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Universal health care
Posted by: Dale Franks on Tuesday, June 07, 2005

Ezekiel Emanuel and Victor R. Fuchs present their vision for universal health coverage in the Washington Monthly. Their plan is called Universal Health Care Vouchers (UHCV), and is explained in some detail in the rather lengthy excerpt. Show/Hide

In brief, the plan calls for a system of universal health-care vouchers, paid for by a dedicated Value-Added tax of 8%-10%. All insurers would be required to offer a specified health care plan to everyone, with payments adjusted for the risk level of each patient, so that coverage for sicker patients will be reimbursed at a higher rate. Individuals could choose any health care plan they desire, paying for the basic plan with their UHCV, and for any extra services they desire from their own pocket.

Over time, this will replace Medicare, as older Americans will simply keep their current voucher plan when they turn 65, and it would replace Medicaid immediately. It would also end the problem of poor people seeking primary care in emergency rooms, by allowing them to have coverage for regular primary care in a doctor's office. Employers would no longer have to provide insurance coverage, reducing the cost of employment.

Because it's financed by a VAT—appropriately modified to exempt non-prepared foods and clothing, to make it more progressive—it wouldn't be a welfare-type system. Since everyone would pay into the system in some amount.

Some immediate criticisms come to mind, however. First, it posits a Federal Health Board (FHB), set up like the Fed, to insulate it from political pressure. The FHB would "can issue decisions on what new drugs or treatments to require insurers to cover", and would, presumably, set the payments insurers receive. That is a standard technocratic setup. It assumes the government can set the price for a good—in this case, health care—by fiat. So far, that hasn't proven to be a reliable assumption in any society in human history, about which, more below. I'm not any more convinced that some FHB can reliably make proper decisions about which treatments, medicines, or medical equipment should be covered. Any time we start talking about a plan that has as a primary component decisions being made about what is best for me by my benevolent overlords in the Federal Government, I get twitchy. I have a doctor to help me make that decision for myself, thanks.

Second, the plan has no market-based cost control. It especially lacks what I think is the most important market-based component: self-rationing by the patient on the basis of cost. Once you make the decision to universally cover doctor visits for every sniffle, then you've lost all ability to control costs. Rationing is inevitable, for an obvious reason. There is no limit to the demand for free services. The amount of available services, on the other hand, are finite. Hence, rationing will be necessary. It is inescapable. The most efficient method is by forcing the individual consumer to ration health care based on cost. If you don't, then the FHB or some similar body will be forced to ration it by fiat.

Third, the plan still refuses to treat insurance as insurance. The purpose of insurance is to indemnify you against loss, not to pay for stuff you don't want to pay for out of your own pocket. This plan is too broad, and covers too much. Basic health care doesn't need insurance. At best, people need some help in paying for the high cost of primary care, when a 10-minute doctor visit costs $150.

Those two failures are plan-killers, in my estimation, at least in terms of confidently stating that the plan will do what the authors think it will.

But, if we assume that, in the near future, pressure for universal health coverage will mount, then this plan might be an interesting starting point, with a few modifications.

How about a voucher system where the individual can purchase major medical/hospitalization insurance, then deposit the rest of the money in a Medical Savings account, to pay for routine medical care. Whatever is left over at the end of the year, the individual gets to keep, tax free. That provides an incentive for the individual to keep their medical costs lower, so they can keep the remaining money at the end of the year, while, at the same time, providing coverage if they should get hit by a bus or something.

Politically, we'd probably still see a lot of pressure for an FHB to regulate some sort of mandated major medical policy that ensures the same coverage for hospitalization, no matter who your insurer was. But for regular medical care, each individual would use her MSA to pay for whatever treatments she and her doctor decided on. An even better option would be not to mandate any level of coverage at all. Just give the individual the voucher, and let the individual choose from a menu of health insurance options provided by the insurer of choice. Pay for what you want, and keep the rest. Why not let individuals have complete control over his desired level of coverage? Why no let the market actually work?

The MSA would also be used to pay for medication, too, prompting consumers to seek out the best price, and forcing pharmaceutical companies to begin competing directly for consumers. I presume that would lower the cost for medicines as well.

The thing is, if we're going to have universal health coverage, why not make it as personal as possible, to give individuals the decision-making power over how they spend the money? Why is there always this federal bureaucracy that the Left assumes can make these decisions for us better than we can make them for ourselves? And why don't they trust the market to allow consumers to ration their own health care more efficiently and painlessly than can be done by government fiat?

The good thing about this plan is that it rejects the big-government idea behind Single-payer health care, or even Hillarycare. Now, the individual is a component of universal coverage decisions. So, why not push for as much individual control, and as much market-based competition as possible. Just give the individual X amount of money, tax free, and let the individual make all the purchasing decisions.

