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Debate Club

A Car-Insurance Model For Health Care?

Theodore R. Marmor and Michael D. Tanner debate.

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A new Massachusetts law, signed by the governor this week, attempts to create universal health insurance within the commonwealth. Like many states' auto insurance laws, the bill requires those who can afford it to purchase health care. For those who can't, it restructures government subsidies and requires most employers to pay into a health care fund if they do not provide insurance for their employees. The law also creates incentives for insurance companies to provide a greater variety of lower-cost basic plans for the young and the poor.

Is this hybrid plan of government subsidies and market solutions going to be sustainable? Should red states adopt this blue state approach?

Theodore R. Marmor is a Professor of Public Policy and Management and Professor of Political Science at Yale University. Michael D. Tanner is the Director of Health and Welfare Studies at the Cato Institute.

Tanner: 4/11/06, 04:30 PM
Massachusetts's plan to mandate insurance coverage responds to a legitimate concern over "free riders," the uninsured who nonetheless receive treatment while passing the costs on to taxpayers or individuals with insurance. But in doing so it represents an unprecedented intrusion into individual autonomy and decision making. This would be the first time that I can think of where an individual, simply by virtue of living in a state, would be required to purchases a specific, state-defined product.

Such a drastic expansion of government power should not be undertaken lightly, and certainly not without far more assurance that it will work than this plan gives. If the goal is universal coverage, this bill won't get there. After all, the car-insurance mandate has not resulted in universal coverage. In the 47 states with that mandate auto insurance, 14.5 percent of drivers remain uninsured.

If the goal is to subsidize coverage for those who can't afford it, this is a remarkably inefficient approach. The subsidies will include many of those already paying for their own insurance. Moreover, the structure of the mandate will almost certainly lead to a subsidy crunch down the road.

There will be enormous special interest pressure to add benefits to the mandated package. As more benefits were added, the cost of the mandate would increase. That will place legislators in a very difficult position. If they increase subsidies to keep pace with the rising cost of the mandate, the cost of the program will explode. On the other hand, if they hold subsidies steady, the increased cost will be borne by consumers, who would have no choice but to continue purchasing the ever more expensive insurance. Since the consumers would have little or no leverage over insurers (they can no longer discipline the marketplace by refusing to buy their products), they can eventually be expected to turn to the only entity that can hold down their costs—the government. Attempts to scale back benefits would certainly meet political opposition from powerful constituencies and complaining about "cuts." The only other alternative would be for the government to intervene directly by capping premiums. Insurers unable to charge more for an increasingly expensive product can be expected to trim costs by cutting back on their reimbursement rates to hospitals and physicians. The result will ultimately be rationing, the lack of available health care goods and services.

An individual mandate, therefore, should not be seen in a vacuum. It is more akin to the first in a series of dominoes. By distorting the health care marketplace, an individual mandate sets in place a cascading series of additional mandates and regulations resulting, ultimately, in a government-run health care system. This is a high price to pay for very dubious gain.

Marmor: 4/11/06, 09:28 PM
The style of this "debate," the organizers suggest, should be conversational, and I am delighted to participate in that spirit. Your opening comments about the new Massachusetts health insurance statute had, if you will forgive me, features of a shotgun blast from a considerable distance: the buckshot hit here and there but did hardly took down the prey.

So, for instance, regarding this initiative as "unprecedented" seems an odd way to describe a rather modest attempt to extend health insurance coverage after decades of controversy about national health insurance, single-payer plans, pay or play options, catastrophic schemes going back to Senators Russell Long and Abraham Ribicoff (remember the early 1970s when the competition was about which form of universal insurance to enact), and so on. The Massachusetts program is perhaps distinctively indirect in its means to produce a floor of health insurance coverage for its citizens, but your description does seem initially a bit hyperbolic.

On the other hand, you are quite right to emphasize that the biparitsan legislation highlights the problem of "free riders" in a public policy context where the non-insured are legally entitled to emergency care at the hospital. Viewed that way, this plan is a "progressive" move to redistribute income from some high-income, uninsured, young professionals to lower-income Massachusetts insurees whose premiums reflect the free-riding. This language is, of course, the language that fits comfortably with the limited role of government with which you (and your organization) have long been associated. I suppose that is why you began your comments with the concession that the new law "responds to a legitimate concern."

