INNOVATE

Here’s How Warren Buffett Thinks We Should Fix American Health Care

While Republicans debate how to replace Obamacare, the Oracle of Omaha suggests something completely different.

Share on
BY Minda Zetlin - 28 Jun 2017

PHOTO CREDIT: Getty Images

Earlier this week, Senate Republicans decided to delay any vote on to repeal and replace Obamacare until after the July 4th break. On the same day, Warren Buffett appeared in a fascinating interview on PBS. Among other things, the Oracle of Omaha told Judy Woodruff that he believes a single-payer system in which the federal government provides insurance to all Americans was mostly likely the best solution to out-of-control health care costs.

Although some form of single-payer system is in place in most developed countries, in the U.S. it has long been considered a left-of-center idea, supported by Bernie Sanders for example. But in recent months, as Republicans struggled over how to replace Obamacare (formally the Affordable Care Act), health insurers have eliminated offerings in some states, and premiums have continued their dramatic rise. And so the idea has gained support in some unexpected places. Recently, Aetna CEO Mark Bertolini, surprised many listeners when he floated the idea that the U.S. should at least discuss a single-payer system as perhaps the only way to bring down costs.

Last month, Buffett, who supported Hillary Clinton in the presidential election, came out in favor of a single-payer system as well. More surprisingly, so did his partner Charlie Munger, a Republican. Buffett prefaced his remarks to Woodruff with the caveat that he is not a health care expert. (We should note that some Berkshire-Hathaway holdings and minority investments are in the healthcare or health insurance sector, so that Buffett may have a personal stake in changes to health care laws.)

That said, as always, Buffett had numbers to back up his recommendation. Here's his reasoning:

1. Health care costs make U.S. companies less competitive.

There's a lot of talk in Washington about lowering the corporate tax rate, but Buffett argues that health care takes a bigger bite out of American companies' bottom line. "Health care in 1960 was 5 percent of GDP [gross domestic product]," he said. "There's only 100 cents in the dollar. So it's gone from 5 cents--5 percent--to 17 percent. And it keeps going up." Meantime, corporate taxes have come down, he noted. "So, corporate taxes are way less of a factor in American competitiveness--I'm talking about overall business--than medical costs."

Munger made that same point more forcefully in a TV interview last month. "Warren is absolutely right," he said. "It gives our companies a big disadvantage in competing with other manufacturers. They've got single-payer medicine and we're paying it out of the company."

2. Health care costs are growing out of control and that growth must be stopped.

Health insurance premiums and costs were rising rapidly before Obamacare was enacted, and they've continued to increase rapidly since. Trumpcare (formally the American Health Care Act) makes many changes to Obamacare, but none of them seem likely to decrease overall costs or premiums, although they may bring premiums down for young, healthy people.

To Buffett, stopping skyrocketing health care cost increases is job one. "I would say this. You can't have that 5 go to 17 and move on to 20 and 22 and 24 percent because there are only 100 cents in a dollar," he told Woodruff. "And health care is gobbling up well over $3 trillion a year." That's a scary number, especially when you consider that the entire federal budget was $3.9 trillion in 2016, as Buffett pointed out.

3. A single-payer system is our best shot at stopping that growth.

"In almost every field of American business, it pays to bring down costs," Buffett said. And, he added, in our current health care system, "just the way the ecosystem works, there is no incentive to bring down costs."

Asked if a single-payer system would be the best way to do that, he responded: "It would be more effective, I think."

There obviously are huge political and societal obstacles to creating a single-payer health care system in the United States, and it's unclear whether this could ever happen. If it did, the likeliest solution might be a hybrid system. That would be similar to the way Medicare works today, with everyone receiving basic coverage, and those who want and can afford supplemental insurance able to buy it from a range of providers.

Could such a solution work? Unknown. But most Americans would likely agree with Buffett that rising health care costs need to be stopped--somehow.