Sunday, February 15, 2015

Universal Health Care Insurance

Conservative policy wonk Avik Roy has made the argument that universal healthcare is a desirable good. Conservatives tend to be skeptical of this argument, since it has a whiff of the concept of positive rights. Conservatives are big believers in negative rights, the idea that certain personal freedoms are protected from infringement by others, especially the government. Freedom of the press, and of speech, of religion, from unreasonable search and seizure, these are all negative rights--freedoms that are protected from interference. Positive rights, such as freedom from hunger, disease, poverty, or homelessness, work differently. They require that the government act in order to provide them.

Conservatives are skeptical of positive rights for several reasons. One is purely philosophical: anything that must be given to you is not a right. Rights do not come from the government--they're natural, God-given. Any right which comes from the government is one which can be taken away by the government. Government cannot provide everything. No government has been successful in eliminating poverty, or disease, or hunger. Government is not actually capable of providing these rights. Sure, they can sometimes do so, for some people, but not for everyone, everywhere. So to pretend that it's a right, and not to be able to provide it, inevitably leads to more and more coercive means being used in the attempt to provide it. Coercion is the tool the government uses to achieve its goals. The government can't provide anything without taking from someone else. Thus taxation. Most people agree that some level of taxation is reasonable, but how high are we willing for it to go, how complex and overbearing and intrusive of a tax code will we put up with? A lot of the complexity of the tax code is due to the government using the coercive power of taxation to try to change people's behavior.

All that said, conservatives can come around to the idea of health care as a public good, like highways and utilities. The problem is that health care is also expensive, and providing health care to everyone only exacerbates the main thing that makes it so expensive: the third-party payer problem. In general, people don't pay for their own health care, someone else does, either their insurance provider or the government. Thus they have no motivation to keep their health care costs low by shopping around and looking for better deals, and hospitals and doctors have no motivation to provide better deals. Providing free health care to everyone removes what little motivation there is to spend wisely, and so people will ask for more medical care than they need, while government, now on the hook to pay for it, looks for ways to reduce costs, which leads to shortages and rationing. The great thing about pricing is that, at its most basic, it balances supply and demand. The more people who demand something, the more expensive it is, which both encourages more people to provide it and more consumers to consume less, which drives the price down. This balance is why the free market system is so good at distributing goods at reasonable prices. The freedom of prices to adapt to the circumstances influences both supply and demand to a reasonable balance. Ideally, this could be applied to medicine as well.

The problem is that applying it to medicine is hard. Too many people see medical care as a right, not something you can put a price on. Most companies supply health insurance to their employees, partially subsidized by government tax incentives, and since people are terrified of going without health insurance, that leads to them feeling reluctant to leave their jobs. And when people are without insurance, medical problems can go untreated, and trying to get treatment can bankrupt them. What I'd like to see is a way to cushion the problem of going without insurance, while addressing the third-party payer problem. My proposed solution would provide single-payer, government run health insurance, not health care.

1. Health insurance, not health care

The idea of insurance is not that it covers all the costs of routine maintenance, but that it provides help in case of catastrophes. If the costs become more than you could handle on your own, your insurance steps in. Modern health insurance isn't like that--it covers a lot of routine medical treatment long before deductibles become an issue. That's less like insurance and more like a health care plan. What I'd propose that the government provide is something very different. It's similar to what Megan McArdle proposed in this article, but I had already been thinking about it before reading her idea, and have a slightly different spin.

The principle idea is that the government doesn't pay anything, not one dime, to your health care unless you exceed a certain percentage of your income. As long as your costs are less than that, you pay for it yourself. If you exceed that percentage, then the government would cover the entire costs beyond that percentage.

What that percentage should be is something I'm not sure about--my initial idea is 25%, McArdle proposed 15-20%. I think that the actual amount is open to debate, as long as it is a relatively large proportion of your income. The idea is to make sure that you have an incentive to manage the costs of your own health care, and for that you need to feel that if you hit the limit, then it's costing you too much. Thus you're motivated to seek competitive pricing and moderate your level of consumption. If it were small enough that you'd always hit the limit, then you no longer have the motivation to manage your cost, and it doesn't work.

Most people would not hit the limit most years, but in the case of a catastrophe, they're protected from ruinous losses. Illnesses that prevent you from working would also lower your income, and thus also lower your limit.

