The Economist on Incremental Approaches to Health Care Reform

Disclosure: I used to be a huge fan of the Economist, because it was well written, broad ranging, intelligently non-partisan, and (at least politically) often contrarian. But ever since the start of the Bush era, it has taken a marked shift to the right, in both its political and economic coverage.

Take this story from the current issue, “Creeps and bounds,” on various proposals to fix US healthcare without going to a single payer, meaning Federally operated and funded, system. In general, fair enough, but I find the way they have framed the problem to be disingenuous:

Can America provide universal health care without adopting a government-run system?

It used to be said that everybody talks about the weather but no one does anything about it. The same could now be said about universal health care in America. In recent months, the plight of the 47m or so Americans struggling without health insurance has become the talk of the town. Politicians, film-makers, union bosses and even Wal-Mart executives all now say the country must do something. What it must do is unclear.

Huh? The debate over health care isn’t simply about the uninsured; it’s also about the fact that it’s expensive and costs are escalating at a relentless pace, without producing great outcomes. The reference to “film-makers” is presumably to Michael Moore, and his movie Sicko was explicitly not
about the uninsured, but about the numerous failings of the health insurance industry. As much as critics have liked to pick at Sicko’s paean to various socialized medical systems, none has rebutted his central charge: our health care system costs nearly twice as much per capital as that of other advanced economies, yet delivers poor outcomes (our health care ranking is 37, just above Slovenia. Similarly, a scorecard by the Commonwealth Fund, focusing on a small number of countries, put the US at the bottom).

If you don’t frame the problem correctly, you don’t get good results. But admitting how messed up America’s health system is also forces one to acknowledge that band-aids aren’t likely to produce the desired degree of improvement. It’s hard to see anything short of a full-bore overhaul addressing the deep seated problems, the biggest information asymmetries which the various participants, sometimes unknowingly, exploit. Buyers and sellers both need to have good access to information for a market to function well. Health care is a example of market failure.

An unstated assumption in this piece is that the US health insurers have to be preserved, or at least made irrelevant very gradually. Funny how this country is willing to disrupt entire industries and tolerate job losses in the name of free trade, but not in the name of our citizens’ health and longevity. Is it because the positions sacrificed in industry restructurings have been primarily blue collar ones, while the health insurance is entirely white collar?

From the balance of the Economist article:

How can America extend coverage to all without shifting to a government-run system? That question was put by the Brookings Institution, a think tank, to some of the country’s leading health policy gurus. All are anxious to avoid the ferocious backlash faced by Hillary Clinton when she proposed a top-down approach in 1993, dubbed “Hillarycare” by its critics. This week four groups of scholars presented their solutions*.

The most radical proposal calls for universal vouchers that allow individuals to purchase insurance from private firms. Ezekiel Emanuel of the National Institutes of Health and Victor Fuchs of Stanford University want to distribute these vouchers free to individuals, who would use them to purchase health insurance from private firms. Americans would thus enjoy freedom of choice, but insurers would not: they would not be allowed to turn down individuals for any reason, regardless of risk. In turn, the government would pay a risk-adjusted premium to firms for covering sicker, more costly people.

Could the government afford it? It would save some money by scrapping the tax breaks it currently offers to employers for insuring their workers. But it would also have to raise fresh revenues from a new value-added tax of 10-12%. To control costs, the scheme envisions an independent agency that would assess the cost-effectiveness of new pills, devices and therapies and decide whether they should receive reimbursement.

Medicare rules
In contrast to this big-bang approach is a proposal that could be described as creeping universalism. Gerald Anderson and Hugh Waters of Johns Hopkins Bloomberg School of Public Health propose a relatively simple fix: keep expanding Medicare, the government’s existing health plan for the elderly, until the uninsured problem goes away.

Their plan would first issue a mandate requiring both individuals and firms to arrange health insurance. Individuals would then buy insurance on the private market, as they do today, or through the expanded Medicare programme—which will never deny coverage. If punters are too poor to afford insurance, the government will help with subsidies. Firms must either provide private insurance, as many do today, or they can offer the Medicare plan to all employees.

The authors argue that this would be the cheapest of all four options. Past experience shows that Medicare—which has great bargaining power with suppliers, and no need to market itself to clients—controls costs a bit better than the private sector. Since Medicare already covers elderly people, who are sicker and costlier than average, an expansion of the scheme can only lower its costs per person by bringing in younger, healthier individuals.

The two other plans unveiled this week offer ideas for reform that fall somewhere between the radical and the incremental. Stuart Butler of the Heritage Foundation, a think tank, is wary of dramatic proposals, which he is convinced Americans will not accept. At the national level, he would curb costs by putting a cap on the open-ended tax breaks currently showered on employer-provided health insurance.

He also wants to establish state-level insurance exchanges that would connect insurers with customers, and provide both firms and individuals with a greater choice of plans. Conceptually, this scheme is similar to the path-breaking reforms now underway in Massachusetts, which has a “Health Connector” up and running.

The big difference, however, is that Massachusetts obliges individuals to buy insurance or else face higher taxes. This requirement lowers premiums overall, by forcing relatively healthy, low-risk people into a system they might otherwise avoid. Their premiums help to cover the costs of people who are more likely to need health care.

Mr Butler does not support such a mandate, arguing that it is unenforceable and unfair unless accompanied by large subsidies to help poor people buy insurance. Massachusetts remains hopeful that it can enforce its mandate, but it has already let 60,000 people escape it, because it deemed them too rich to receive subsidies and too poor to afford insurance.

One of the architects of the Massachusetts reform also had his say at the conference. Jonathan Gruber, an economist at the Massachusetts Institute of Technology, thinks the state reform pioneered by Massachusetts should go national. He would keep the individual mandate and insurance connector, with a few tweaks based on experience.

For example, he now believes that Massachusetts was too generous with its subsidies for the poorest. In extending the plan to the national level, he proposes subsidies that are stingier, but which stretch further up the income scale. He would also abolish the open-ended employer tax breaks and impose a payroll tax on companies that do not offer health plans.

Which, if any, of these plans will take off? Perhaps all of them will eventually have their day. Lawrence Summers, a former treasury secretary under Bill Clinton, summed it up well: “Incrementalism is not enough, we need full and fundamental reform. But I suspect that Congress will do incremental reform for a while until it fails, and crisis forces radical change.”

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