These are just my first impressions. I expect to come back to this as other things occur to me, and I'm sure Jon & McQ will be along in due course to offer their thoughts as well.

UPDATE (Dale): OK, reading through the comments, I see that commenter Kturner has a plan very similar to what McQ and I have been talking about on the phone today: Show/Hide

Here’s the problem with health care, and it’s a central problem to the healthcare debate: We don’t actually know what health-care costs. I mean, we have all sorts of prices for health care, and they seem quite steep indeed. But those prices are completely arbitrary. They reflect an artificial demand for health care, and here’s why. Most of our “insurance” coverage has two problems. First, it isn’t insurance. It covers everything. It’s like having a comprehensive auto policy that covers tire rotations, oil changes, tune-ups, and all other regular maintenance, as well as mechanical problems. If auto insurance covered all of that stuff, auto insurance would probably cost $500 a month, too. But that’s exactly what our current “health insurance” plans cover. Every time junior gets the sniffles, we go to the doctor’s office and pay ten bucks. We don’t pay enough for routine medical care to ration it. The second problem is even worse. We don’t pay for the actual insurance coverage either. Our employers do, or at least 60% of it. So we are spending a third-party’s money on ourselves. That’s hardly a prescription for making cost-conscious medical care decisions either. Our mindset about medical coverage is different from any other good or service. It’s not ours. We don’t own it. So costs be damned.

As a result, the high price of medical care reflects an artificial demand for the product. If everyone had to pay for a doctor’s visit out of their own pockets, would the demand for doctor’s visits rise or fall? If the demand falls, would the price of an office visit rise or fall? Without a free market to balance supply and demand through the price mechanism, we have no idea of what something costs at its equilibrium level.

So, I’m thinking of a system that’s very similar to Kturner’s proposal, with the added benefit of means-tested voucher for the poor that covers their major medical premium, along with some amount of cash to pay for routine medical care at a primary care center, thus keeping them out of the emergency room for primary care. Whatever is left over at the end of the year, they get to keep. Meanwhile, in the emergency room, if your medical problem doesn’t require hospitalization, or otherwise cause your major medical insurance to kick in, then you have to pay for emergency care, on the spot.

For those who are not poor, they have to pay for their own major medical policy, plus, they can purchase other coverage options, up to and including full HMO, PPO, or POS coverage if they want it.

We can cover everyone without creating a new tax system, a grand new Federal Health Board, etc., and using market mechanisms to lower the price.

What’s important about the idea above is not that it’s a wonderful idea per se, but that, for the first time, even the Left-leaning reform advocates are talking about a system based on the individuals, and not on government fiat. (And, in fact, it may be the most politically palatable type of idea for universal coverage in the current environment in Washington.)

But the market works. We trust it with practically every other good or service we need. Yet, somehow, when it comes to medical care, we’ve run off the rails when it comes to basing the delivery of medical care on the idea of free people making their own decisions about health care.
 
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Previous Comments to this Post 

Comments
How about just keeping government out of my damn pockets? What’s wrong with private companies entering into private agreements with individuals? If I don’t want to pay for, nor be insured against, AIDS, why should I be forced to subsidize someone else’s option?

Maybe it’s too "hard-core" libertarian, but I just want government completely, 100% out of anything to do with medicine and insurance.
 
Written By: Ogre
URL: http://www.ogresview.blogspot.com
Ogre, it’s called ``enlightened self-interest." The idea is that by ensuring that fellow citizens are healthy and insured, we avoid:
a) those awkward feelings when neighbors die unnecessary deaths
b) paying even more when altruistic instincts kick in at the last minute, when the diabetic, TB-infected cancer patient crawls into the ER.
c) your Healthy and Insured child from contracting communicable diseases from all those Impoverished and Sick kids at their school. Though I suppose your kid would be in private school anyway?

Anyway, it’s an interesting idea. One thing that’s lost is the negotiating power of the large businesses and states; I wonder whether individuals could be permitted to join together in `buying clubs’ or the like.
 
Written By: Mithras
URL: http://
It is half of a good idea, which probably makes it a bad idea. I have a plan of my own that I describe to anyone who will listen so I will list it here. It is similar to the one described in the artcle, but it allows the free market to govern and only covers major medical thus encouraging rationing. I will say to ogre that healthcare and education are the two areas where the individual is hurt far worse by doing nothing than by doing something. We need everyone to have access to healthcare in some form. We just need to do it as rationally as possible. Anyway here is my plan for healthcare in America:

Assumptions:

1. Everyone in America deserves access to healthcare
2. Anyone who does not have health insurance is likely to rely on the taxpayers to subsidize their healthcare
3. The fairest system is one in which everyone has health insurance.
4. You don’t need health insurance to pay for every prescription and doctor’s visit
5. Health insurance should be available in a consumer driven free market, not provided by your employer or funded by government tax breaks or direct subsidy.

