Let's begin with the basic premise that our health care financing system should ensure that everyone receives the health care that they need without having to face a financial hardship. Everyone agrees that we have a very expensive system that falls far short of this goal, so it needs to be reformed.
The enthusiasm for the model of reform described by Jacob Hacker and endorsed by the Health Care for America Now (HCAN) coalition, which Jonathan Cohn wrote about in his recent New Republic piece “Single-Minded,” is understandable. It is a model that attempts to align policy with politics, allegedly meeting the previously unattainable threshold of feasibility. But is it feasible, and will it even work?
Superficially, the model seems to be a workable compromise between those who believe that markets should provide health care coverage through competing private health plans, giving more control to the individual, and those who believe that a government insurance program would be more efficient and effective in ensuring that everyone has adequate health care coverage. Those on the right can support the private plans, and those on the left can purchase the competing public, Medicare-like program. Those in the middle can decide which model would become more prevalent, so goes the theory.
Anyone who really believes in this model understands that the private insurance plans would have to be very tightly regulated to reduce the profound deficiencies in our current insurance markets. The current private insurance business model depends on selling the insurers’ products to the large numbers of us who are healthy, especially the healthy workforce and their healthy families, while avoiding the need to contribute to the risk pools that cover those who have greater health care needs. Those costs are largely passed on to taxpayers through government programs.
Other nations that use private plans require effective pooling between plans through various regulatory mechanisms, reducing the problem of adverse selection and ensuring that premiums or taxes are adequate to pay for the care for those with greater needs. Even if the pools are nominally segregated, they function more like a universal risk pool through mechanisms such as risk adjustment and post-claims inter-insurance transfers.
The United States has a unique problem that would make it much more difficult to require private insurers to participate in a quasi-universal risk pool. On a per capita basis, we pay far more for health care than do other nations. Average-income individuals in other nations that use private plans can still afford premiums (or their tax equivalents). In those countries, only low-income individuals require some form of government subsidy for their care.
Compare that with the United States. For healthy risk pools, such as those of employer-sponsored plans, premiums are no longer affordable for average-income individuals and families, whether paid directly by the insured, or nominally by the employer. Imagine a tightly regulated insurance market that ended adverse selection and required benefits at a level that would prevent financial hardship for those with health care needs. The private insurers would find it absolutely impossible to provide us with compliant products that had affordable premiums.
Because of our very high costs, we must accept the fact that the insurance function is no longer simply a transfer from the many who are healthy to the fewer with health care needs, but it now must also include a partial transfer from the wealthy to middle- and lower-income individuals with needs. There is no alternative to this wealth transfer, and that alone creates doubt as to whether a model of highly regulated private plans is politically feasible.
How would that transfer take place in a premium-based system? If the premium were based on income, the premiums that wealthier individuals would have to pay would be so high that it would be a non-starter. Also, we already have a system with burdensome administrative costs. Adding more administration for the purpose of adjusting premiums to match incomes would add to that burden.
We have to get over the idea that financing should be through premiums set by the actuarial value of the benefits in the insurance products. Those premiums are no longer affordable for most of us, and the complexities of income-related adjustments, whether through premium adjustments or tax credits, create an administrative nightmare. It is time that we separate the financing of the universal risk pool from the health care benefit package. The tax system provides us with the most equitable and efficient method of financing our global health care costs.
Perhaps a more compelling reason that the private insurance model no longer works is that it is very ineffective in slowing the increases in health care costs, and everyone agrees that affordability is now a major problem. Most of the current political cost-saving proposals would have very little impact on total costs. We need to address the true major cost drivers: the profound administrative excesses, the lack of an adequate primary care infrastructure, the waste of non-beneficial high-tech excesses, and the lack of a rational system of health care pricing. Even in a regulated environment, it would be very difficult for a multitude of private insurers and public programs to have much impact on these excess costs. Most economists agree that a monopsony, or single purchaser of health care products and services, would be most effective in extracting value through a negotiated realignment of incentives in our health care purchasing.
So why don’t we just give up, let the private insurance market continue as is, and provide tax subsidies for those who need them, and then offer the single payer holdouts a public program to make them happy? The problem is that you would fail to gain the efficiencies and equities of the single payer model if the public program is only another option in the insurance market. It alone would not have enough purchasing power to negotiate optimal value. The public option surely would be subject to adverse selection and sink of its own weight.
So where are we on feasibility? The insurance industry wants only the healthy to ensure the success of their business model while passing much of the costs of health care on to the taxpayers. The conservatives do not want a public Medicare-like option for fear of gradual transformation into a single payer system. Many liberals do not want a free market private insurance system, but rather want private plans to be so tightly regulated that they almost function like a single payer system, though using private plans is the most expensive model of universal coverage.
This debate that is taking place within the progressive community is missing the center of the feasibility dispute. It is implied that the Hacker/HCAN progressive model would be just fine if the single payer advocates would come to their senses and join in. It ignores the fact that this model is simply not politically feasible: it loses the support of market enthusiasts because of its dependency on tight regulatory control, intrusion by a government insurance program, and the necessity of a massive infusion of tax funds.
If you are going to accept that those changes are necessary to provide adequate coverage for everyone, then you might as well go ahead and establish a much more efficient and effective single payer national health program. Some may argue that explicit calls for income transfer and bureaucratic control of spending are what limit the political feasibility of the single payer model, but the private plans/public option model would have to incorporate the same principles, and their advocates should be very frank about that upfront.
HCAN has rejected the single payer model as not being feasible because it is too disruptive. Yet their model turns the insurance industry upside down, and places the government in the dominant role. Isn’t that disruptive? Besides, aren’t many of the advances that we see in the technical world today due to disruptive innovations? New, improved, lower-cost technology replaces older, less effective and more expensive technology. That is certainly disruptive to the firms whose products are replaced. But isn’t disruptive innovation precisely what we need in health care financing today?
What we don’t need is the feeble disruption of the old model of private health insurance by retaining it and modifying it to try to make it work in our very expensive health care environment. We need the truly beneficial disruptive innovation of replacing the obsolete model of private plans with an efficient single payer national health program.
So, the bottom line? We need reform that provides everyone the health care that they need, without financial barriers that would impede access. We can attempt to maneuver around the ubiquitous mines and trap doors of the political common ground of Hacker/HCAN, and still end up short if we survive. Or we can go straight to a proven model that would accomplish all of our financing goals--a single payer national health program.
Don McCanne is a senior health policy fellow at Physicians for a National Health Program.
By Don McCanne