Let’s start from a basic premise. I believe in social insurance, the idea of a large risk pool whereby the young and the healthy subsidize the old and the ill, on the understanding that they themselves will be taken care of in their time of need. It’s efficient, as risk is spread among a large group. It’s also equitable and accords well with the Catholic principle of solidarity, of a community that looks after its own. I do not believe that actuarial insurance– insurance based on individual risk assessment– should underpin the health care system. Sure, the young and the healthy will get a great deal, but the others will face grave difficulties, as they are priced out of the market completely, or face prohibitive premia. It also relies on an individualist anthropology, and– in Calvinist-style– views individuals as personally responsible for their lot in life.
Creating a single risk pool has huge advantages, which is why I am a big supporter of single payer systems (see here for the full argument in all its gory details). Suffice it to say here that I believe it would be more efficient, more equitable, and achieve better outcomes than the current system. I have no ideological opposition to private health insurance; I merely believe that the profit motive is inappropriate in this area. Until now, risk pooling in the United States was accomplished through employers, and for the elderly through the government (Medicare). But this system is becoming increasingly untenable in an era of rising health care costs, as businesses cannot afford to shoulder this burden and remain competitive. Individuals are being forced to shoulder the risk, with often disastrous consequences.
The Republican solution is to abandon the whole idea of social insurance altogether. They feel that if market forces are brought to bear on the consumption of health care, costs can be contained. By divorcing who pays from who consumes, people have scant incentive to economize– so the argument goes. The problem with this reasoning is that health care is not some good you purchase in the market. For a start, the “seller” of the service has a major informational advantage over the “buyer”. You go to a doctor because you are sick, not because it is free and you have nothing better to do. So the Republican solution is really based on the premise that Americans are over-consuming health care. That argument is more than a little bizarre, with 47 million uninsured and the fact that health care is rationed extensively by cost in the US (survey evidence suggests that more than half of sick Americans stayed away from the doctor on health grounds over the past couple of years).
The real issue is the business model of the insurance companies. How do they make money? Quite simply, by screening people and weeding out the greatest risks. They will deny coverage altogether, or deny needed care in particular circumstances. Americans’ health care choices remain at the whim of faceless insurance company bureaucrats. The insurance companies spend $50 billion a year doing this. Just look at the comparisons: Medicare devotes about 2 percent of its resources to overhead, compared with about 20 percent in the private insurance sector.
However, it would be politically infeasible to leap from the current system to single payer overnight. That was the problem with the 1994 reform proposal (which did not even propose anything as radical as single payer): although most would have gained from it, people who had insurance feared giving it up. They had natural concerns about the unknown. To implement reform, therefore, we need to move in small steps, to persuade people that the new system is better. Reform must be in the realm of what is politically feasible.
Which brings me to Clinton’s current plan. (Ezra Klein and Jonthan Cohn provide good overviews, and I will lean on them liberally). So as not to make the mistake of 1994, Hillary basically tells people that if they are happy with their current health insurance, they can keep it. There is an individual mandate, in that everybody is required to purchase health insurance. This may sound like the Republican approach, but it’s not. For Hillary is wedded to the idea of social insurance, and she will create a purchasing pool maintained by the government, and people (if they choose to change insurance or if they don’t have it in the first place) can select plans much as those in current risk pools do today. Importantly, insurance companies will no longer be able to discriminate among people in the pool based on medical conditions. They will have to set prices based on the average member of the community. It’s just like the plans offered to employees of large companies, except that the “company” is a virtual one. The key is risk sharing. You are not left facing the insurance companies on your own. The bargaining power has shifted. And if you are still too poor after all of this, you would qualify for financial assistance.
There’s an interesting quirk about her plan that I think is brilliant: one of the options available to people will be a government-run plan, using the basic Medicare model. If this proves to more efficient than private insurance, people flock to it and we will have a de facto single payer system. But if it does not perform, people will stay away. What’s not to like? This is truly bringing market forces to health care in a way that does not stack the deck against the patient. Shouldn’t the Republicans embrace this system?
We can’t really predict what will happen. In the past, when traditional Medicare was forced to compete with Medicare Advantage (instead of paying the provider directly, the government funnels the money to a private sector intermediary, typically an HMO), the latter proved between 10-20 percent more expensive, because of overhead. It’s a classic rent-seeking middle man. However, the same might not happen under Hillary’s plan. The insurance companies, realizing their very existence is in jeopardy, might shake themselves up and compete with the government plan competently. This competition, unlike the one proposed by Republicans, could actually bring about efficiency gains while bringing about affordable universal insurance. As I said, what’s not to like?
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