Liberals and conservatives on healthcare reform
— Stephen M. Davidson, a professor at Boston University’s School of Management, is author of “In Urgent Need of Reform: Saving the U.S. Healthcare System,” to be published later this year. The views expressed are his own. —
Stories about healthcare reform often contain opposing statements from liberals and conservatives. Liberals would use government; conservatives, a market in which private insurers would compete for subscribers. Liberals say a big public-sector role is needed to rein in costs and achieve universal coverage; conservatives say that approach would face opposition from most, if not all, Republicans.
Perhaps unwittingly, that kind of juxtaposition creates the impression that there are two equally viable paths to the three main goals of healthcare reform – financial access to care for all; reduction in the rate of increase of healthcare spending; and more reliable quality of care. But the notion that these are two paths to the same end is false. In fact, competition among private insurers will always produce large numbers of uninsured people –- now at 47 million and climbing — and always produce higher spending than necessary. Here’s why.
To get employers to choose their policies for employees, insurers offer lower premiums, which vary mostly because the policies differ. Covered services usually vary as do charges subscribers must pay (in addition to their share of the premium) when they actually use services. Insurers’ profits are determined not by the number of policies they sell but by the share of revenues paid out when policyholders use covered services. And that figure becomes known only at year’s end when bills for the services policyholders used are added up and deducted from total revenues.
So what can insurers do to increase the probability they’ll finish the year in the black? The fact is they have few tools. Revenues are determined when policies are sold, but most costs represent payments for covered services used by subscribers, so insurers need to keep those payments down. To do that, insurance innovation has taken two main tacks. The surest approach is segmenting the market to induce disproportionate numbers of healthy people to buy policies and, more importantly, to discourage unhealthy ones from buying. The other is setting rules and procedures making it harder both for subscribers to use services and providers to furnish them.
This isn’t the kind of innovation that produces better, faster, and cheaper computers (or other products) for which American ingenuity is justifiably esteemed. It may benefit shareholders, but it doesn’t provide enough benefit to the public to justify a struggle to preserve it.
Moreover, the size of the insurance bill discourages many employers from even offering coverage, their share of the premium discourages many employees from buying insurance when it is offered, and the out-of-pocket costs at the point of service discourage many who have insurance from actually using services. Finally, such a competitive, fragmented system requires higher administrative costs to support it — and higher public-sector costs for people left out of the private market.
In contrast, Congress can achieve the first goal (assuring financial access to care) simply by passing a law requiring everyone to have coverage, then creating mechanisms and rules to make it happen — including ones that will contain future spending. So the key question is not whether to use government or a competitive market, but what goals do we really want to achieve.
The market cannot be the chosen approach to achieve those three main goals. If those are the objectives, government must play a significant role. But different people may have different preferences on a range of other related issues.
Do we want a single-payer option in which everyone has public coverage and a government agency pays providers directly for care? (If so, we could expand Medicare to all Americans.) Another alternative is to create a government-funded program providing vouchers that entitle everyone to sign up with a private health plan which, in turn, would provide the services. If private health plans are used, more decisions would be needed, like requiring them to accept anyone who wanted to enroll and paying them risk-adjusted amounts so they would not be disadvantaged if a disproportionate number of high-risk, high-cost people signed up. And, of course, how to finance the program.
Bottom line: When Republicans say they oppose any government solution and insist on using the market, what they are really saying (whether they realize it or not) is that they don’t want to guarantee financial access to care to everyone or to contain healthcare spending. Competition has a long and honored place in the American economy, but in this sector it won’t serve us well.