Nonetheless, the free-riding concern is but one of a variety of concerns that the legislation addresses. What is remarkable about this bill is not its policy design, but the support it garnered across party lines. Universal health insurance—whether in a state or across a nation—can be justified by a wide range of arguments. Such programs arguably can improve the health of the population, more fairly deal with risks to income than personal savings, more appropriately change the primary distribution of income when illness or injury strikes, and more. This act managed to find supporters for a complicated mix of reasons, but its appeal is not complicated.

When stalemate over ideologically pure "solutions" to a problem continues for decades, finding common ground among reformers is a triumph. So, it appears to me, the Massachusetts reform is a rare instance of transforming stalemate into a genuinely modest incremental step towards an improved system of financing, regulating, and delivering modern health care.

Describing the subsidies as "inefficient" is another example of arguing beside the point. If the goal was to extend coverage, the subsidy route was a means that was more acceptable than other more direct modes. I would doubt that you would have supported a more straightforward single-payer plan in Massachusetts. That, along with progressive tax funds, would have been the most "efficient" means. I will leave to tomorrow the prospect of horrors you identify in your third paragraph about expansions of mandates. (To signal my argument, it is as likely that the Massachusetts plan will not expand as it will, given the experience of Oregon with stalled dreams of universal coverage after its expansion of Medicaid).

Let me close this note, Mike, with just one word about language. You invoke the idea that this legislation, "by distoring the health care marketplace..." will, with other forces, produce a "government-run health care system", which you describe as a "high price to pay for very dubious gain." Two features strike me. The first is that the 'health care marketplace" has no relation to a market now that you would defend, so why invoke this fantasy? We already subsidize health insurance perversely, as I am sure you have argued, and this form of financing is surely more legitimate in its progressivity. Secondly, can we stay with the legislation and not "spectres," at least for a while? The futurology argument—not liking a step because it will end up in hell—detracts from being able to discuss at any length the features of the program in question. And there we might find some common ground of concern about particular features.

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Tanner: 4/12/06, 10:26 AM
I think the ultimate basis for our disagreement is that we are headed to different destinations. You clearly believe that universal coverage is an important goal of health policy. I'm pretty much indifferent to it. The relationship between insurance coverage and access to care and quality of care is tenuous at best. After all, in countries with government-run, universal health care everyone theoretically has insurance. But the one common characteristic of all those systems is either direct or indirect rationing of care. Does the person on a waiting list for treatment really have coverage?

Rather than focusing simply on expanding coverage, we should concentrate on reducing costs and improving quality. That will require the introduction of market mechanisms to give consumers more control over and responsibility for their health care decisions, particularly by removing some of those perverse subsidies you mention. The new Massachusetts plan does take some steps in that direction by allowing workers to use pre-tax dollars to purchase health insurance through the Exchange. But the risk of greater government control will move us in the opposite direction, away from consumer control. I think that's a big mistake.

In regard to that government control, I agree we should be careful of slippery slope arguments. But this slope seems pretty slippery. Indeed, it slipped even before the bill became law. Governor Romney's original proposed that only a "bare bones" insurance plan be mandated. By the time the bill reached his desk, all 40 of the state's mandated benefits had been added back in. As soon as you make product design a decision not of consumers but of politicians, it seems inevitable that the design process will be influenced by those special interests with the most clout. The chiropractors or whoever will soon be hiring Jack Abramoff.

To get back to the free-rider problem, it is real, but it is also much smaller than commonly believed. Only about 3-5 percent of health care spending is uncompensated care. That's less than half what the system loses to fraud. We need to keep it in perspective. But equally important, it is worth noting that to some degree the free-rider problem is an unintended consequence of government interference in the market place. Massachusetts is a community-rating state. By driving up the cost of care for young, healthy people, the law makes insurance unattractive. Instead of a mandate, why not repeal community rating and let the young buy inexpensive, actuarially-fair insurance?

Finally, the terminology of a health care mandate being "unprecedented" is not actually mine, but the Congressional Budget Office's. But I happily appropriate it. Barry Goldwater once said that the first concern of public policy should be "am I maximizing freedom." It is not the sole concern, obviously. But the burden of proof should be on those who would restrict freedom. The Massachusetts plan fails to meet that burden.

Marmor: 4/12/06, 08:15 PM
I think we are getting somewhere in this debate. By that I mean our positions may become clearer by noting, candidly, where we differ rather than where one of us is right or wrong. So, for instance, you note in the opening paragraph of today's comment that "the ultimate basis for our disagreement" could well be that the two of us "are headed [in] different [policy] destinations." You are absolutely right about that, and about my direction. Universal insurance coverage is indeed a major goal for me and has been for decades. It should not then be a surprise that I favor steps in that direction, especially ones that seem consistent with further steps in the direction of stable, relatively broad and thick insurance protection. That the Massachusetts plan is a rather thin base of coverage does not present a principled problem for the reasons I mentioned yesterday.

