Subsidiarity and Solidarity in Health Insurance

Subsidiarity and Solidarity in Health Insurance July 24, 2009

Subsidiarity implies that responsibility for activities should take place at the lowest possible level, and higher levels should not usurp the responsibilities of lower levels. How do we apply this to healthcare? Many argue that any form of government involvement is an automatic violation of subsidiarity, but I think this misunderstands the issue. I would argue that, with an insurance-based system of providing healthcare, the appropriate level is the broad level.

The first point to make is that subsidiarity cannot be understood without solidarity. As Pope Benedict noted in Caritas in Veritate, “The principle of subsidiarity must remain closely linked to the principle of solidarity, since the former without the latter gives way to social privatism, while the latter without the former gives way to paternalist social assistance that is demeaning to those in need.” What does this have to do with healthcare? Well, there are ways to think of providing insurance — actuarial and social. Under actuarial insurance, premia are tied to individual risk (e.g. car insurance). This is exactly the wrong way to approach health insurance as it means that the young and healthy will get a great deal, while the old and ill are left high and dry. But this form of insurance in healthcare, I think, violates the principle of solidarity. The second way is social insurance — everybody pays the same, meaning that the old and the ill are subsidized by the young and the healthy, knowing they will in turn be helped in their hour of need. There is no a priori reason why this cannot be done by the private sector, as long as private insurance companies are forced to charge community rating (no exclusion or differentiation based on health status), and the purchase of coverage is mandatory. Basically, we need regulation to avoid the market failure of adverse selection. Note that this goes against many of the reforms proposed by the right, who favor decisions based on individual choice.

So far we have solidarity. But what about subsidiarity? Well, for this kind of insurance to work, to deliver care efficiently, we need risk-pooling. We need the largest number of participants possible. Here, cost is critical. The average inhabitant of the United States already spends more than twice on healthcare as the average inhabitant of other advanced economies, with little to show for it. While most attention to devoted to the part of the cost that comes from the government budget, especially when it comes to taxes, most of the cost comes it in form of lower wages, and so is not automatically transparent. Cost is critical, as all exports point to skyrocketing healthcare costs in the future. While the costs of reform are up for debate, I think it is undeniable that the costliest option if all is doing nothing.

But what determines the cost? There are a number of elements. The first is the fact that doctors and providers of healthcare are able to exploit another form of market failure, that of asymmetric information. If the physician’s income is tied directly to the quantity of treatment, then there will be excessive treatment (in the sense of providing little marginal benefit to the patient), and costs will keep going up. This is common in in the United States, where doctors have become profit maximizers (see the incredibly influential essay by Atul Gawande). An obvious solution would be to have doctors draw a salary, sundering the link between treatment and payment, as is the case in places like the Mayo clinic, the jewel of the American healthcare system. One step in this direction would be the comparative effectiveness review– a weak tool right now, but better than nothing.

The second area of cost is the rent-seeking behavior of insurance companies, and the related administrative costs. Here, regulation is key. The proposed reforms moved in this direction with the suggested health exchange– a regulated marketplace where people can shop for insurance without being at the mercy of the insurance companies.

Which brings me to the public option, which is the single largest cost saver in the whole program. Why? Well, it takes out the profit motive, which is not insignificant, but there is much more to it. Basically, size matters. First, the more covered, the more efficient in terms of costs. This is why single payer systems deliver the same outcomes as the US for a far lower cost. Second, the public plans can use their monopsony power to bargain over better prices. Third, it is easier to reap the rewards of information technology (which many experts think is critical to controling costs and delivering holistic patient-centered healthcare) in larger systems, without fragmentation and duplication.

This is why I believe that twinning of subsidiarity and solidarity in healthcare calls for the provision of insurance at the broadest possible level. People often mistake the provision of insurance with the provision of healthcare. Obviously, subsidiarity calls for a personal relationship between doctor and patient, which has little to do with the provision of insurance. (Incidentally, primary care is more emphasized in single payer systems than in the US system where the income from primary care does not attract enough doctors.) Sure, a government insurance system could theoretically dictate the choice of physician, but so can private insurers. In fact, private insurers do this all the time, either in “soft” form by forcing more out-of-pocket expenses for doctors outside of their network, or in “hard” form through managed care. All insurance plans set limits on treatments and associated costs. People talk about decisions made by big government and faceless bureaucrats, but not by big private insurance companies and faceless agents who are rewarded for denying claims, screening for pre-existing ailments, and dropping customers.

