In response to my post on catastrophic health insurance, Grim commented:
I like the idea of market-based reforms. However, I'm not sure why a government plan would be better at simulating the market than, you know, the market.
For example, the DeLong plan that I surrender 20% of my income for health care expenses? The market as it currently exists offers much better deals than that.
In general my preference is for a free market with only as much government regulation as is necessary to keep the more predatory impulses of capitalism in check. However, I have a lot of reservations about whether a totally free-market approach is appropriate for health insurance. I prefer regulation that says, “Thou shalt not” rather than regulation that says “Thou shalt”. Once you wander into government telling private companies what they should do, you’re in trouble and that’s increasingly the case with government regulation of insurance companies. They’re being told what they must do - who to cover, what conditions to cover, how much treatment to provide. That’s a bad situation; bad for the companies, bad for the government, bad for the company’s customers.
Yet I understand why we’ve gone down that road. We want certain things from health insurance and we are trying to get them via government intervention while still maintaining - or appearing to maintain - the companies as private entities. I’m not at all sure that’s working well. We may simply be unable to get what we want from health insurance within the framework of our current system.
This is a big part of why I was so intrigued by the catastrophic insurance plans I discuss in my earlier post. These plans may be the best way to address five issues I think any health care or health insurance plan must handle, the issues we’re trying to handle through our increasingly intrusive regulation of the insurance industry. In sorting out why I think these plans are promising, I’ve written at considerable length about those five issues. As usual, I’ve created a new category - “Five Health Insurance Issues” - to link the posts.
To review my five issues before I sum up:
Issue 1 : While most of us could pay for normal health care expenses ourselves, most of us need health insurance to cover serious situations.
Issue 2: Health insurance is not universally available or universally affordable through the market as it currently exists. Lack of health insurance does in fact often mean less effective medical care when someone is seriously ill. This is not right.
Issue 3: A health care system run entirely by the government is a bad idea.
Issue 4: As currently structured, all insurance - private or government, cheap or expensive, HMO or traditional, catastrophic or first-dollar - masks the true costs of treatment from those who purchase that treatment. This is bad for patients and bad for health care providers and bad for any hope of reining in health care spending through individual decision making.
Issue 5: Either we have to toughen up and let people - including children - die when they - or their parents - are too dumb to buy health insurance they could get and could afford or we have to find a way to force them to chip in for the health care we’re willing to give them if they get sick.
My conclusion - and I assure you it’s a reluctant one - is that a totally free market in health care and health insurance cannot address these issues. A free market will not make insurance affordable or obtainable for everyone; it will continue to mask the true costs of treatment; and it will do nothing to address the problem of free riders - which in a totally free-market system means we’d have to let them and their children die. If someone can describe to me a free-market plan that doesn’t have those effects, I’m all ears. Bonus points is you can describe a system that will guarantee that someone like me, who has cost her insurance company vast sums of money and more pre-existing conditions than you can shake a stick at, will be able to retain my health insurance in a free-market system at a cost I can reasonably expect to afford. Extra bonus points if you can figure out how I could change health insurance companies if I wanted to.
As my third point above makes clear, a single-payer system is not the way to go either. Yes, it will make health insurance/care universally available and it will take care of the free-rider problem. It may make it universally affordable but only if you ignore the taxes necessary to pay for it. However, it most definitely does not unmask the true cost of treatment. This means there is no hope of getting health care spending to come down via individual decision-making; we will be left with no options except to squeeze providers, refuse to cover treatments, and decide what is and isn’t covered based on some political hell’s brew of money and lobbying. If someone can describe to me a single-payer plan that doesn’t have those effects, I’m all ears. Bonus points if you can make me love the fact that birth control is not part of the Basic package on the exchange. Extra bonus points if you are pro-choice and can embrace the Stupak amendment.
What we have now is a hybrid. The free market for health insurance copes well with people who are healthy and employed. The free market copes well with people who are unemployed, healthy, and reasonably well off financially. The free market copes poorly with people who are unemployed and either not healthy or not financially well-off; to some extent the government picks up the slack. If you’re poor enough, there’s Medicaid; if you’re old enough, there’s Medicare; if you’re sick enough, emergency rooms have to treat you. Some people fall through the cracks. The more people who lose their jobs the more people there are who may fall through the cracks. (Surely the idea that health insurance should be tied to jobs is the handiwork of some imp of Satan.)
We can continue with this system, using regulation, government subsidies, and government programs to patch those cracks. If this is what we want to do, then I still think the best solution is to let anyone who wants to buy into the Federal Employees Health Benefits Plan (under a separate risk pool) with government subsidies for those who need them. We’d get rid of Medicaid but keep Medicare. We’d forget the health reform bills currently floating around Congress. We’d keep people from falling through the cracks but we wouldn’t even be attempting to rein in health care via individual decision-making; we’d just be postponing the day when the costs would eventually have to be faced up to.
Alternatively we can follow the route of the Democratic health reform bills. Frankly, I think they’re worse than single-payer. Under those bills we keep Medicare; we expand Medicaid; we set up the Exchange; we get a public option; we force so many conditions on private insurance companies that they’re basically public utilities. We get twice the bureaucracy and twice the overhead. We get less individual choice rather than more. We don’t get any incentive for people to make decisions about how much health care is worth to them. Instead of incentives for providers to innovate we get government pilot projects, government bundling initiatives, government this, that and the other. They won’t work; just look at Medicare. We get a monster.
If we truly want to do something major to overhaul the system then I prefer the Goldhill and DeLong models. They help those who need help but do not put the government totally in charge and do not mask the cost of treatment. Their plans are mandatory which means everyone is forced to buy catastrophic insurance and to set aside money in a Health Savings Account - no free riders here and everyone can (must) participate. Yes, the government runs the catastrophic insurance part of the plan. But the HSA part of the plan is for individuals to do with as they please which means they are fully exposed to health care costs up to the point of their deductible or trigger. Because any unspent money goes back to the individual each of us can decide what health care is important enough for us to spend money on - and each of us has to be willing to spend his or her own money before we can start spending other people’s.
I’m fully aware of the coercive nature of the requirements to buy government-run catastrophic care and to put money in Health Savings Accounts. I know these are an absolute bar to this plan for Libertarians and most Conservatives. I am sympathetic to that point of view. However, I have neither the courage nor the hard-heartedness to live in a world where health care and health insurance are strictly free market. I don’t want to fall through the cracks and I’d rather my fellow citizens didn’t either - especially the young ones. It seems to me that the best combination of free-market and government involvement comes from the Goldhill/DeLong approach. Yes, it takes my money but if structured correctly it gives me back control over my health care decisions while providing a safety net if disaster strikes.