You go on, however, to treat insurance coverage as a matter of some indifference, which surprises me. There is a rationale for catastrophic health insurance coverage that has nothing to do with the quality of care or the claim that getting care makes a population a lot healthier. I would have thought the classic insurance argument for protection against hard-to-budget shocks to family income would have made you a fan of the income-protection position. But first let me deal with the aside you mention about rationing of care, which you treat as an argument against my embrace of universal health insurance goals.

Here you just make a mistake. There is no system of medical care without rationing. Not everyone can get what they want/need—and can pay for—when they want it. So all systems "ration"—allocate is the euphemism—by one of time, capacity and willingness to pay, or seriousness of condition. This is as true of the United States as of Canada, of France as of Holland. That the bases are different is a start of a discussion of justification, not a discussion of life without rationing. As for the narrow question—does the insured person have coverage if they are waiting—the answer is yes: they have insurance protection against the costs of illness, not an access guarantee. Conflating the two does not advance understanding, though too much waiting is undeniably a worthy object of critique.

Back, then, to your interesting claims about concentrating on "reducing costs and improving quality" rather than providing more economic security and fairer financing of care. In this limited installment, please permit me to state, without further support, the empirical generalization that no system has learned how to pay only for what is good quality. "Pay for performance" is much more slogan (aspiration without evidence might be nicer) than demonstrated reality. That leaves us with the rationale of health improvement. Here there is simply great disagreement about what we turn to medical care professionals for. The incantation of health improvement understates the importance of other goals: relief from pain, comfort with what cannot be cured or cared for well, ruling out worse outcomes that produce itself no measurable improvement, and such like. Medical care is a multi-featured service/good package, and the talk of improved quality and health outcomes needs caution about over-selling. I am not sure you are doing that, but the language suggests you are less impressed by the insurance function and rather hopeful about the effectiveness criterion.

Lastly for this exchange, let's reduce two sources of distortion. I took on futurology last time. Now I want to ban comments about Jack Abramoff, the crook. There is to be expected continuing representation of the interests of parties in any democracy; the Federalist Papers defined our democracy as one justified by its openness to all the interested parties. If you don't like the special interests, get more at the table, but don't fantasize about a world without "lobbying." It pulls our attention away from serious exchange and clarification. On that note, I might acknowledge that I am not sure of just how much expansion of the benefits has taken place. More on that tomorrow. And more in response to your suggestion of avoiding mandates in favor of repealing community rating and letting the young buy inexpensive, actuarially-fair insurance. Here again, you demonstrate differences in destinations, sometimes called ideological convictions. You have every right, of course, to favor less redistribution; it just happens that your position is a minority one—regarding the financing of medical care—and the redistribution from both community rating and instruments like mandating finds favor. Clarification without conviction will have to be the conclusion there.

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Tanner: 4/13/06, 10:10 AM
I'm particular struck by your comment that people approach medical care with a wide diversity of goals. I couldn't agree more. That is precisely why I think those things should be left to the market. No political arrangement can devise a product that reconciles the widely varying needs of millions of consumers. I would make the same argument about quality. The definition of quality is highly idiosyncratic. What I consider high quality health care may be very different from what someone else does. No better mechanism exists to enforce quality than the market itself. If given adequate information on price and quality (something that does require changes in our current system, though in a different direction than the Massachusetts plan would seem to be heading), consumers will discipline the health care market the same way they do every other market. Will a consumer-driven health care market operate perfectly? Of course not. But no politically driven system—which is what government-run health care is—can do a better job of reconciling the conflicting needs and preferences of millions of consumers.

Indeed, you suggest that lobbying is a perfectly natural part of the democratic system. I agree. But that is exactly why the democratic system is an imperfect vehicle for expressing my preferences. After all, not all interests have equal ability to affect the democratic process. Concentrated benefits and defuse costs, among other things, mean that those seeking to gain from the system will always have more incentive to lobby than those who pay the bill. What are the chances that 51 percent of legislators or even 51 percent of voters will accurately reflect my desires? Slim, I would say. The market is a much better measure.

This is, in the end, the essence of politics. Who makes the decisions in your life? You or someone else, even 51 percent of everyone else? The market lets me make those decisions for myself. And because it best reflects my preferences, in the end it will best reflect the preferences of the majority.