I think the case is clear– you cannot use the subsidiarity argument against healthcare reform that includes a strong public option based simply on the argument that the government is involved.

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  • Joe Marier

    I concur that the national financing of public health care isn’t a violation of solidarity. But when a Republican runs and wins on the cause of reforming our dysfunctional public health system, I assure you that the left will cry “Subsidiarity!” then. NCLB, anyone!

  • Kurt

    Perfectly stated. The only observation that I can add that given under the President’s plan we will largerly preserve (and even expand) the system of employer based health care, it would serve both the principles of solidarity and subsidiarity for workers to have a formal voice in the health care program. Certainly this already exists under Taft-Hartley plans and, to a lesser degree, with collectively bargained single employer plans and VEBAs. The task now is to try to expand that voice to more workplaces.

  • Joe: NCLB is a bi-partisan train-wreck that is opposes by the reasonable right and left.

  • That didn’t come out right: “opposed” is a better term.

  • M.Z.

    Often it is stated that subsidiarity means things should be done at the lowest level possible. Perhaps a better definition of subsidiarity, at least for reducing the confusion, is that things should be done at parity. Our current system of demanding individuals without insurance personally address the medical industrial complex is itself a gross violation of subsidiarity.

  • Joe Marier

    My point is that you can twist Catholic social doctrine any way you want to. Is a Democrat calling for national standards in health care? Then that’s solidarity, and the left supports it. Is a Republican calling for a national standards in education? Well, that’s against subsidiarity, and the left opposes it. (The right opposes it for a variety of contradictory reasons, both for subsidiarity reasons and because it doesn’t go far enough).

    As I said before, I’m not particularly opposed to another public health financing system (assuming I can get a tax credit for non-participation). I’m not particularly opposed to NCLB either (although I want a tax credit for non-participation in the public school system, too)

  • David Nickol

    (although I want a tax credit for non-participation in the public school system, too)

    Since I don’t have children, I want a tax credit for nonparticipation in the public school system, too.

    Although I don’t personally drive, I do get some benefit form highways, so I will only insist on a partial tax credit there.

    I buy all my books, so I don’t see why I should have to have my tax dollars go for public libraries.

  • Kurt

    I don’t hold any patents or trademarks, put me down for a tax credit there.

  • Gabriel Austin

    Interesting that the heading should be “Health Insurance”.

    How comes money into the provision of health care? [Don’t answer; I know. I worked for the law firm that were lawyers for Blue Cross back in the 1950s. Lordy could they come up with some excuses. Same for Carter’s Little Liver Pills].

  • Ronald Ruais

    Thanks for the well thought out application of subsidiarity Vs solidarity to the health care crisis. I would offer a few points.
    1) You state, “The average inhabitant of the United States already spends more than twice on healthcare as the average inhabitant of other advanced economies, with little to show for it.” I am not sure about the accuracy of the “little to show for it”. By most accounts the US has the best health care in the world. Why else would they all request visas to come here for treatments?
    2) While you claim that doctors‘incomes are tied directly to the quantity of treatment, you fail to recognize that this is often a product of their defense against mal practice suits.
    3) Comparative effectiveness review better known as comparative effectiveness research (CER) in the Obama health care proposal in the government hands is a slippery slope to passive euthanasia. Studies indicate that most of the health care costs can be attributable to the elderly especially in their later years. Obama’s health care staff has stated that the biggest bang for the buck is to apply the treatments to the elderly and disabled elsewhere. (Ezekiel Emmanuel’ statements will suffice to establish this point.)
    4) The public option is not option at all. With no profit incentive and an apparently infinite access to money, the public option would quickly squeeze out all private insurers. This would leave the government to make all health care decisions based on CER. How does this square with subsidiarity? Currently, we have the ability to make our health care decisions by careful examination of our private insurer’s specifications. We can pick and choose as needed and this is subsidarity.