Archive for June, 2009

Absorb what is useful

June 4, 2009

I don’t know if President Obama is big on kung fu movies, but he certainly seems to live by Bruce Lee’s dictum. In a departure from his campaign literature, Obama now says he is “receptive to Congressional proposals that would require Americans to have health insurance and oblige employers to share in the cost.” The Times has more:

The president said he was open to proposals for “shared responsibility — making every American responsible for having health insurance coverage, and asking that employers share in the cost.” … “If we are going to make people responsible for owning health insurance, we must make health care affordable,” Mr. Obama wrote. “If we do end up with a system where people are responsible for their own insurance, we need to provide a hardship waiver to exempt Americans who cannot afford it.” …

Mr. Obama’s letter affirmed his support for creation of a new government-sponsored health plan. “I strongly believe that Americans should have the choice of a public health insurance option operating alongside private plans,” he wrote. “This will give them a better range of choices, make the health care market more competitive and keep insurance companies honest.”

Now, the three remaining supporters of Clinton’s 2008 Presidential campaign might be excused for foaming at the mouth a little. Then, Hillary Clinton promised an individual mandate to have health insurance, Massachusetts-style. Meanwhile, Obama’s plan called for a weak employer mandate, in which some but not all employers would be required to provide or help pay for health insurance. As of this writing, Obama seems to be moving away from this (most likely) less-effective policy and toward the individual mandate.

There’s just one nagging little thing. Extending health insurance to more people costs money, and the prospective individual mandate lite, in which people are required to get insurance through the myriad private companies or a government plan does little to cut down these costs, either for consumers or for providers. It is trivial to show that unless insurance companies can effectively discriminate against high-risk consumers, the best insurance plan is one in which everybody is enrolled. Short of this drastic ideal, the more people are enrolled in a given plan, the cheaper that plan is per person on both the supply and demand sides, assuming enrollment is uncorrelated with risk. So a good way to equitably lower the cost of health insurance would be to enroll as many people as possible – regardless of risk – in a single plan. This would also have the benefit of cutting down on per capita administrative costs and duplicated overhead costs.

How does Obama’s plan (or intentions) measure up to this ideal? By letting – nearly encouraging – consumers who are already insured to keep their current health insurance, it does nothing to lower costs for the policies of the insured (which greatly outnumber the uninsured). By allowing the uninsured to sign up for a government plan, it creates just another small insurer saddled with all the problems of the rest of the market. Finally, by encouraging some of the uninsured to seek health insurance on their own, it leaves them vulnerable to the steep premiums that rationally must be charged of individuals purchasing insurance solo.

A real solution to the problems of American health insurance – bloated administrative costs, underinsurance, high prices – could lie just one radical policy away. If we take as constraints the ideas that 1. Americans will not accept the complete bulldozing of the private insurance market, and 2. there is no guarantee that a government-run program will be more efficient than a private one, there still remains a reasonable policy option that combines wider coverage with lower costs and room for market-driven innovation.

Consider this: a basic government insurance plan, with mandatory participation, and a deductible-copay system similar to but more benign than existing private policies. This plan would extend basic coverage to everyone, including perhaps most preventative procedures, some ER visits, and limited consultation with specialists, among other things. It would not aspire to provide full health coverage to its enrollees – only coverage for procedures with positive externalities or those which most often bring needless financial strain upon low-income families – and would be priced accordingly. Everything else – prolonged hospital stays, expensive treatments, frequent trips to the doctor – could then be covered by supplemental insurance, which consumers could obtain from anyone. Such a dual-layer system would provide universal, low-cost (but limited) health insurance, without completely turning the health insurance sector into an arm of the government.

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