Friday, November 22, 2013

Three Ways to Universal Health Care

The disastrous roll-out of healthcare.gov has been much in the news these last few weeks. Unsurprisingly, the Affordable Care Act is polling at an all-time low. I can certainly understand why. However, as much bad press as the IT disaster has received, I think there is a more fundamental reason why the law is unpopular. Universal health care, whatever the details of its implementation, forces healthy people to pay for sick people's care. No matter how smoothly healthcare.gov operates, the redistributive principle that underpins it will rankle many Americans.
One logical solution to this problem is to reject the idea of universal health care entirely, because of the coercion under-girding it. (This might be considered the Randian position.) The drawback of this approach is the heightened risk of bankruptcy or death among the population that can't pay for care. Many Americans find this unappealing: polls are generally in favor of some form of guaranteed health insurance.
If we are agreed on some sort of guaranteed health care as a goal, we have three broad strategies to achieve it:
  1. Provide health insurance through the private sector, and introduce taxes, subsides, and regulations that allow everyone to buy on the private market. (Examples: Obamacare, the Netherlands, Switzerland)
  2. Levy a tax on all citizens to fund a government-run health insurance program. (Examples: Medicare, U.S.; Medicare, Canada)
  3. Levy a tax on all citizens to fund a government-run network of hospitals and clinics. (Examples: the Veterans Administration, the UK's National Health Service.)
The last two options are quite common in the OECD, but they are political non-starters in the U.S. Despite the support in the abstract for guaranteed health care, Americans are less enthusiastic about measures such as federal intervention or higher taxes that might provide it. Having eliminated these more statist options, let us consider what sort of taxes, subsidies, and regulations might be able to provide universal health care through the private sector.
An important concept here is the "three-legged stool of healthcare reform." The first two legs of the stool should be uncontroversial: no one should be barred from purchasing health insurance, and everyone should be able to afford it. Any healthcare reform without these criteria is not worth the bother, because it exposes anyone who can't purchase care to bankruptcy and death.
The problem is that the first two legs work against each other. Sick people are more expensive to insure than healthy people. In the pre-Obamacare individual market, healthy people could buy cheap insurance precisely because sick people were denied coverage. Banning this kind of discrimination just makes insurance more expensive. In 1993, the state of New York "required insurers to accept all customers [and] also mandated that insurers charge everyone the exact same price." [1] These requirements led to the highest insurance rates in the nation. "[In] 2009, it cost an average of $6,630 to purchase health insurance on New York individual market. That's more than $1,000 higher than any other state in the country." [1] Unsurprisingly, the price tag discouraged more and more people from purchasing insurance:
Back when the state instituted the reforms about 752,000 residents were buying health insurance directly from insurance companies in the individual market. But premiums immediately started to soar, and as residents realized they could purchase insurance at any time, even after they got sick, New York's individual health insurance market disappeared, shrinking by 95 percent all the way down to a mere 34,000 individuals. Meanwhile, the ranks of the uninsured spiked to 20 percent by 1997. [2]
There are many ways to get around this problem and keep insurance affordable (the third leg of the stool). The government could levy a tax in order to give a subsidy to insurance companies in exchange for offering lower prices. The government could levy a tax in order to give individuals a subsidy or a voucher to help purchase insurance. Or the government could mandate that everyone purchase insurance, so that the expense per insured is kept down. (It is cheaper to insure many healthy people and some sick people than to insure a ton of sick people.) Obamacare's individual mandate halved insurance premiums in New York. [1]
Without exception, every scheme outlined in this post, from the NHS and Medicare to the alternatives to Obamacare's unpopular individual mandate, operates by forcing healthy people to give money to sick people. In Obamacare, the individual mandate is the mechanism that accomplishes this, which is why it is the least popular part of the law. Nevertheless, without the least popular provisions of Obamacare, its most popular provisions will not work.

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