Warren Buffett Backs Single Payer for the Wrong Reason

Warren Buffett recently complained that "Medical costs are the tapeworm of American economic competitiveness." Since 1960 healthcare costs have increased from 5 percent of GDP to 17 percent. This, he said, means that American businesses are handicapped in world markets because they are paying far more for healthcare than their competitors in other countries.

American corporations currently spend an average $12,591 per year to insure a family of four, according the Kaiser Family Foundation. Meanwhile in most industrialized countries, national programs — single payer or the equivalent — cover everybody, employed or unemployed. How can American companies possibly compete, asks Buffett, when working under such a financial handicap?

Many advocates of an improved Medicare for All to replace Obamacare have seized upon Buffett's comments. They are calling on American corporations to lobby in favor of single payer insurance. But if Buffet is correct, why weren't big corporations already demanding single payer? Could all their MBAs have overlooked a major opportunity to cut costs?

I hate to disagree with "the sage of Omaha," but Buffett's advice is based upon the widely believed misconception that health insurance for corporate workers is mostly paid for by their employers.

It is true that employers write substantial checks to pay what is misleadingly called the "employer's share" of insurance costs. But this is money which has been subtracted from the pot from which cash wages are paid. The cost is actually borne, not by the employer, but indirectly by its workers.

Consider this example, using round numbers for simplicity: Imagine a worker earning $100,000 a year but with no fringe benefits. This worker is paying $10,000 a year for medical insurance, leaving her with $90,000 before taxes. The worker offers to accept a reduced salary of $90,000 if the employer will pay for her insurance.

This deal costs the employer nothing, but the worker will come out ahead because it will reduce her taxable income by $10,000. Obviously the $10,000 remitted for insurance by the employer is actually being paid, indirectly, by the worker. From the employer's point of view, the $10,000 is not an insurance cost. It is part of its cost of labor, which remains at $100,000 per year.

Imagine further that the employer lobbies for a single payer insurance system so it can save the $10,000 a year paid for that worker's insurance. But if single payer were enacted and the employer stopped remitting for the insurance, that would constitute a $10,000 a year reduction in the compensation for that worker. The worker's compensation would no longer be competitive in the labor market unless it were increased back to $100,000.

In other words, merely changing the details about how it pays it workers would not materially change how much the corporation has to pay in order to pay market wages. The change would not improve its competitiveness at the world level.

Those advocating an improved Medicare for All to replace Obamacare should not propagate and reinforce people's incorrect perception of exactly who is paying for medical insurance. That incorrect perception is an important obstacle to enacting a single payer system.

Because they are paying much of the cost of their insurance indirectly, most Americans don't realize how much their insurance actually costs them. But the substantial tax increases necessary to pay for a single payer system would be all too visible.

Given widespread misunderstanding about who is now paying, vested interests which would be injured by single payer — the medical-pharmaceutical-insurance complex — would have an easy time convincing voters that their interests would be damaged if single payer was enacted. And politicians will never enact single payer until public opinion supports it.

This being the case, single payer advocates should be the last people in the country to perpetuate and reinforce the current misunderstanding of who is paying for insurance.

There is a very strong case to be made for an improved Medicare for All, but those who favor it should concentrate on the many good arguments for it and avoid false arguments that actually undermine its political feasibility.

Paul F. deLespinasse is Professor Emeritus of Political Science and Computer Science at Adrian College. He received his Ph.D. from Johns Hopkins University in 1966, and has been a National Merit Scholar, an NDEA Fellow, a Woodrow Wilson Fellow, and a Fellow in Law and Political Science at the Harvard Law School. His college textbook, "Thinking About Politics: American Government in Associational Perspective," was published 1981 and his most recent book is "The Case of the Racist Choir Conductor: Struggling With America's Original Sin." His columns have appeared in newspapers in Michigan, Oregon, and a number of other states. To read more of his reports — Click Here Now.