Have you noticed the wave of requests for donations to help people who are undergoing personal crisis? Most involve medical problems or homes burning down, both of which can be covered by insurance. Some people consider insurance an unaffordable luxury and do not purchase needed coverage, hence the fundraisers.
Many free market advocates for health care write to me regularly – they state emphatically individuals should be responsible for their health care coverage. One such person recently requested assistance because a family member’s apartment had burned down. The family member of this financial planner didn’t have renter’s insurance. It seemed ironic. When I asked how he reconciled people helping his family with his many comments on self responsibility for health care, he stated, “I shouldn’t be mandated by the government to provide charity.” To him, as a taxpayer, paying for other’s health care seems like a handout he is forced to give. He loves his family and wants to help them.
Over and over again, when I press free market advocates on how we will provide care for those who have no money, they point to charity. Newt Gingrich, Ron Paul, and Michele Bachman champion this avenue. I would like to poke some holes in the argument that charity is the answer.
I broke this down into two exercises:
- Charity pays for the uninsured.
- Take away Medicaid entirely and move toward the free market path
I would also do an exercise on taking away Medicare, but after seeing the Tea Party activists waving signs, “Don’t touch my Medicare,” I think even free market advocates wouldn’t touch that one.
First, how much does health care cost? According to the last OECD report, in the U.S. in 2009, we pay about $7,960 per person per year for health care in this country. This is way too much. Of this $7,960, taxpayers pay $3,660 of the bill and the rest comes from private sources. The average OECD country pays TOTAL $3,233 per person per year.
How much do we give to charity? According to Giving USA Foundation, a wonderful resource on how we donate in the U.S., we gave a total of $291 billion away in 2010. This is about $930 per person given to charity for every adult and child in this country. Here is their breakdown:
|Recipient Organization||2010 Contributions (billions)|
|Arts, cultures, humanities||$13.28|
Medical donations support health care systems and disease research. Of course, part of the money dedicated to religious donations and foundations is funneled to health care.
Now on to the exercise. First scenario – pay for all the uninsured with charitable dollars:
If we had to depend on charity to take care of the uninsured, how much would we need? To provide coverage for the 50 million uninsured people in our country, based on our latest OECD rate of $7,960 per year, we would need about $398 billion. For charity to fund this, we would have to stop all other charitable pursuits, plus increase our charitable donations by another $108 billion per year.
Let’s say we create a wonderfully efficient health care system, and only need the OECD average of $3,233 per year to take care of all the uninsured. The need would now go down to $162 billion. This is over half of what we give to charity now. Do you think any of these other worthy causes would be willing to give up their charitable dollars in the name of helping the uninsured? Many charities asked the Supreme Court to uphold the health care law. They know charity is not the answer.
Scenario two – lets get rid of Medicaid as we move to a totally free market system:
Medicaid currently covers about 60 million individuals, or roughly 20% of our population. Although the elderly and disabled account for only 25% of the Medicaid population, they are responsible for 72% of Medicaid expenditures. The rest are children who need inexpensive care and and taking care of the young is very important.
What is the current Medicaid budget including state and federal dollars? About $400 billion. Simple math based on these rough numbers – Medicaid patients cost an average of about $6,667 per person per year, which is less than our average OECD number. Health care for the young folks on Medicaid costs about $2,500 per person each year. The elderly and disabled patients cost about $19,000 per person per year – this includes all the big dollars Medicaid pays toward nursing home care.
Pretend we get rid of Medicaid. Now the $400 billion in taxes each year has to be collected by charities and divided as they see fit for health care. We are depending on donors to give more and hope charities do the right thing with the money. We are asking our citizens to more than double their charitable contributions? Given our population of 313 million people total, every man, woman, and child would have to give $1,278 to charity to take care of the population covered by Medicaid. Even if we brought average health care costs down to OECD average, we would need to collect $194 billion in charity, which equates to $620 everyone would have to donate to charity for health care each year to replace Medicaid.
So is charity the answer? I don’t think so. There are better ways.