« Edward Prescott: 'Competitive Cooperation' | Main | Deng Right? »

Thursday, February 15, 2007

Single-Payer Health Care and Vouchers

Robert Frank argues for a single-payer health care system with universal coverage supported by a voucher system:

A Health Care Plan So Simple, Even Stephen Colbert Couldn’t Simplify It, by Robert H. Frank, Commentary, NY Times: In his State of the Union address, President Bush proposed tax cuts to make health insurance more affordable for the uninsured. The next day, Stephen Colbert had this to say on his show on Comedy Central: “It’s so simple. Most people who can’t afford health insurance also are too poor to owe taxes. But if you give them a deduction from the taxes they don’t owe, they can use the money they’re not getting back from what they haven’t given to buy the health care they can’t afford.”

Just so. As health economists have long known, market incentives induce private insurers to spend vast sums to avoid people who may actually require health care. This problem is mitigated (though not eliminated) by employer-provided group policies. Because Mr. Bush’s proposal would steer people toward individual policies, it would actually strengthen the incentive to shun unhealthy people. Such people can now keep their insurance by not changing jobs. But no private company would want them as individual policyholders...

That Mr. Bush’s proposal will not shrink the ranks of the uninsured is not its most serious problem. Far more troubling is its embrace of a system under which we spend more than twice as much on health care, on average, as the 21 countries in which life expectancy exceeds ours. American costs are so high in part because the reliance on private insurance multiplies administrative expenses, currently about 31 percent of total outlays.

Most health economists agree that government-financed reimbursement is the only practical way to control these expenses, many of them stemming from insurers’ efforts to identify and avoid unhealthy people. ... A single-payer system that did nothing more than reduce administrative expenses to the levels of other countries would save roughly $300 billion annually.

Some critics worry that expensive but ineffective medical interventions may proliferate if health care becomes a federal responsibility. But Victor Fuchs ... at Stanford University, and Dr. Ezekiel Emanuel, ... at the National Institutes of Health, have outlined a single-payer plan that would limit such interventions far more effectively than the current system. (A copy of their plan is on the links page of my Web site, www.robert-h-frank.com.)

If the single-payer system embraced by virtually all other developed countries is clearly the best solution, why doesn’t the United States adopt it? Some analysts concede its merits, but characterize it as either unaffordable or politically unrealistic. But why should a policy that promises better results for less money be considered a nonstarter?

There are two obstacles, which could both be overcome by intelligent political leadership. One is that the single-payer system would require additional tax revenue. In the current climate, that’s a tough political hurdle... Yet how complicated would it be to explain to voters that because the single-payer plan would reduce costs substantially, every additional tax dollar would be offset by an even larger reduction in private insurance spending? Given that such a system is so much cheaper over all, calling it unaffordable makes no sense.

The second obstacle is opposition from private insurers, who would be understandably reluctant to abandon multibillion-dollar annual profit streams. ... But intelligent leadership could overcome that resistance. Whenever a pie gets bigger, everyone can get a larger slice than before. ...[I]t should be possible for everyone, including the insurance industry, to come out ahead. ...

Selling this argument in an era of 15-second sound bites would be challenging, but hardly impossible. Indeed, forceful advocacy of the single-payer approach offers a golden opportunity for any serious presidential candidate. ...

We live in challenging times. Does a candidate who couldn’t persuade voters to embrace the single-payer approach deserve to be president?

The basis of the voucher plan, an he notes, comes from a proposal by Ezekiel Emanuel and Victor Fuchs( here and here). The plan is explained in a November 2003 Op-Ed in the NY Times:

The Universal Cure, by Ezekiel J. Emanuel and Victor R. Fuchs, Commentary, NY Times: The public has good reason to be worried about health coverage. ... As a solution, many policymakers are advocating small reforms like a Medicare prescription drug benefit or expansion of the Children's Health Insurance Program. Unfortunately, more services for some groups may increase costs and force reductions in coverage for others.

What we need is a fair proposal that is simple, efficient and appealing to disparate constituencies. For more than a decade, as members of the medical and economics communities, we have advocated such an alternative: universal health care vouchers. ...

Each family or individual would be given a voucher to purchase a policy that covered basic services, including doctor visits, hospitalization, pharmacy benefits, some mental health and dental care, and catastrophic coverage. People who want more services, like wider choices of specialists, could pay a premium over the basic voucher.

This would continue to be a decentralized system with existing health plans contracting with providers, but their insurance would no longer be employment-based. That Americans receive insurance from their employer ... has one advantage -- pooling people to reduce premiums -- but many disadvantages, including locking people into jobs so they can continue to receive health coverage and allowing employers to choose insurance providers. It has also become an albatross for businesses. ...

A voucher system would also enable the government to end Medicaid and phase out Medicare. Having multiple health care systems squanders resources. ...

One consistent concern about vouchers is that health plans would have financial incentives to avoid the sick. But requiring each insurance company to offer a basic package with catastrophic coverage would ensure that individuals ... would not be excluded. More important, the voucher system would pay insurers part of their cost as a lump sum and part as a reimbursement fee for actual services rendered, reducing the incentive for insurers to avoid sick patients.

A national health policy board would administer the system...

[U]sing an earmarked tax to pay for the vouchers would limit cost increases. The level of the tax would determine the value of the voucher. If the public began demanding an increase in the voucher value, it would be directly linked to higher taxes, moderating these demands and health care inflation. ...

[V]ouchers hold the promise of securing wide support. Democrats have long favored the notion of universality, while Republicans instinctively favor voucher plans and have longed for the demise of Medicare and Medicaid. Businesses want to stop providing health insurance, and Americans want guaranteed health coverage with choice. ...

The universal health care voucher can secure both widespread support and finally establish a fair, functional health care system in the United States.

Here's what Ewe Reinhardt thinks of the voucher proposal:

Health Insurance For All Americans?, Letter to the Editor, NY Times:

To the Editor:

Re ''The Universal Cure,'' by Ezekiel J. Emanuel and Victor R. Fuchs (Op-Ed, Nov. 18):

The writers' idea that we reach universal health coverage through a system of tax-financed vouchers has a distinguished but sorry history in this country. It was first proposed, in 1971, by Paul M. Ellwood, widely regarded as the father of the idea of managed competition among private insurers. It was proposed, in 1972, by Herman and Anne Somers, two former Princeton colleagues.

In principle the idea is eminently workable, but it did not become reality and probably never will, for a simple reason: it would require the well-to-do in this country to pay additional taxes on behalf of the poor and near poor.

Does anyone sincerely believe that this is politically feasible, now or any time soon?

Uwe Reinhardt Princeton, N.J., Nov. 18, 2003
The writer is a professor of political economy at Princeton.

    Posted by on Thursday, February 15, 2007 at 10:09 AM in Economics, Health Care, Politics | Permalink  TrackBack (0)  Comments (14)

    TrackBack

    TrackBack URL for this entry:
    https://www.typepad.com/services/trackback/6a00d83451b33869e200d83519ff3969e2

    Listed below are links to weblogs that reference Single-Payer Health Care and Vouchers:


    Comments

    Feed You can follow this conversation by subscribing to the comment feed for this post.