A Conservative Proposal We Can All Love
Professor Andrew Samwick of Dartmouth wants to design a better health care system. His slick and savvy solution
involves scrapping the tax deduction for employer-sponsored health premiums, gather up that $100-200 billion in his arms, and fling it out again in the form of refundable tax credits for individuals to purchase health insurance. In a progressive way. Now Prof. Samwick trends conservative, but he makes a good liberal point: The employer health deduction is horrendously regressive, and any liberal worth his or her salt would happily scrap it in favor of something better.
From an economist's perspective, Samwick's is a clever and elegant solution. No wonder Brad DeLong
likes it. But as a health-care journalist—ah, an aspiring health-care journalist—I'd like to look at it from a few other perspectives as well, before I hop aboard.
First, the political perspective. I would never, never in my lifetime, never in anyone else's lifetime, trust the current occupants of 1600 Pennsylvania Ave. to implement such a scheme. Sorry, but no. Professor Samwick may intend to design a more efficient and more progressive health care system. George W. Bush, Dick Cheney, and the rest of the hack brigade certainly do not.
That settles that. So now let's look at it from a business perspective. Samwick cites research estimating that employers would scuttle their workers to the tune of some 15 million, letting them get health insurance via vouchers. But common sense tells us this number would increase rapidly over time. Ideally, if I'm the Platonic Ideal Businessman, I'd like to get rid of employer-provided coverage completely
. For one, I only got into this business of providing health benefits in the wake of the post-WWII wage freeze, so that I could compete for employees. 'Tis your fault, Mr. Politician, for ditzing up the market in the first place. Two, as a business, this emerging idea about a patient's "bill of rights" scares the grits out of me. What, am I gonna get sued or held liable for some medical plan I don't even want to offer in the first place? Oh heeeeeell
no. Also, I'd love to boost my stock price by spending those dollars allocated to health more productively elsewhere. So all things considered, I'd rather just hand my employees a bag of gold coins and let them buy their own damned insurance.
Now let's look at it from the worker's perspective. 1) If I have a middle- to low-income and didn't
have employer-provided health insurance under the old system, then this is a great idea! 2) If I'm well-to-do, I sort of get screwed. Ha! But whatever.... Um, right. 3) Now what if I have a middling income and my employer already provided insurance? Well, I'm going to be worried that my new insurance policy—which I may have to hunt for on the open market—won't be nearly as good. If I have serious health problems, then I don't like my chances on the open market at all. Maybe my employer will still provide coverage (in which case my healthy co-workers, lucky chaps, get to foot my bills). But maybe not. So what then?
The solution, to make both employers and employees alike happy, is to welcome the end of employer-based coverage. To compensate, let's be good liberals and simply regulate
the open insurance market—so that sick people aren't left with higher premiums and the young/healthy don't drop out. I think this could be done without too much pain. First, mandate that everyone gets coverage. This is tough to enforce, but perhaps not catastrophically so. Also, figure out how to convince the poor to take advantage of health care
. Somehow. Third, change the underwriting process so that insurers can only take into account, say, age and gender to come up with their premiums. Or hell, force them to offer everyone the exact same price. That way insurers would have to compete based on value, rather than the time-honored practice of offering insurance to everyone except Fatty
. And since premiums would be static, companies would have incentive to increase their copayment rates, which presumably will lower health care costs.
The downside is that the insurance companies who happened, unluckily, to take on a bunch of diseased blokes run the risk of going bankrupt. We don't want that, so we set up some sort of reinsurance system for catastrophic costs. John Kerry proposed a very expensive one, which I think was a good one, but maybe we could do it through some sort of "Healthy Mae"-type private system, I don't know. But this is just a turn of the monkey wrench.We're almost there! La-Dee-La...
Now the final problem. What sorts of benefits are these folks on the open market going to get with their subsidies? What sorts of contracts are they going to sign? We don't want a government-mandated benefit package that's very specific—otherwise you stifle innovation. (Or you get utter weirdness ala Medicare.) We don't want a package that covers everything, or costs will shoot through the roof. But we also don't want a package that covers only some things, or insurance companies will find a way to weasel out of their obligations to the very sick.
The solution, I think, comes from Tyler Cowen, who proposes
—brace for it—a cost-monitoring bureaucracy to patch up this problem. Namely, third-party arbitrators—who can decide whether "whether an insurance company covers reasonable expenses or instead screws over its customers". When even libertarians back this sort of scheme, we know our work is done. So with a few tweaks, yes, Andrew Samwick has a very good idea for fixing the health insurance system.