May 13, 2017 - 9:00 pm
The chairman and CEO of Berkshire Hathaway, Warren Buffett, drew attention recently at his company’s annual meeting when he said it was soaring health care costs, not high corporate tax rates, that are hampering the competitiveness of American companies.
“Forget Taxes, Warren Buffett Says. The Real Problem Is Health Care,” was the headline The New York Times put over the story.
It resonated because it was heard as a criticism of President Trump, who has proposed cutting corporate tax rates while also repealing Obamacare. Buffett’s position on the matter, though, is precisely what it was back in July 2012, when he gave an interview to Bloomberg Television.
“The health care problem is the number-one problem of America and of American business,” Buffett said then. “And a lot of businessmen complain about corporate taxes. Corporate taxes are less than 2 percent of GDP. So if you eliminated all the corporate taxes you’ve got seven points against you on health care. It’s the tapeworm essentially of the American economy. And we have not dealt with that yet.”
President Obama signed the Patient Protection and Affordable Care Act into law on March 23, 2010. So another way to read Buffett’s remarks is that although ObamaCare was pitched in part as a solution to rising health care costs, it didn’t solve the problem.
If those costs are as big a problem as Buffett contends, it raises the question of why he doesn’t view it as an opportunity to make money. Buffett is, after all, an insurance executive. One can hardly turn on a radio or television without being hit with a commercial for Geico, the Berkshire-owned auto insurer, offering to save you money on your car insurance — “15 minutes could save you 15 percent or more.”
Why isn’t Buffett airing commercials like that offering to save companies 15 percent or more on their health insurance?
There are a lot of answers, but one surely is that health care is, in significant ways, unlike Geico auto insurance, where low cost is the main selling point. It is more like two other big Buffett-Berkshire Hathaway investments, Coca-Cola and Apple.
Coca-Cola doesn’t air commercials boasting that you can save 15 percent by buying Coke instead of the generic store-brand cola. In fact, Coke is more expensive, but people are willing to pay more for it because they appreciate the quality, or the taste, or the brand identity.
Apple has the same “pricing power.” No Apple ads say “choose this iPhone, it’s cheaper than the other phones the cellphone carriers offer with your contract.” Instead the pitch is that it’s worth paying more for an iPhone because it’s easier to use, the apps are better, and the technology is more cutting-edge.
Sure, some part of America’s overall health care costs stem from inefficiency, waste, or distorted incentives (many related to taxes and regulations). That part is somewhat like consumers overpaying for auto insurance.
But some other part of the spending results from buyers wanting to spend more because they think that what they are buying — a new prescription drug or medical device, a highly skilled surgeon or nursing team — is better than the cheaper option. That part is like the consumers paying for Coke or an iPhone instead of a lower priced alternative.
The fact that sick rich people from other countries choose to come to the United States for care suggests that in certain ways American health care isn’t just more expensive, it’s better. Buffett may think that businesses are bearing too much of the cost, and that it should be spread more widely among all Americans. Could be. But that’s a distribution issue, not a percent-of-GDP cost issue.
If lower cost, higher quality health insurance were really so easy, Buffett wouldn’t just be pontificating about it. He’d have that Geico Gecko selling it to you or your employer.
Ira Stoll is editor of FutureOfCapitalism.com and author of “JFK: Conservative.” His column appears Sunday.