Proposal:

Write a comprehensive nationwide basic catastrophic healthcare policy with coverage for all major medical and emergencies and deductibles before coverage kicks in. Make it available to all Americans, by allowing any insurance company to sell the policy at any price as long as they charge the same price to everyone and deny coverage to no-one. Provide government subsidies to help pay for coverage for those who can demonstrate financial need. Additional insurance coverage can be provided by any insurance company and purchased by anyone who wants to pay for it, but there will be no tax breaks of any kind for supplemental policies.

Advantages:

This proposal eliminates the inequality of opportunity that currently exists in the “group” insurance market, and replaces it with a single nationwide “group” allowing insurance companies to spread their risk over a great variety of individuals so that everyone has equal access. It ensures that everyone would have coverage, so that the taxpayers are not directly or indirectly subsidizing the uninsured. It provides a marketplace driven solution where individuals can choose their insurance based on cost and quality. Fiscally, this would completely remove the need for medicare and Medicaid, which make up a significant portion of federal and state expenditures and contributes greatly to the federal government’s ability to control states by withholding Medicaid money, something which would be widely welcomed.

Disadvantages:

It requires that the federal government take an active role in regulating the insurance industry and that all citizens be required to have health insurance. This is mitigated by the fact that the insurance industry is already heavily regulated and I believe the government is far more effective at regulating industry than at replacing it. Insurance is already a requirement to drive a car, so the precedent exists for that too.
 
Written By: Kturner
URL: http://
One thing that’s lost is the negotiating power of the large businesses and states
Well, that might true if the plan didn’t call for a Federal Health Board to mandate coverage and prices. Although, technically, when the federal government can mandate coverages and prices, that’s not really a "negotiation".

Oh, and, just as an intereting little aside, if you force insurers to compete on cost, then negotiation of any kind becomes a lot less necessary. It’s funny how the providers of a good or service will cut prices when customers begin fleeing to their competition. It’s called the "Free market". You ought to do some reading on it. It’s really quite fascinating.
 
Written By: Dale Franks
URL: http://www.qando.net
Dale, I’m quite familiar with the free market. I also know that Wal-Mart can negotiate much lower prices from suppliers than a neighborhood shop, or even a bunch of neighborhood shops operating individually. One phone call from a huge customer can drop prices surprisingly fast.

And I’m not saying that’s a bad thing—but it is a reality. And I’d love to see mechanisms to facilitate that kind of bargaining power (in the hands of individuals, rather than the FHB). I mean, as long as we’re asking for ponies, why not zebras too?

I agree that I’d be wary of the FHB setting prices; I’d rather see them defining core benefits, then let insurers compete on price and extra benefits.
 
Written By: Mithras
URL: http://
Mithras, you are right about buying power, but that is the argument often used to perpetuate the current system. I work for a company that has very good benefits. My brother owns his own company and has to pay for all of his health care needs out of his own pocket. That is not right. He is being punished for being more successful than me.

Creating buyers clubs would extend the problem, but just move it out of the realm of employment. What we need is a level playing field were everyone has equal access to healthcare. If everyone is buying it individualy and it doesn’t matter who you are, who you know, or where you work, the market will acheive the best possible price across the board.
 
Written By: Kturner
URL: http://
Well, I’m not certain that a self-paid true `insurance’ scheme is the best idea... On the one hand, I agree that giving people a more direct financial stake in lowering costs is a good way to push costs down, as individuals become more engaged—do i really need this patented drug, or is a generic fine? must I get this state-of-the-art hernia repair, or is this simpler and nearly-as-effective method fine?

On the other hand, interested citizens, government, and insurers all want to encourage people to get adequate health care—to get that colonoscopy, go on blood-pressure medication, etc. etc. And if you pass costs directly to consumers without incorporating a long-term view to discount `good’ behaviors, consumers are likely to end up making bad choices.

We require cars to pass emissions tests, because we decide that the total social costs are fewer if people are driving clean-running cars. Those required tests compel people to keep their cars healthy, even if most of us would probably prefer to run our cars into the ground and tolerate a little blue smoke.

Unless we do the same for personal health—I like the idea of little stickers declaring me `healthy for 2005!’—we need other mechanisms to encourage people to spend the money to get healthcare... I’m not sure what those mechanisms should be, though...

