In three earlier posts to this Health Care series oldstyleliberal addressed one of the primary issues looming in the 2008 election, that of health care and whether or not all Americans have a right of access to it at reasonable prices. That topic leads naturally into the question of health insurance, which some 47 million of us (16 percent of the population) do not have.
The Democrats running for president tend to follow the lead of the top two contenders, Hillary Clinton and Barack Obama, in proposing some form of universal access to health coverage through job-based, privately purchased, and/or public insurance plans. The public insurance plan, offered by the U.S. government, would be new. It would become mandatory for Americans without any other health insurance, under the Clinton proposal. Under the Obama proposal, only coverage for children would be obligatory.
The leading Republican contenders Rudy Giuliani, Mitt Romney, and John McCain eschew mandatory insurance plans, while seeking changes to the present system that would give health care consumers more power to look after their own needs. Among the proposed changes are an end to state regulations that block buying health insurance from providers in other states, such that there might be wider competition for customers and lower premiums. Also being called for by GOP contenders are enlarged health savings accounts that would make savings for future health needs and spending from these accounts to cover current medical expenses fully tax free. If HSAs were made flexible enough, the thinking goes, they could obviate the need for insurance benefits to cover any except the most catastrophic medical expenses.
oldstyleliberal finds it difficult to decide between the two general approaches. The Democrats' solutions would pretty much guarantee universal health insurance coverage at decent rates, with only a tiny percentage of Americans falling through the cracks — or, at least, in the case of the Obama proposal, universal health insurance access at fair premium rates. But it is not clear to oldstyleliberal how these relatively "liberal" approaches would hold down health care costs without relying on that dread word rationing, or else depending on taxes to cover costs.
From the point of view of an economist, prices depend on the relationship between supply and demand. In a totally free competitive market, when the quantity demanded of goods and services exactly matches the quantity offered by sellers, a price level is thereby determined, and the amount of sellers' commodities actually taken by buyers is also set. Should demand go up from there, sellers naturally raise prices to cover the extra costs of providing goods and services in greater quantities.
When people have health insurance with low copays and small up-front deductibles, they tend to require more doctor's appointments, more diagnostic tests, more medical procedures, and the like — more, that is, than they would seek if they were paying fees out of pocket or out of a health savings account, however tax-free the money is. Economically, that can't help but nudge the supply-and-demand balance point up to a higher overall price level.
To offset that, private or public insurance plans can ration care. One way to do that is simply not to cover certain types of care. Or, certain expenses can be only partly covered, such that the patient still owes money after the insurance plan pays its share. Consumers tend to require less of the types of care their insurance plans don't fully cover.
Another way to ration medical care is to limit the supply such that there develop long waiting lines. People who are confronted with long queues often forgo "unnecessary" care entirely. Or, there can be a form of triage involved, such that the neediest get advanced to the front of the line while those with supposedly less urgent needs wait and wait.
Would the Democrats' public health insurance plans accomplish the necessary rationing in a fair, politically feasible, economically realistic way? Depending on your point of view, one advantage of the current private system is that it's hard to call politicians and government bureaucracies on the carpet when health-care prices, insurance premiums, or quality and availability of care don't meet with our approval.
Another advantage to private health care financing is that there is no impetus to burden taxpayers with the costs of the medical benefits covered by a public insurance plan, as a way of sidestepping unpalatable rationing measures or for any other reason. Of course, federal taxpayers do pick up the tab for Medicare and Medicaid already, but would the Democratic candidates' health care plans cost the taxpayers yet more? oldstyleliberal is not entirely certain that either the Clinton or the Obama plan would pay for itself without taxpayer burdens and/or unacceptable rationing of health services.
Of course, there is a strong argument to be made in favor of doing just that: setting up a health care financing system that allows every American access to all of the medical care they need when sickness strikes, and hang the cost. The philosophy here is that we all stand at risk of catastrophic illness at some point in our lives, so we should all share the high costs of treating those who are sick now. The only question is, by what mechanism(s) ought the cost burden be shared?
When insurance payouts to beneficiaries and their health-services providers are entirely covered by premiums being paid in by policyholders, that's one way to share the cost burden. Another way is to cover some or all of the payouts using general revenues accrued from taxes paid in to the government. Yet another way is for, say, a hospital or clinic to fail to recover the costs of treating an uninsured patient and to pass those costs on to its paying customers in the form of higher bills.
However the cost burden gets shared, it does get shared, even today in the absence of universal access to a public health insurance plan. Few people who get catastrophically ill have a big enough nest egg to cover the huge costs on their own.
The costs that don't get shared are the ones that are never incurred. Chief among these are the costs of routine preventive care, prescription medications that head off (expensive) illnesses before they strike, and other items and services that the uninsured often go without. For example, diabetics need to self-monitor their blood sugar levels and get regular blood tests. If they shirk these necessities because they can't afford their high associated costs, they are liable to need even more expensive health services later on, when the diabetes takes its toll. Then, if they have a diabetes-related heart attack and wind up in the emergency room, those costs will likely be picked up indirectly by the hospital's paying customers.
But it would have been cheaper for society to pay for the preventive measures that would have avoided the heart attack in the first place, even if only by using tax monies to help defray the health-services outlays of a public insurance plan.
The current system, because it leaves so many Americans uninsured, tends to shift costs from (admittedly expensive) diagnostic services and preventive care to yet more expensive emergency services and procedures that might have been avoided with better medical care all along. So the burden of sharing these costs — whatever the mechanism of sharing — gets skewed away from preventive, prophylactic care. The result is that the total shared cost of health care in America is higher than it needs to be. It costs a lot more to amputate a diabetic's foot and rehabilitate the patient than it does to keep the patient's blood sugar levels in check right along.
Notice that there are at least two ways in which the current system inflates health care costs in America. One is to discourage the uninsured from getting routine screenings and preventive care, leading to exorbitant costs later on. Another is to encourage those who do have insurance to obtain a lot of less-than-crucial health services, to the extent these services are covered by insurance. As a result, while some people are lucky enough, because they have comprehensive health insurance, to get their tummy tucks and eye jobs galore for next to nothing, others have to do without the mammograms and colonoscopies that might save their lives.
If that seems unfair, then perhaps we need public, government-run health insurance plans, despite their possible burdens on taxpayers down the road, and despite the fact that they might force some form of rationing of health services on the American public.
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