Because I believe this is our last exchange, let me offer a few words on other issues. On the matter of insurance, I may have been misunderstood. I believe insurance is good, and most people would be wise to insure themselves against actual risks. (Much health insurance today, however, is not true insurance but simply a form of prepaying for routine health care). What I object to is making the number of insured the primary basis for health policy. After all, most people are insured. Most of the uninsured are uninsured for only a very short period. A more market-oriented policy, by lowering the cost of health care, might actually increase the number of insured somewhat. The question, therefore, is whether we should we pursue policies that distort the entire health care marketplace to achieve universal coverage. I don't think so.

On rationing, I agree that in an economic sense any finite commodity is rationed. But I think there is a difference between rationing imposed by such factors as price or time and rationing imposed from outside through the political process. Food is finite. Not everyone can afford steak. But should we therefore, by law, say that no one could purchase steak regardless of his or her ability to pay? I recognize that to the person who can only afford hamburger, the steak is being rationed today. But in a market-based system there are many remedies he may pursue. Under government control, he may only seek to persuade 51 percent of the population to give him steak. Which system is fairer?

Once more we come back to a question of value, or ideological convictions as you say. I would tend to favor individual liberty and choice, even at the cost of efficiency. But I think historical experience also shows that free markets produce more prosperity and distribute it more fairly than does politics. In short, freedom is good in and of itself, but equally important freedom works.

The Massachusetts plan, with its mandate and subsidies, not to mention its 10 new boards, commissions and other bureaucracies, is a move away from the marketplace. In my eyes, that will ultimately be bad news for health care consumers.

Marmor: 4/13/06, 05:21 PM
I am pleased we have found common ground on the variety of purposes served by medical care. But your immediate leap to the conclusion that market exchange best serves this mix is a non sequitur. It only follows if you accept the premise that market allocation always best serves any particular distributional aim. So, for example, you wouldn't expect me to allocate my time to students on the basis of their payments to me, assuming their interest in access reflects quite different purposes, would you? Both about this point and about quality, Mike, you don't so much explain your case as repeat. The presumption that markets are always the best way to distribute valued goods and services is an barrier to discussion, not an invitation to see whether that presumption holds in particular spheres. Ironically, we are in a halfway house in the United States, which is why we should be discussing particular plans, not overarching philosophies.

Let's go back to the problem health insurance is meant to address: income protection from unbudgetable expenses we would hope never to face. The desires worth noting here are ones of financial prudence, not my preferences for blond cardiologists, gentle internists, or bold thoracic surgeons. The form of financing need not, and does not in the case of Medicare, get in the way of individuals finding the kind of caregiver they care about.

Mike, I think you should leave aside debates about majoritarianism . You mistakenly state here that by adding up the behavior of 51 percent you have found out anything about what would count as worthy, a response to a collective concern, or a pattern of preferences that we should permit to continue. You are preciously close to saying that a majority of litterers ought to have their preferences respected because they litter and are the majority. Let's get back to the Massachusetts health insurance plan.

The Massachusetts plan, I repeat, is a rather modest step in the direction of assuring that Massachusetts residents do not face a future without some health insurance protection against bankruptcy. It is also a incremental effort to sort out the crazy-quilt way by which the uninsured—and the underinsured—are now funded. It is a small budgetary step by the state government, one stimulated importantly by a special $610 million subsidy from the federal government that, if not taken now, would disappear. Taken advantage of now, that subsidy would continue through 2008. So, in part, we have a nimble political effort to take advantage of a carrot, but one that is distinguished by its bipartisan support.

It is, however, anything but a massive new program and, in that respect, hardly justifies the ideological heavy breathing about liberty, slippery slopes, and the threat of a government takeover—or anything. The plan rests on a variety of funding sources and understandly uses coercion to force free-riders (500,000 of 5 million state residents) to contribute to the pool from which emergency treatment of everyone has been drawn. I gather from the Cato publications, Mike, that you have written a book (or study) that addresses the dangers of national health insurance. Perhaps that broader fear explains the generality of your concerns about this modest initiative.

That noted, this plan will be a stimulus to other states, but not a model. Its financing as of now very much depends on the federal (waiver and) grant I just noted. The complexity of the indirect ways by which this will be financed may not have much appeal. The thinness of the protection will concern others. And the dispute over whether businesses not covering their workers should pay $295 as a "fine" will strike many as silly. That is hardly the stick to beat a firm into health insurance where barebones coverage costs annually much more than that. Finally, and most important for the nation as a whole, the employment-based arrangements we have relied upon since World War II are busily disappearing. Serious attention to what will have to take its place has a central place on our national agenda.

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