Problem solved! Fortunately or unfortunately, however, the world isn’t run by policy wonks. Proposals to institute a single-payer system, aka Medicare for all, face several major political roadblocks.
The roadblock one hears about most often is the implacable opposition of the insurance and drug industries to a single-payer system. Reformers should realize, however, that these interest groups will go all out against any serious health care reform. There’s no way to buy them off.
It may be possible, however, to finesse two other barriers to change: the need to raise taxes, and the public’s fear of losing choice. First, the problem of taxes: Extending Medicare or its equivalent to every American would require a
The problem of maintaining patient choice is, in a way, similar. Medicare-type coverage would replace much of the insurance Americans already have, and they would be free to buy additional coverage. But a plan that automatically puts people into a government insurance system could easily be portrayed as a plan that deprives them of choice. The opponents of reform would do their best to promote that misunderstanding.
It’s important to bear in mind that these two problems are
Now for the good news: Over the past few years policy analysts and politicians have been evolving an approach to health care reform that seems to be a workable compromise between economic efficiency and political realism. It involves four basic elements:
Community rating
Subsidies for low-income families
Mandated coverage
Public-private competition
I’ll begin by discussing the first three, pause to explain what they accomplish in combination, and then explain the role of the fourth.
Under community rating, insurers are prohibited from charging customers different premiums, or denying coverage altogether, based on their perceived risk of getting sick. “Pure” community rating, which is already the law in New York and Vermont, requires that insurers offer everyone policies at the same premium—end of story. Under “adjusted” community rating, which is already the law in Massachusetts, New Jersey, and elsewhere, premiums can vary by criteria such as age and geography—but not by medical history. The purpose of community rating is to prevent insurers from denying care to people with preexisting conditions and other risk factors; it’s also supposed to reduce administrative costs, because the insurance companies no longer devote large sums to identifying risky applicants and rejecting them.
Subsidies are something we already do, under Medicaid. Reform proposals call for extending these subsidies to cover many people who aren’t eligible for Medicaid but still can’t afford insurance, mainly lower-income working adults.
Mandated coverage says that you must have health insurance, just as car owners must have auto insurance. It’s intended to deal with the problem of individuals who could afford insurance but choose to take their chances instead, then end up in emergency rooms, where taxpayers often end up paying the tab, if something goes wrong. Some plans also include an employer mandate, requiring that employers buy health insurance for their employees.
Combining these three elements leads to a universal health care system run through private insurance companies. People who might have been denied insurance because of medical history are guaranteed access through community rating, people who might not otherwise have been able to afford insurance are helped out financially, and people who might have chosen to take their chances aren’t allowed to.
Massachusetts introduced a system along these lines in 2006. And Arnold Schwarzenegger’s plan for California is similar. Two major candidates for the Democratic nomination, John Edwards and Barack Obama, have announced related plans at the time of writing, although they both also have the fourth feature, which I’ll discuss in a moment.
Does such a system, in which universal care is achieved via private insurers, have any fundamental advantages over single-payer? In economic terms, no. In fact it’s best viewed as an attempt to
There are, nonetheless, political advantages to a community-rating-subsidies-and-mandates system. First and foremost, it requires much less additional revenue than single-payer, because most of the cost of insurance continues to be paid in the form of premiums from employers and individuals. All you need is enough revenue to subsidize low-income families. Reasonable estimates suggest that the revenue needed to institute a hybrid universal care system is considerably less than the revenue lost due to the Bush tax cuts, which are scheduled to expire at the end of 2010. So this kind of universal health care plan could be implemented without the need to pass a tax increase. All a Democratic president and Congress would have to do is let some of the Bush tax cuts expire, and devote the revenue gained to health care.
At the same time such a plan would allow people satisfied with their private insurance to keep it. The insurance industry would try to block reform by attacking community rating—in fact, community rating was the target of one of the “Harry and Louise” ads in 1993—but it wouldn’t be able to accuse the government of forcing people into managed care.
Although private insurance–based universal health care looks more doable than single-payer, it would forgo some of single-payer’s advantages. Administrative costs, in particular, would be higher, there would still be a multiplicity of insurers and a fight over who pays what. Is there any way to fix these problems?
That’s where the fourth element comes in. The Edwards and Obama plans allow people to stick with private insurance, but they also allow people to buy into a Medicare-type government insurance plan, at a price that reflects the actual cost to the government. Allowing a buy-in to Medicare creates competition between public and private plans. The evidence suggests that the government plans, which would have lower overhead costs because they wouldn’t devote large sums to marketing, would win that competition. When Medicare began requiring that Medicare Advantage plans—taxpayer-supported private plans for seniors—compete with traditional Medicare on an actuarially fair basis, the private plans withered away. (They began expanding again after the 2003 Medicare Modernization Act introduced large subsidies to private plans, averaging about a thousand dollars per recipient each year. But that’s another story.) If the government plans consistently out-competed private insurers, the system would evolve over time into single-payer, as private insurers lost market share. This would, however, represent choice on the part of the public, not a government edict forcing people into government programs.
If a plan along these lines is enacted, the result will be a U.S. health care system that isn’t quite like anyone else’s but somewhat resembles the German system, in which health insurance is provided by competing but heavily regulated “sickness funds.” The German system, like the French system, costs far less than ours while providing universal coverage and high-quality care. It also performs better than the U.S. system on every dimension of health care access: It’s easier to see a doctor on short notice, waits in emergency rooms are shorter, and even elective surgery involves fewer delays than it does here.[18]
There are many, many details to work out, but the important thing is that universal health care looks very doable, from an economic, fiscal, and even political point of view.
The principal reason to reform American health care is simply that it would improve the quality of life for
