A Thought on Healthcare
Reading the comments to E.D.’s link-fest yesterday, I noticed that there is a lot of resistance to the idea that universal health care will stifle innovation in the US. This idea is generally taken as a given by libertarians and free market advocates, but opponents point out that Medicare Part D has not seemingly stifled innovation in the pharmaceutical industry.
Although I think it’s really too early to draw that conclusion for certain, given the lengthy approval process for new drugs, I’m actually starting to think that there’s some merit to the idea that universal care of some sort need not stifle innovation. The trick, however, is in how that universal care is structured, I think.
If universal care is structured as a national health insurance plan or, God forbid, as a national health service, then I think you do wind up with stifled innovation. The reason for this is pretty obvious – at that point, you do have government making decisions for the entire market as to what drugs can and cannot be covered or given. Additionally, as Megan McArdle has so often pointed out, there is a strong case to be made (although admittedly I’m not entirely persuaded given the employer-based structure of our system) that the private nature of our system allows us to figure out what works and how much it should cost, information that is then used by the rest of the world in setting their own health care systems.
On the other hand, what if universal health care were instead structured as a voucher system rather than as a government run insurance or health care service? Under this voucher system, everyone would receive a health care voucher (ideally taking the form of a credit card) for a certain sum every year depending on their income level. This sum would be based on a pro rata share of what the federal government already spends on health care via Medicaid, Medicare, and – most importantly – employer health insurance tax credits. The vouchers could be spent on just about anything reasonably related to health care, ranging from doctor visits to contact solution. Anything left unspent in a given year would carry over to the next year (although I can see an argument made for it to be “use it or lose it”).
This proposal would not stifle innovation because government’s sole involvement would be in determining the amount of the vouchers. Individuals would entirely govern how and where their health care dollars were spent, and pharmaceutical companies and medical practitioners would adjust their practices to capture those dollars. In other words, they’d have to meet the actual demands of health care consumers rather than the mandates of government or employer-based insurance companies. This would encourage, rather than discourage, innovation.
To be sure, I see two (ultimately three) pretty clear objections to this sort of proposal. The first objection would come from liberals, who I assume would argue that this proposal doesn’t do enough to cover catastrophic expenses. But that’s where the individual insurance market would come into play – individual insurance is perfectly suited for such catastrophic expenses. In fact, insurance from catastrophe is supposed to be the entire point of insurance. But insurance from catastrophe, as opposed to insurance from mundane and anticipated expenses, is going to be quite affordable and inexpensive. Additionally, a voucher recipient could choose to allocate some portion of their voucher to insurance (keeping in mind that under my proposal, anything unspent in a given year carries over to the next year). If the program is appropriately means-tested, even the poorest of the poor should be able to afford a basic level of catastrophic health insurance from the private market. I’m open to suggestions as to how to handle medical care for the poor that perhaps exceeds the voucher amount but does not amount to a catastrophic expense, but if the program is properly means-tested, there should never or almost never be such gaps.
The other objection would be from the pro-free market side of the equation. This objection would be that my proposal leaves too much room for bureaucratic headaches – after all, who would evaluate whether an expense was reasonably related to health care? This is a legitimate concern, but one that has an easy solution – accept that there may be a certain level of fraud in the system. This level ultimately should be mitigated substantially by allowing unused funds to carry over from year to year. I think you can have a skeleton force of auditors to spot-check expense reports, but for the most part, you just don’t worry about it.
The only time fraud would become a significant concern would really be where someone has spent their entire voucher and is making a claim against their individual insurer or in the much rarer case where the voucher has been spent and there is a gap between the voucher and the amount of individual insurance coverage. In the former case, the insurance company itself would be perfectly capable of conducting the audit and simply deducting the amount of the fraudulent charges from its coverage – where the fraud is significant and clear (say, more than 20% of the annual voucher amount), they could also forward the charges on to the federal prosecutor’s office. If the vouchers take the form of a credit card, there will be a clear and easily audited paper trail.
The other, much rarer, instance would be where a claim is being made against the government for coverage of a gap between the voucher and the private insurance. This is where your handful of federal auditors would come in. Again, the clear paper trail would give a clear picture of whether or not the claim is legitimate or the result of fraudulent expenses. If the fraud is such that the person cannot repay the government or pay for the required medical treatment on his own, then you can provide the person with the treatment but also prosecute them for the fraud.
Moreover, the idea of having personal credit cards for health care benefits is one that has some precedent. This is more or less how many employers already handle personal health savings accounts.
Thoughts from the commentariat?