You may think that this may work for the middle class, who can absorb a large expense for a year or two, but what about the poor, who have difficulty giving up even 1% of their income, much less 25%? I think it's reasonable that the percentage for poorer people can be significantly lower, possibly gradated to be 20%, 15%, 10%, even as low as 5%, depending on their income in comparison to the poverty level. I wouldn't favor bringing it all the way down to 0%--I think everyone should have some motivation to manage prices. Ultimately, it would be up to Congress to decide on the exact percentages, and I expect there to be negotiations and debate as to what exact percentages work best.

2. Transparent cost

So how do you pay for this? Simple, with a tax, but more importantly, with a simple tax. A straight percentage, that everyone pays, similar to Social Security or Medicare, that is by law required to be sufficient to pay for the program. Everyone pays in, everyone benefits. And since the cost is transparent and obvious, any proposals to change the program to be more or less generous have immediate effects that everyone feels. I suspect that the actual tax would be pretty small, as the program is not very generous--most people, most years, will not hit the limit that they have to hit for the government to pay anything.

3. Insurance companies

Wouldn't insurance companies oppose this? That's what killed Hillarycare, and Obamacare only won them over by bribing them with the individual mandate and subsidies.

This plan doesn't make health insurance obsolete, however. Most people don't want to risk paying up to 25% of their income for health care. They want a health care plan, not just insurance. Insurance companies can market to them, businesses can still use health care plans to entice workers.

In addition, the percentage limit would apply to insurance companies as well. When someone with insurance ended up with health care costs exceeding a set percentage of their income, the insurance company would also be reimbursed by the government. Now, it may be helpful if the costs are tweaked, perhaps so insurance companies are on the hook for 35% instead of 25%, or don't see their limits gradated for lower incomes, but overall the idea is that there's a significant gap between fully covered and not covered at all that insurance companies can fill. And since their risks are lower, their premiums can be commensurately lower. And since their risk is even lower for lower income people, it's certainly fair and expected for them to base their premium on people's income.

I still think there would be some opposition from insurance companies. With this sort of safety net, more people would feel free to go without insurance, which is not a bug but a feature of the plan--people without insurance have even greater motivation to manage their own health care costs. And I doubt insurance companies would like that.

4. Transparent payments

Encouraging people to shop around for their own health care is one part of the equation for reducing the third-party payer problem. But another part of the problem is the lack of transparency of health care costs. Hospital and doctor billing, tied up as it is with health insurance and government-provided health spending such as Medicare and Medicaid, is unconscionably opaque--no two people pay the same, and it's those who pay for their medical care themselves tend to pay the most, since insurance companies can use their clout to negotiate lower prices. How do we overcome that problem?

I propose that any hospital or doctor that takes any federal money, including money from any insurance company that accepts reimbursement from the government, be required to publish a schedule of prices, clearly stating how much they charge for treatment, whether that's counted in the treatment itself or at an hourly rate for the doctor's or nurse's time. And if they charge different amounts for different insurance companies, then they should publish that as well. Now this billing will probably be fairly complex for most people to figure out, but any publishing beforehand gives people an opportunity to measure the cost before going to the hospital, to look for cheaper alternatives, and to dispute the bill. And if trial lawyers want to sue hospitals for deceptive billing practices, I'm open to allowing that. I believe in tort reform for medical malpractice, but I also think that hospital billing can be one of the most deceptive practices in modern medicine, so a little bit of legal correction might be very helpful. I also think that doctors and hospitals will quickly find that giving clear pricing, where individuals pay nearly the same as insurance companies, will be a draw for customers, and that eventually most places will respond to that incentive

Would it work? 

So will all this work? I think that's it's a reasonable approach, but nothing is guaranteed to work. I am fond of it because it is insurance, rather than a health care plan, costs are fairly low--most people, most years won't take advantage of it--while it prevents catastrophic health care costs from leading to bankruptcies. If it does work, it could very well replace Medicaid and Medicare (which may require scaling for the elderly in the same way it scales for the poor to ease people into it). There would also be less call for the market distorting tax advantages for employer provided health care.  These things would tend to balance out the costs. Most importantly, it tries to address the third-party payer problem, which would hopefully lower costs. There's the difficulty in actually passing something like this, and whether people invested in the current system would agree to it. As far as I know, no one's seriously considering a plan like this aside from me and Megan McArdle, so that's probably the biggest issue right there. And while I think it would work, my background's not in economics, and definitely not in health care economics. I'd be interested to hear what a real expert thinks of something like this.