In 1900, most people walked to work, school, shopping and socializing. The percentage of the average household’s budget devoted to transportation was so low that the Census bureau didn’t even bother to collect data on it. Today, the average household spends 21% of its budget on transportation. It’s the second biggest single cost after housing yet people take such spending for granted and easily factor it in to their personal budgets. We do so because transportation costs rose slowly over the course of the last half century while other costs, such as food, decreased. Decade after decade we gradually became used to spending more and more for transportation till now the average middle-class family easily accepts spending several thousand dollars a year in transportation costs.
As a thought experiment, imagine that for some reason people never had to individually pay the cost of their own transportation.
Imagine that as technology changed and people began to travel further and further on a daily basis, institutions such as businesses and the government began to pay for transportation costs. Imagine that private employers provided people with cars as an employment benefit and that the government provided cars or an alternative for the poor and elderly. Imagine that most people never had to sit down and write a check for the cost of cars, fuel, insurance, train tickets or anything else associated with transportation. Imagine that most people didn’t even have a vague idea how much their transportation actually cost. Imagine that most people never experienced the gradual rise in transportation costs from too-insignificant-to-measure into the second-biggest chunk of their budgets.
In such a case, people wouldn’t have developed their total budgets with a huge chunk devoted to transportation. Instead, they would spend that money on housing, food, entertainment, consumer goods, etc. Moreover, such spending would become structural not only for individuals but for society. Everyone would have intuitive expectations that a certain income would buy a certain level of housing and other consumption without taking into account the cost of transportation.
Now imagine that an individual lost their transportation benefits. Suddenly, they have to figure how to pay for thousands of dollars a year in transportation costs. Most people don’t have that kind of slack in their budgets. They couldn’t pay that much without significantly reducing their standard of living in every other part of their lives. Most people would interpret this condition as being unable to afford transportation.
No doubt, in this scenario, politicians would swarm out of the woodwork claiming that only the government could possible pay for transportation for everyone except the wealthy. They would claim that it was completely impossible for a middle-class family to pay a shocking 20% of their income for transportation.
This is pretty much an analogy for why we believe that no one but the rich can afford to pay for their own health care.
In 1900, health care consumed only a couple of percentage points of the average family’s budget because medical science couldn’t actually do much. Gradually, over the course of the last century as medical science improved, the cost of paying for treatments that actually worked rose gradually as well. However, unlike with transportation, most people never had to individually budget for health care.
Starting in the ’30s and ’40s, right at the time that medicine really became effective, government and business began taking money out of people’s paychecks for medical care and spending it for them. Most people who worked did earn enough money to pay for their health care. Further, through payroll taxes, they paid for the health care of the poor and elderly as well. We always earned the money to pay for our health care but we never held it in our hands or had to write the check. We never had to sit down and balance our health care spending against our other spending needs. Our own health care spending just happened automatically without most of us having to think about it.
Indeed, most people don’t even think of the part of their wages that covers their benefits and payroll taxes as even being their money in the first place. When people talk about benefits, they say that their employer pays in the same way they say that the employer pays for the building they work in. Only people who’ve had to make a payroll understand that each individual employee earns and pays in full for each individual benefit.
As a result, few of us have a mental slot in our psychological budget for health care the way we do for transportation. We don’t bat an eye at shoveling out thousands a dollars a year for transportation because over the decades we slowly adapted our psychological perception of what was a normal cost for transportation and what percentage of our total budget we should expect to pay for transportation. We never had that long period of adaptation for health care cost. In the last 15 to 20 years the cost for health care seemed to arrive suddenly, out of the blue, in one unmanageably huge chunk. This makes it easy for politicians to convince us we can’t possibly budget for our own health care needs even though most of us are already earning the money that pays for our own health care.
How to we dispel this psychological budgetary illusion? We could begin a process of adaptation to educate ourselves about our real individual health-care budgets. We should establish compulsory a medical savings account for everyone who works. People should be required to deposit a fixed percentage of their paychecks into those accounts. It would start out at 1% a year and then increase a percentage point each year until we reached a basic level of 10%-15% of income devoted to medical care. This is what people already pay through the administration of their employers. Such a slow rise would give time for people to adapt their overall spending to include the real cost of their health care. As people budgeted for their own health care as a matter of course, market forces would drive employers to shift employee wages from benefits to the money that ends up in the employee’s hands.
After the process was complete, people would no longer think it odd, unreasonable or impossible for the average working household to pay for its own health care along with the health care of the poor and elderly. Just as we do with transportation, we would plunk down several hundred dollars a month for health care without batting an eye.
Better, just like transportation, we would all have the power and freedom to chose our own health care ride.