The Universal Distraction

The Pacific Research Institute’s John Graham offered this glum assessment during a brief chat recently when he came to Washington, DC for a meeting. He points out that the focus of health care policy is on how to get to “universal coverage.” In this context, the conservative approach involves mandatory health insurance. The liberal approach involves expanding government coverage. Hence, it is either fascism or Communism.

The main proponents of “universal coverage” want to throw more money at the current health care system, which strikes me as unwise. I believe that the “universal coverage” mantra is dysfunctional for the same reason that “more money for public schools” is a dysfunctional mantra for education. When your current approach is digging you into a hole, the sensible thing to do is not to dig faster. It is to stop digging.

Later in this essay, I will offer my thoughts about the uninsured. First, I want to present free-market approaches to reform our health care system. I mention the assumptions that I make in offering these proposals.

Raising the Age of Eligibility for Medicare

I propose that, for people under the age of 50 today, the age at which they will become eligibile for Medicare will be raised to, say 72, rather than 65. Note that this is the opposite of what some liberals propose, which is “Medicare for all.” I want to see fewer people on Medicare, not more. My assumptions are:

1. Medicare is the fiscal equivalent of the Titanic. An Issue Brief issued by the American Academy of Actuaries offers a typically dire analysis of the outlook. The iceberg to which Medicare is headed is trillions of dollars of unfunded liabilities. Before it runs into the iceberg, it makes more sense to take people off the Titanic than to put additional people on board.

2. As the actuaries and other sober observers point out, the sooner that Medicare is put on a sustainable path, the better. There are cuts in Medicare benefits looming for Americans under the age of 50 today. But no one knows what form those cuts will take, or how they will affect particular individuals. Changing the age of eligibility would take away the uncertainty, enabling people to plan for the future.

3. Medicare’s unsoundness is the most important problem in health care policy today. Focusing on other health care issues, including the uninsured, amounts to fiddling while Rome burns.

Health Insurance Tax Neutrality

I would like to see the abolition of the tax break for company-provided health benefits as well as the tax break for Medical Savings Accounts. Company-provided health benefits ought to be included with personal income and taxed at the personal income rate. There should be no special benefits for savings accounts labeled “medical.” (I think that all saving ought to be tax-free, but that’s another topic.)

I assume that people would be better off with real insurance, rather than insulation. Real insurance would mean low premiums, high deductibles, and rare claims. Insulation means high premiums, low deductibles, and frequent claims. See this essay or the relevant chapter in Crisis of Abundance.

Although I prefer real health insurance to insulation, I do not want to impose my preferences on others. All I ask is that we reform our tax code so that it is neutral.

Today, our tax code sends contradictory messages. It steers some people toward real health insurance, but it steers most people toward insulation.

On the one hand, for employees of large companies, the tax code recommends insulation. Company-provided health benefits are tax free, so that the more compensation that you receive in the form of health care services, the lower your tax bill.

On the other hand, for the self-employed or for employees of small businesses that do not provide health insurance, our tax code encourages real health insurance. Medical Savings Accounts, which allow individuals to obtain medical services in a tax-advantaged way, are tied to health insurance plans with high deductibles, where the consumer pays out of pocket for the first few thousand dollars of medical expenses.

I assume that using the tax code to influence health insurance choices is bad social policy. Tax breaks always benefit high earners more than low earners, and the tax breaks that people get for company-provided health benefits or individual Medical Savings Accounts are no exception. Moreover, it is absurd that the tax code encourages one form of insurance for employees of large firms and the exact opposite form of insurance for everyone else. I assume that with a neutral tax system, more people would join the individual health insurance market rather than use employer-provided insurance, and this would lead to better choices than exist today in the individual market. I also assume that tax neutrality would lead more people to shift away from insulation and toward real health insurance.

I assume that with a tax neutral system, employer-based health insurance would unravel. Rather, it would unravel even more quickly than it is unraveling today. But even union leader Andy Stern believes that employer-provided health insurance is not a tenable system for the modern age.

Alternative Licensing

There is an artificial scarcity of service providers in health care, due to the need to obtain licenses to practice medicine, provide physical therapy, and so on. Licensing rules, while enacted in the name of protecting the consumer, typically serve the interests of providers, who enjoy membership in a cartel propped up by the government.

We certainly need some medical professionals who go through rigorous classroom training. We need some doctors who know biochemistry and who can keep up with the latest journal articles. However, not all doctors need to have this knowledge base.