 
Written By: Mithras
URL: http://
And if you pass costs directly to consumers without incorporating a long-term view to discount `good’ behaviors, consumers are likely to end up making bad choices.
But, can’t insurance companies do this? For example, as part of your coverage you could be required to get certain preventative care screenings such as colonoscopies, pap spears, and the like. One suspects that most insurers would cover them for free, as away to prevent major medical expenses down the line.

I assume that insurers can use such mehcanisms to adequately protect themselves from the risk of "bad choices" by their customers. A government role is completely unnecessary.
 
Written By: Dale Franks
URL: http://www.qando.net
Absolutely, but then, as you note in the original post, they aren’t exactly providing ’insurance’ anymore, but ’health insurance’, which is something different with different cost structures and incentives.
Third, the plan still refuses to treat insurance as insurance. The purpose of insurance is to indemnify you against loss, not to pay for stuff you don’t want to pay for out of your own pocket. This plan is too broad, and covers too much. Basic health care doesn’t need insurance. At best, people need some help in paying for the high cost of primary care, when a 10-minute doctor visit costs $150.
 
Written By: Mithras
URL: http://
Absolutely, but then, as you note in the original post, they aren’t exactly providing ’insurance’ anymore, but ’health insurance’, which is something different with different cost structures and incentives.
Move to strike. Non-responsive.

Whatever health insurance may be, insurers can require preventative care as a pre-requisite to maintining the policy in force.
 
Written By: Dale Franks
URL: http://www.qando.net
"But, if we assume that, in the near future, pressure for universal health coverage will mount, then this plan might be an interesting starting point, with a few modifications."


This assumption is pretty good. According to a recent study, less than half of Californians earning between $9 and $11 per hour receive health insurance from their employers.

Paradoxically, the uninsured are more expensive for society than are the insured; because when they finally do seek treatment, it is from ER’s, which are more expensive than regular care. The medical system then shifts these costs to the insured, who then face higher premiums.

(I hate to clue the fellow who wanted to know why he should pay for others, but he is already paying for them - and in spades. )

As premiums rise, fewer employers offer health benefits - and so the downward spiral continues.

To argue that individual insurance would be any sort of answer is nonsense - indeed, sophistry. Through a process known as "medical underwriting" (often called "cherry picking") insurers can decline coverage to those who pose health risks ( and things like depression and sinus problems can be grounds to deny coverage ). Moreover, they can hike rates.

Furthermore, it is obvious that an individual has little or bargaining bargaining power against an insurer. To say that individuals should make choices and not bureaucrats is to ignore the point that insurance companies are making decisions right now. There is less and less individual choice every day. To assert that the status quo represents individual choice is hogwash and demonstrably and obviously so.

 
Written By: Duncan Kinder
URL: http://www.takebackhealthcare.info/
Through a process known as "medical underwriting" (often called "cherry picking") insurers can decline coverage to those who pose health risks ( and things like depression and sinus problems can be grounds to deny coverage ). Moreover, they can hike rates.
Well this is why you have a mandated policy that everyone must have at a minimum, and that insurers cannot refuse. And the rates for this policy would, of course, be regulated. Insurance comanies would no doubt charge higher rates to the customers that purchase greater levels of coverage.

Whatever else that would be, it certainly wouldn’t be the status quo.
 
Written By: Dale Franks
URL: http://www.qando.net
How about a voucher system where the individual can purchase major medical/hospitalization insurance, then deposit the rest of the money in a Medical Savings account, to pay for routine medical care. Whatever is left over at the end of the year, the individual gets to keep, tax free.
If you’re going to use a forced-savings device like MSAs, as opposed to complete freedom over your money, then MSAs should lock the money in long-term, but be inheritable no-strings-attached at death. The idea should be that building up money in the MSA when you are young and healthy helps offset additional health care expenses when you are older and sicker. This recognizes the fact that nearly everyone consumes more health care as they get older.
 
Written By: Crank
URL: http://www.baseballcrank.com
How about a voucher system where the individual can purchase major medical/hospitalization insurance, then deposit the rest of the money in a Medical Savings account, to pay for routine medical care. Whatever is left over at the end of the year, the individual gets to keep, tax free.
If you’re going to use a forced-savings device like MSAs, as opposed to complete freedom over your money, then MSAs should lock the money in long-term, but be inheritable no-strings-attached at death. The idea should be that building up money in the MSA when you are young and healthy helps offset additional health care expenses when you are older and sicker. This recognizes the fact that nearly everyone consumes more health care as they get older.
 
Written By: Crank
URL: http://www.baseballcrank.com
Oops, not sure where that double post came from.
 
Written By: Crank
URL: http://www.baseballcrank.com

 
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