(Updated Dec. 19, 2016 at 11:00 a.m. PST)
Since imaginations are taking flight on what Republican repeal of Obamacare might look like, let’s join the multitude and fanaticize about implementing a real health program to benefit all the citizens and residents — yes, even those other residents — of the United States.
Clearing away the rubble of Obamacare, let Congress impose a real death tax on every American and non-citizen resident of our nation. No, it’s not that death tax of which we speak.
What we propose is that a mandatory tax be imposed at birth or arrival for the purpose of taking up permanent residency in our country. The new health tax would apply to every single resident, and its amount would be equal to the actuarial net present value of knowable average healthcare cost of each individual over their actuarial average remainder whole life.
The proceeds of the tax would underwrite the national cost of free healthcare to be provided to every permanent resident of our country, from cradle to grave. There would be no exceptions or preexisting condition penalties; it would apply to and would benefit every permanent resident.
Unlike other taxes, the health tax, along with inflation-indexed interest accruing annually, would be subject to a schedule of installment payments paid directly or, as appropriate, deducted from paychecks and collected over each individual’s lifetime until they reach 70 years; when paid in full, individuals are entirely exempt from the tax and payroll deductions. Any individual may choose to make advance payments of the tax without prepayment penalty, reducing their future installment outlays. Doing so would avoid the uncertainties of rising healthcare costs but would gamble that the individual would live long enough to receive equivalent benefits.
By necessity, this means that those who immigrate to our country years after their birth will pay a higher annual installment than others of equal age, a catch-up provision to reflect that they had not funded the more aged portions of their lifetimes through payments of the tax as younger individuals nor that they collected benefits for those earlier periods.
The same requirement will necessarily apply to the phase-in period for the tax, since those who have attained various ages will have not contributed prepayments earlier; on balance, neither will they have experienced the accidents, illnesses, or deaths of those earlier ages and their associated healthcare costs.
A key feature would be the vesting of personal tax contributions in an account in each contributor’s name, along with annual reporting requirements stating to the holder the principal and interest growth of their contributions through trust investments made over the contributors’ lifetimes and all deductions attributable to the costs of healthcare from aggregate expenditures across all taxpayers in each individual’s rating group, as assessed in average to the individuals of their group, including costs of fund management. This would facilitate transparency of growth of assets available to meet each individual’s future healthcare costs and would disclose any potential for insolvency or deficit in time for taxpayers to bring political pressure on government to protect the system.
The estates of those who die before attaining 70 years of age would have no further obligation nor potential for refund, since the front-end loading of the installments paid would have collected an average amount greater than the average of healthcare costs attributable to individual members of the population who attained that younger age, for whom their paid taxes were subsidizing care. Refunds are not appropriate because the actuarial statistics will have charged for them bearing the average costs of all members of their age and residency cohort for their lifetimes, not just for their own healthcare costs.
The benefits and implications of such a tax and system would be enormous. Imagine the free and open availability of clinical healthcare, hospitals, physicians and all other medical services under such a tax. No longer would the uninsured or underinsured clog emergency rooms and trauma centers. It would no longer be necessary to pore over obtuse medical bills and insurance reimbursement forms.
Reimbursement to providers would be based on true actuarial statistics for the country as a whole as determined through new authority and means by the Census Bureau, with cost-of-care-adjustment differentials for high- and low-cost regions. Provider payments in case of injury or illness would reflect the probability of health care events and conditions, from the common — having and treating a common cold — to the exceedingly rare — being hit by a meteorite or contracting a catastrophic orphan malady with high associated medical care costs.
The healthcare tax act would also provide an option for providers to opt out of the system or structure their facilities and practices around a sliding scale of providing both in-system and out-of-system services in the belief that they can attract individuals willing to pay directly for specialized medical care and health services at rates set outside of the tax provisions, but subject to free competition between providers and free-will choice by patients both within the system and outside of it. Such a system would maintain a free-market for voluntary or elective medical care, including insurance providers willing to offer policies to defray such elective costs.
Any patient’s in-system obligation would be limited to paying his or her billed share of the tax imposed for healthcare for his or her attained age and residency duration. Purchasing any medical or healthcare services from providers outside of the healthcare system would remain the patient’s sole responsibility.
The biggest issue to resolve is, who holds the money? Governments — and private sector providers like unions and some insurance companies — have amply demonstrated occasional unwillingness or inability to maintain the integrity and solvency of their pension, healthcare and retirement benefit plans. The Social Security system is no lockbox operation; Congress has repeatedly raided Social Security trust funds and thereby undermined the entire system. Further, the public is demonstrating strong distrust of the government as a prudent holder of their money.
Therefore, the proceeds of the tax received from taxpayers by the Internal Revenue Service must not be subject to any accounting gimmicks; those funds must be securely invested on behalf of the individual contributors’ accounts in the public trust in indexed securities representing the widest possible range of negotiable securities — stocks, bonds, deeds of trust, real property, capital goods and other assets — selected from those issued by the domestic United States’ private sector companies, large and small. Diversions must be prohibited for such political siphoning practices as underwriting national debt, propping up the currency or satisfying other governmental obligations. They must not be invested offshore, as growth of the domestic economy and increase in the public wealth is a critical factor in meeting the future healthcare needs.
These tax-proceed asset portfolios benefitting individual taxpayer accounts also must be divided into classes and managed individually in sets matching the actuarial ages of the beneficiaries paying the tax and their statistically predictable healthcare costs, in the same manner presently employed by the nation’s insurance providers. The mandatory nature of the tax would eliminate risk flight from the pool and national rating will avoid market distortions from state to state.
Division into classes further diversifies risk and avoids security market distortions that investment demand governed by a single portfolio manager would otherwise inflict on the supply of negotiable securities in the securities marketplace.
There is every reason to believe that this rational system for funding the healthcare of the nation’s residents would encounter strong objections from various participants in our current out-of-control, inflationary and unsustainable healthcare system, a patchwork assembly typified by spiraling costs; declining quality; rationing of services; regional imbalances in facilities, providers and infrastructure; and disgruntled providers and patients.
Likewise, the structure does not solve all problems present in the Obamacare-distorted healthcare system or its predecessor hybrid public-private insurer system, and there will be winners and losers, including potential for higher taxation of those living healthy, care-preventive, and less risky lifestyles and those younger than is average for the population as a whole.
But as a thought exercise, one can imagine some very smart people whose first inclination would be to dismiss the death tax concept eventually finding themselves returning to it after further consideration.