What Role Should the Government Have in U. S. Health Care?

We have a private health care system in this country, right? But that belief is way off target. Here are some of the ways that the federal government dominates the financing of U. S. health care, over so many years and to an increasing extent, and subsidizes our private market-based system:
  • The long-term exclusion from taxes of employers' costs of employer-sponsored health care (ESI) amounts to a government subsidy of about250 billion a year in forgone income and payroll taxes; that invisible government subsidy represents 1.6 percent of GDP and about 9 percent of all federal tax revenues over the next ten years. (1)
  • According to the Congressional Budget Office (CBO), Medicare and Medicaid took up 14 percent and 8 percent of the federal budget in 2013, respectively. (2)
  • Under pressure from the private sector since the early years of private Medicare HMOs in the 1990s, the government paid overpayments up to 115 percent or more compared to the costs of traditional public Medicare; the 2003 Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA) was the next bonanza handed over to the private sector, estimated to cost about 120 percent of what Medicare would have paid for these drugs (3)
  • Privatization of Medicaid has become common, accelerated under the ACA, and sharing the same kinds of problems as privatized Medicare--higher costs, built-in profits, reduced choice, more volatility, and administrative waste.
  • Federal Medicaid costs are climbing steadily, having paid 100 percent of Medicaid expansion costs under the ACA for three years, then 90 percent thereafter; as well as 40 percent of the nation's total nursing home costs. (4)
  • Today, more than 30 percent of Medicare's 55 million beneficiaries are in privatized programs, as are more than one-half of Medicaid's 66 million enrollees. (5)
In his excellent new book,
We Are Better Than This: How Government Should Spend Our Money
, Edward Kleinbard, professor of law and business at the University of Southern California's Gould School of Law, sums up the public vs. private financing situation in health care this way: The federal government spends about $1 trillion/year on the health of Americans. In doing so it subsidizes virtually everyone who has health insurance of any kind, including the majority of Americans who believe that they have entirely private employer-sponsored health insurance. (6)

What should be the role of the federal government in U. S. health care? This is still a bitterly contested political issue and despite its importance, remains an unanswered question. It is a big political issue in this current election cycle. The GOP, including its presidential candidates, wants the government out of health care--"just leave health care to the markets." But that would destroy ESI, Medicare and Medicaid, and the Republicans have no replacement for them. Meanwhile, the Democratic presidential candidates, with the exception of Bernie Sanders, don't answer this question.

Even as we keep paying more as taxpayers for our health care, we're getting less and less value from the huge federal investment in our health care and the growing tax burden on taxpayers. In recent posts, we have seen the soaring costs and increasing unaffordability of health care (7), the declining benefits and choice of insurance coverage (8), and the increasing bureaucracy and fraud in health care (9). All that is getting worse, so what can we do about it?

Enter Kleinbard's important book about how government should spend its money, and what its role should be. An age-old question with two major alternatives today--support the few and powerful with continuation of a subsidized, deregulated private marketplace, or meet the needs of the many, almost all of our population, through a greater role of government. Adam Smith, the guru of markets embraced over the years by conservatives but also a moral philosopher, recognized the downside of markets in his later writings, The Theory of Moral Sentiments, with these words:

When the happiness or misery of others depends in any respect upon our conduct, we dare not, as self-love might suggest to us, prefer the interest of one to that of many. (10)

In his above-mentioned book, Kleinbard makes "a principled call for the reinvigoration of government as a positive complement to private enterprise in contemporary America," reminding us that "government--which is to say, all of us, acting collectively--can make our country healthier, wealthier, and happier, if we put government to useful work in those areas where it most productively complement our private markets." As he further says:

For all the good that the Affordable Care Act may have done in extending the number of Americans with some form of medical insurance, it did very little to address the underlying fiscal crisis of healthcare, which is that our current fragmented form of delivering health insurance is unaffordable. (11)

Traditional Medicare has already proven that this has been so, over more than 50 years, for a large part of our population that benefits from the greater efficiency, cost-effectiveness, and reliability of public financing of health care compared to the inefficiency, greed, and waste of private health insurers. Can we learn from this experience, take on the economic and political power of the medical-industrial complex, and answer the question about how best to finance health care?


1. Congressional Budget Office. The Distribution of Major Tax Expenditures in the Individual Income Tax System, May 2013, pp. 6, 12.

2. Kleinbard, ED. We Are Better Than This: How Government Should Spend Our Money. New York. Oxford University Press, 2015, p. 162.

3. Headstart for HMOs: Medicare Watch 6 (25): 2, 2003.

4. Congressional Budget Office. Growth in Means-Tested Programs, 18.

5. Pear, R. As Medicare and Medicaid turn 50, use of private health plans surges. New York Times, July 30, 2015: A12.

6. Ibid # 2, pp. 202-203.

7. Huffington Post blog, March 9, 2015.

8. Geyman, JP. The continued degradation of health insurance under the ACA. Huffington Post blog, December 3, 2015.

9. Geyman, JP. Growing bureaucracy and fraud in U. S. health care. Huffington Post blog, December 8, 2014.

10. Smith, Adam. The Theory of Moral Sentiments, Book III, Sec. I, Chap. III.

11. Ibid # 2, pp. xviv, xxvi, 323. .