The Iron Triangle Holds
In the seven years that I monitored Capitol Hill for my hedge fund clients, I delved deeply into fiscal policy, economic policy, monetary policy and financial market regulation. All of them are quite complicated.
But by far the trickiest policy area I covered was healthcare.
The Iron Triangle.
Yes, it sounds like a nearly impossible move Olympic gymnasts do on the rings.
It’s not that, but it’s equally difficult, despite what Sen. Elizabeth Warren tells you.
The Iron Triangle is the concept that a nation can’t simultaneously improve the cost, quality and access of its healthcare system. Improve one component, and another suffers. Increase, say, the quality of care or the number of people covered, and you’re going to drive up the cost. Lower the cost of the system, and you’ll diminish overall quality or kick some people off the rolls.
Obamacare succeeded in increasing access, bringing health coverage to 20 million additional Americans, but it was unable to decrease costs. And critics argue that quality of care suffered in many places too.
By any measure, healthcare is not cheap. Last year the U.S. spent about $3.65 trillion on healthcare services, or around $10,700 per person. That’s about 18% of GDP, a percentage that continues to rise and should hit 20% or so by 2027.
To be fair, most people would agree that good health is worth paying good money for. And wealthier countries like the U.S. tend to spend more on healthcare. They want more of it, and they can afford it.
It strikes me that in a wealthy society like ours, everyone should have access to some form of healthcare. Unfortunately, emergency rooms serve as the primary healthcare provider for many poor and uninsured Americans today. It’s highly inefficient to provide healthcare at the last moment when it’s most urgent and most expensive.
Yet expanding rudimentary health coverage to the 28 million people within our borders who lack it will come with a cost. Anyone who tells you it won’t is, well, lying.
And that brings me to the Medicare for All plans being touted by leading Democratic presidential candidates Elizabeth Warren and Bernie Sanders.
Warren says she’ll implement universal coverage by expanding Medicare spending by $20.5 trillion over a decade, without increasing middle-class taxes by one penny.
So who will pay for this plan? The usual suspects mostly: corporations and the wealthy. There will be new taxes on both. And the plan includes a new financial transactions tax on sales of stocks and bonds, which would impact investors like you and me. These taxes would pay for the Medicare expansion without any new taxes on the middle class, Warren says.
Larry Summers, Obama’s former chief economist, calls it a very bad idea. The Warren plan’s heavy taxation of businesses, wealthy individuals, and investors could put the U.S. economy into uncharted and dangerous territory, says Summers, who isn’t exactly a shill for the wealthy.
Worse, many analysts of Warren’s plan – including The Economist and The Washington Post – found it to be overly optimistic and questioned the accuracy of the arithmetic used to make it add up.
Basically, they found that the plan violates the Iron Triangle by claiming it can decrease overall health spending (partly because government spending is in theory more efficient than private-sector spending), while increasing access, without any hit to quality.
For a very educated opinion on the matter, I turned to our own healthcare expert, Income Expert Marc Lichtenfeld. He was very candid.
“If you believe that the uber wealthy are going to pay for healthcare for all, you’re not living in reality,” Marc told me. “If universal healthcare is an important issue to you, that’s fine. But let’s be clear, we’re all going to pay for it.”
Well put, Marc. For now, at least, the Iron Triangle holds.
About Matt Benjamin
Matt has worked as an editorial consultant to the International Monetary Fund, the World Bank, the Economist Intelligence Unit and other global macro-institutions. He wrote about markets and economics for U.S. News & World Report, Bloomberg News and Investor’s Business Daily, among other publications. He also worked for several years as head of political economy for a Financial Times-owned macroeconomic consulting firm, advising hedge funds around the world. Matt’s claim to fame is that he’s interviewed two U.S. presidents and has spoken with five Federal Reserve Chairs from Paul Volcker through Jerome Powell. Matt also served as The Oxford Club’s Editorial Director for two years.