I believe that we could have a lot of competent professionals in medicine, from physical therapists to surgeons, who learn their trade as apprentices rather than in classrooms. Doctors and others who obtain degrees under the current system ought to retain their status to display their unique credentials. But providers with apprentice-based training should have the right to offer services to consumers, with full disclosure to consumers.

I assume that allowing for alternative licensing would eventually remove some of the bottlenecks and reduce costs in health care. It would allow for re-engineering of the health care system. Clay Christensen, a best-selling business author, sees the potential for what he calls “disruptive innovation” to lower the cost of health care, provide that licensing restrictions can be overcome. Christensen says:

Cost-Effectiveness

An old business lament is, “I know that half of my advertising budget is wasted. I just don’t know which half.” A similar lament applies to health care. Many studies show large cumulative improvements in the health of the U.S. population, but almost every careful comparison of similar groups of people receiving different levels of services shows no benefit to the higher-spending population. We appear to be making extravagant use of medical services with high costs and low benefits.

I was at a dinner a few weeks ago at which a man firmly asserted that health care should not be considered a commodity. It should be considered a “right.” That sounded convincing, and many people at the dinner nodded their heads.

But many, perhaps most, of the medical services that we obtain nowadays are not so clearcut. In Michael Moore’s Sicko, one of the cases was a man whose kidney cancer was past the point where conventional treatments would work, and doctors offered a bone marrow transplant, an expensive treatment with no track record of success. Should expensive, desperation therapies be a “right”? If so, then the already-high share of medical spending that takes place in the last year of life is going to rise further.

Does a patient have a “right” to an angioplasty, when the evidence suggests that treatment with drugs may be just as effective? Does someone who hurt his back have a “right” to an MRI that probably will not affect the treatment plan? Does someone aged 50 with no symptoms have a “right” to obtain a colonoscopy to screen for colon cancer, and, if so, why do so few people in the industrial world exercise this right?

The reality is that many medical services have low value. And with health care now accounting for more than 15 percent of our economy, the cost of these low-value services can no longer be ignored. Accordingly, there are several health care policy pundits, myself included, who recommend that a commission be chartered to evaluate the costs and benefits of various medical protocols.

I assume that such a commission could produce studies that would lead to greater use of cost-effective treatments and reduced use of treatments with high costs and low benefits. I assume that such a commission could maintain a consumer orientation, rather than be captured by interest groups representing providers.

The Uninsured

By drawing attention away from these more pressing problems, the “universal coverage” mantra has greatly distorted the health care debate. In response, my Cato friend Michael Cannon has formed a “club” of health policy analysts opposed to universal coverage. Although I agree with his sentiments, I think that the longer that the issue of the uninsured goes unaddressed, the more it will dominate the policy agenda. I would be willing to see one of the “universal coverage” proposals enacted, if doing so would enable us to move on and face up to the larger issues, such as Medicare’s fiscal problems and the cost-effectiveness of medical protocols.

However, if I could pick any policy approach I wanted for dealing with the uninsured, I would try to move toward universal availability of health insurance, not universal coverage. I would encourage states to offer health insurance to the uninsurable. That is, there are people with pre-existing conditions that lead them to be turned down by ordinary health insurance companies. Many states address this problem by setting up “high-risk pools” that provide subsidized coverage for the uninsurable. That seems to me to be a sensible approach.

On the other hand, most of the people who are uninsured today are reasonably healthy. They just do not want to pay for their own health insurance. In my view, they ought to be allowed to make that choice, but they should face the consequences. If they require health care, the cost should not be shifted onto other people who have insurance.

Just because health care is expensive does not mean that we need insurance to pay for it. You can get a loan to pay for a car. You can get a loan to pay for college tuition. If you don’t want health insurance but you need health care, then you may need to take out a loan.

My objection to “universal coverage” is that it reinforces our cultural taboo against individuals paying for medical services. This cultural taboo about paying for medicine is what led me to draw a parallel between health insurance and prostitution insurance. If medical service providers, particularly hospitals, could become less paranoid about dealing with the uninsured, then I would consider doing without insurance myself.

Politics and Economics

“Universal coverage” is a popular solution in health care. Too bad it does not address the important problems. Even economists on the liberal side of the spectrum recognize that broader reforms are needed. See Jason Furman or Brad DeLong.

In politics, the victim status of the uninsured is overstated. Meanwhile, the health policy debate is ignoring some important victims:

—The future victims of the financial unsoundness of Medicare

—the victims of the licensing cartel, which lowers productivity and raises costs

—the victims of the wasteful medical expenditures promoted by consumer insulation from cost, which in turn is promoted by incentives embedded in the tax system

Economists see these victims. Politically, they are invisible. That is why free-market health care reforms are so difficult to sell.