Single-Payer and Group Coverage Empower Government, Not the People

I agree with Professor Chaufan that the “reforms” many states embraced to expand coverage with private insurance have failed, but disagree that it is because of a lack of government power. In fact, such reforms massively increase government power. For example, Massachusetts’ latest reform (passed by Governor Romney in 2006) made health insurance mandatory, and heavily subsidized those who could not afford it.

KQED Healthy Ideas – Californians Weigh In On Health Care, May 13, 2009

I agree with Professor Chaufan that the “reforms” many states embraced to expand coverage with private insurance have failed, but disagree that it is because of a lack of government power. In fact, such reforms massively increase government power. For example, Massachusetts’ latest reform (passed by Governor Romney in 2006) made health insurance mandatory, and heavily subsidized those who could not afford it.

The results have been instructive: the reform has not cut costs by moving patients from hospitals’ emergency rooms to primary care. According to the Boston Globe and the New York Times, the cost of caring for ER patients has soared 17 percent over two years, despite efforts to direct patients with non-urgent problems to primary care doctors. Costs, including salaries for caregivers, tests such as X-rays and CT scans, and medicines jumped from $826 million to $973 million. Remarkably, the state hospital association claims that hospitals’ profit margins have dropped from 0.7% to 0.3% in the last year. Because of the recession, patients are deferring surgeries, and hospitals are delaying capital investments, despite “universal” health care.

Nevertheless, the Commonwealth asserts savings of $250 million in uncompensated care since reform. Typical of government’s inability to measure cost and benefit, the Commonwealth fails to appreciate that spending $820 million on a “universal” health care plan to save $250 million in uncompensated care is not a good trade-off. The spiraling costs of this taxpayer-crushing reform have caused Governor Patrick to summon the stakeholders to the table once again, to figure out how to get them under control.

However, the alternative, which Professor Chaufan calls “single payer” but is more accurately named “government monopoly” is even less palatable. In discussing “social insurance,” she puts forward (in her comments) Bismarck’s creation of the welfare state in the 1880’s as an example of a program designed to stabilize society from revolutionary forces. Well, I am not enough of a historian to describe the social effects of Bismarckian social insurance on the health of Germany, writ large, but I trust none of us would look to that state’s evolution (at least until 1945) as exemplary!

I also respectfully submit that the term “social insurance” muddles two things: income-transfers to the poor so that they can afford a secure living-standard, and actual insurance. Pooling risk refers to people sharing the risk of an unanticipated future event, not historical events. If we were to adopt “cross-subsidy,” as Professor Chaufan puts it, for car insurance, we would force insurers to sell the same insurance policy to people who have already crashed their cars as those who fear an accident in the future. Looking at it another way, the state subsidizes people who cannot afford rent or groceries, but it does not impose a government-monopoly housing or feeding plan! The insurance principle and the welfare principle are both important in health care, but we must treat them separately.

Mr. Wright’s insistence on expanding group coverage confuses me. The primary reason for fragmentation in American health insurance is the tax code’s bias towards group coverage: losing your job equals losing your health insurance. Although both the federal and state governments have rules designed to allow you to keep coverage, they are poorly designed. If the individual market were the market of first resort, people could buy health insurance that they kept for as long as they wanted, and if they switched insurers after falling ill, they would carry an actuarialy fair amount of money with them to the new insurer. Although difficult to communicate to the people at large, robust scholarly models of such policies have been designed by Professor John Cochrane of the University of Chicago and Professor Mark Pauly of the University of Pennsylvania, and colleagues.

However, there is something else going on between the advocates of universal group coverage and single-payer coverage that I do not understand. In 2007, the Service Employees International Union (SEIU) supported Governor Schwarzenegger’s universal group reform, only to see it killed by Senator Sheila Kuehl, who was supported by the California Nurses Association. Federally, we see the SEIU collaborating with the lobbyists for the health care “industry” to promote a similar reform to Congress and President Obama, while the single-payer extremists are shoved away from the table.

This is an inter-union conflict that is beyond my ken. As, indeed, are all reforms that give more power to the American government, instead of the American people.

This blog post originally appeared on KQED Healthy Ideas.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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