In a recent WSJ interview, Richard Fisher, president of the Dallas Federal Reserve Bank, estimated the present value of the unfunded liability of Medicare and Social Security to be in excess of $100 trillion, with actuarial reports showing them both close to insolvency. 

Thus our true National debt is more than ten times its reported size and currently there is no method to paying it down. If every earned dollar were paid in taxes, it still would not cover the expenditure. For the country to survive this impending bankruptcy, it has to immediately begin to shift health insurance to the free market and to the individual in order to decrease costs across the spectrum.   Otherwise, the nation is in danger of losing all that it has built.

This is not the first instance for the cost of health care insurance to rise to the level of public concern.  Over two decades ago, Milton Friedman identified rising medical costs and the coming deluge of ‘baby boomers’ that would flood the national retirement and medical programs leading them to bankruptcy.  Always prescient, Dr. Friedman tied a large measure of the rising health care costs to the ‘free medicine’ that was being given as a tax-free supplement to the employee.  

Recipients spent more time figuring out the price of their McDonald’s lunch than their health care costs as they were freed of personal and financial responsibility through the third party payer system that evolved.  These systems ultimately fail as the first and second parties become separated from their personal relationships by the third party payer’s financial interests.  The public school system is often used as another example of third party failure.

Friedman’s solution was simple: unleash the powerful forces of the American entrepreneurial class by separating health insurance from the employer and thus returning the individual to his rightful place as the first party participant.  Employees would have their present salaries increased by the amount the employer has been paying, and they would then be responsible for purchasing their own insurance. Those that wanted to remain with a health plan provided by the employer could do so with an imputed tax liability for its cost. 

Since the prevailing cost per employee and his family is approaching $12,000, the employee would soon want control of his health insurance money as he could buy a tailored policy for about a third of that number.  The vast majority of Americans would opt for a catastrophic policy with large deductibles, and that would return the patient/doctor relationship to its rightful place with personal choices and without government interference leading to the bureaucratic rationing of services.  

The free market thrust for the health insurance dollars of over 300 million citizens would be enormous and prices would be competitively adjusted.  Reductions would begin the minute a national policy of citizen responsibility for his health insurance was announced.  The entire medical field would be in competition and have no choice but to change its pricings structure, for they will want and need your business.  As in all free market situations, the citizen is now in control of his expenditures and that is a powerful mitigating factor against run away costs.  You pay, they play!   

Assuming Mr. Fisher is correct in his bank’s analysis of the unfunded liabilities for national retirement and healthcare benefits, then we as a nation are at a crossroad for our financial future.  That alone makes the present debate to add more liabilities to already unsustainable programs upside down.  It would seem that a more sensible debate would revolve around correcting this “deep financial hole” that is leading to an impending national bankruptcy. Where do we go except to free markets?


Richard L. Spencer, Ph.D., Lt.Col. Ret. USAF