1. Spending on health care programs doesn’t become a permanent part of the budget. Which it pretty much almost always does. Try telling a 67-year-old voter that her meds won’t be covered because her Medicare Part D coverage just got cut.
  2. Interest rates are never going to increase. Which they will. And then we’re saddled with taking out new loans at rates some irresponsible bureaucrats didn’t foresee. (I refer said bureaucrats to the lyrics of Blood, Sweat and Tears’ “Spinning Wheel“.)
  3. Deficit spending won’t ever catch up to us. Which it already has. In 2011 Standard & Poor’s downgraded America’s credit rating for the first time in history, signaling that markets have lost a little faith in our ability to pay back loans.

This should give some context behind the fiscal approach to AHCA. According to the most recent analysis by the non-partisan Congressional Budget Office (CBO), AHCA is projected to reduce federal deficits by $119 billion over the coming decade. This is good. By doing so, about 23 million people could lose insurance. This is bad.

That said, Americans must come to terms with the fact that we can’t spend our way to providing universal health care access. We simply don’t have the money. And even if we did, we shouldn’t spend more of it on a system that spends too much already. In 2014, our health care spending was 17.1% of GDP. In France, where there’s universal health care, the comparable figure was 11.5%.

Part of the reason our health care spending is so high is because Americans are in such poor health. We need to become more accountable for the behaviors that impact our health (diet, exercise, stress, sleep) so we can collectively lower health care costs. These initiatives, however, could take years to manifest into a source of funding that can be used to help people who need access to health care today.

In the immediate term, we need to shift health insurance coverage from those who have too much – the ~50% of Americans with employer-based health coverage – to those who have too little or none at all. Curbing the spending on employer-sponsored health insurance with a “Cadillac Tax” is a component of both the Patient Protection and Affordable Care Act as well as the proposed AHCA. Yet such a tax, which applies to a portion of some of the plans, doesn’t go anywhere near as far as it should. These plans should be taxed so aggressively that employers stop offering them altogether. The individual insurance market would be flooded with comparatively healthy, wealthy consumers. Insurance options should then be plentiful and certainly much more affordable than they are now.

If that doesn’t sound appealing, I guess you can always move to France.

 

Note: This article was updated on May 26, 2017 to reflect the updated CBO report on AHCA which was released on May 24, 2017.

Leave a Reply

Your email address will not be published. Required fields are marked *