on healthcare

I think the one thing that free-market health care advocates have yet to illustrate is, as Freddie mentions in the comments to his latest post, how a free-market solution will provide affordable coverage to all Americans.  And not just affordable coverage, but coverage that is both affordable and actually covers everyone adequately.  I can easily imagine a free market wherein the only affordable insurance for the poor and the sick and the elderly is also terribly inadequate.  Insurance is tricky business, and unlike your car, repairs on the human body can be extremely expensive.  Poor insurance coverage that seems affordable on a monthly-payment basis, may suddenly turn out to be woefully inadequate when it comes to the nitty gritty, the fine print.  Typically an affordable health care plan will include very high deductibles and very limited coverage.  And this is because the concept of insurance and the concept of prevention, while both referencing health, are talking about two very different things.

Health insurance, in its most basic form, really means a protection against catastrophe.  I’m using catastrophe lightly here – this could mean a broken leg or the onset of a disease, etc.  In other words, catastrophe describes the bill a lot more accurately than it describes the problem itself, though both may indeed be catastrophic.  It probably would not be terribly difficult for the free market to provide catastrophic insurance coverage at reasonable prices to all Americans, especially with some sort of means-tested government assistance in the mix, and a mandate.

This is crucial.  Without a mandate the entire system is thrown off balance.  This may seem authoritarian, but really it’s more akin to the car insurance mandate we already have in place.  Car insurance mandates are used to protect the “other driver” who may not be at fault, but who is still on the hook if they get hit by an uninsured driver.  Think of a hospital or a doctor or a local government or whoever has to pick up the tab on the uninsured as the “other driver” when it comes to health insurance.  That is why a mandate is necessary in a free market system.  More on this….

One possible sticking point to affordability and the market is the nature of coverage itself.  Insurance, unlike other goods, is sold based on probability – namely, the probability that the insurance will need to be used.  The higher the chance, the higher the cost.  The system inherently redistributes cost because low-risk patients or low-use patients invariably end up paying some of the tab for high-use patients.  And for the old, the sick, and so forth there is a much higher risk.  Thus, often those most in need of care are also those who most likely can’t afford it.  It obviously makes sense that those who use the system the most, pay the most – and so rationally, the chronically ill or the elderly ought to pay more for their insurance.  However, this leads to such high costs that many are crowded out; after all, it is the sick and elderly who are often debilitated in some way to begin with and thus have a harder time affording coverage.  A free market system could address this problem to some degree by providing lower quality insurance at lower costs though when it comes to high-tab procedures and so forth what exactly does “lower quality” end up meaning?  The government could provide a subsidy such as a voucher to those who could not afford it – illustrating, again, that no matter which way we look at this issue, government involvement is almost a given.

Prevention is where things get trickier for the market, or at least for universal coverage through the market.  For one thing, it’s difficult to get people to take care of themselves.  I suppose there are lots of things insurance companies could do to provide incentives, but there’s no real proven method of success.  Insurance providers could provide discounts for customers who regularly saw their primary care physician (or nurse practitioner) and other mutually beneficial means of getting people in to see the doctor.  But this requires an overhaul on how we think about health care, which has slipped further and further toward expensive and profitable specialist care and further away from the tried and true “family doctor” who, once upon a time, actually spent time with and grew to know his patients.  Preventative care is also essential for keeping costs down.

In any case, I think it’s also true that government-based health care has been provided in other wealthy nations with reasonable success.  People are very happy with their health coverage in Britain and Sweden and other places that have essentially decided that the market approach was, as markets are, generally too risky.  And I agree that the risk remains very real in a purely market-based health insurance system, and it remains the highest for those paradoxically in the most need.

So while I agree entirely that the government should begin to tax employer based health benefits as income because it will reduce the public/private partnership at play in the system and raise necessary revenue – and while I agree that a purely market based and deregulated system should be offered because it may very well provide a better system than we have now – I also believe that we need to mitigate risk by also offering a socialized or public option, because the risk in this market is the health of our fellow citizens.  It is a core, essential component of our society that is at risk.  Freddie worries about guaranteed coverage and I think that when you peel back all the talk of efficiency, affordability, and so forth, this is the crucial question.  A socialized or public option is the only way to do that without risk.  (The risk of expense is not as vital, I think, as the risk of people dying or becoming horribly sick which is both a human tragedy and extremely expensive).  And there is no reason why such an option couldn’t supplant Medicare, Medicaid, and S-CHIP and incorporate those programs under one entitlement.

The public option would also take the strain off of the health care mandate proposal.  Everyone would have the ability to be insured, and therefore demanding it would be a very reasonable and achievable demand.  Some sort of means testing or cost needs to be associated with the public option as well, both as a cost-control mechanism but also as a mechanism of rationality.  People are more rational when even some very nominal fee is involved in their decision-making.  Of course, the irony of the co-pay is that it can act as a disincentive to receive preventative care.  So perhaps the co-pay should be limited to extra uses only (in other words, one visit to your primary care doctor is free every four or six months, but subsequent visits include co-payments…).

There is really no reason for free-market advocates to oppose such a compromise.  If they are given the deregulated, efficient system they want, and they truly believe private insurance can provide a better and reasonably affordable service, then they should also agree that it would be competitive with the public or socialized option.  The divorce from employer-based insurance would be good for wages which have stagnated due to high costs of benefits; for businesses who are increasingly burdened by health costs; and ideally for insurance providers and customers.  The competition would surely be healthy for all involved and yet the system would not carry such a burden of risk.  The two-tiered approach also addresses some of the fears with “rationing” though I would hasten to add that no matter what system comes into existence it will include some form of rationing.  The question is whether that rationing will be rational or not.

I may be missing some vital component here, but I think the two-tiered approach offers the best chance of success.  It offers compromise without compromising either the public or private options.  That’s the problem lawmakers are coming up against when they try to come up with a compromise – they try to mix the two tiers together when really they should be offering two very distinct and separate tracks.