Why I Am More Egalitarian Than Most Liberals on Health Care
Most people would place me on the political right. Yet when it comes to health care, I am more egalitarian than almost everybody on the left. I always have been.
By that I mean I am more egalitarian than the defenders of the British National Health Service (NHS) and the defenders of Canada’s system of socialized medicine. I’m also more egalitarian than Paul Krugman and the leaders of the Physicians for a National Health Program. Not only that, but a great many Republicans agree with my approach to health care — even as they oppose ObamaCare.
One thing that adds to so much confusion is that people on the left have a huge investment in seeing themselves as more altruistic and more caring than everybody else. Paul Krugman, for example, refers to the Republican Party as the party of Scrooge and sees most elections as Dickensian morality plays — even though research shows that right-of-center folks are actually more generous than folks on the left, on the average.
Today, I ask you to put aside such foolish thoughts and seriously consider the titular issue of this post.
To introduce the discussion, I need to make three distinctions.
First, almost everybody on the left believes in a defined benefit approach to health care. My approach centers on defined contributions. Suppose you live in Britain and your kidneys give out. The British socialists created a health care system that promises to meet all your health care needs, but it may not always deliver. Britain has one of the lowest dialysis rates in all of Europe. In the United States we also take a defined benefit approach to kidney care and we actually deliver. Even if you are 80 years old and dying of cancer you can get dialysis and maybe even a kidney transplant — all courtesy of Uncle Sam. But it would be impossible to provide all health care that way.
ObamaCare is an example of a defined contribution benefit approach [thanks to Bob Graboyes for catching that error]. The law will eventually lay out in specific detail all manner of health care people are entitled to receive — often with no deductible or copayment. But it does almost nothing to ensure that providers will actually be able to deliver what has been promised. After 2018, the problem will get immeasurably worse as the ObamaCare subsidies grow no faster than gross domestic product, while the cost of the insurance that everyone has to buy will be growing at twice that rate.
Were I designing these systems, I would give Britons and Americans a fixed sum of money (the defined contribution) and let competition in the marketplace determine what care can be insured for that sum. For example, a health plan might specify in advance that it covers kidney care for otherwise healthy people, but limited care (and certainly no transplant) for someone who is terminally ill. Unlike ObamaCare, I would allow health plans to adopt cost-effectiveness standards, make coverage decisions based on those standards and advertise this fact in advance of enrollment. (More on this in a future Alert.) In other words, limits on coverage would be visible and transparent — not hidden and murky.
Second, almost everybody on the left prefers rationing by waiting to rationing by price. If you make the money price zero, you guarantee that demand will exceed supply for almost every kind of care. So what determines who gets what? The knee jerk response of people on the left is to assume that rationing by price favors the rich while rationing by waiting favors the poor. In fact the reverse is often true. If there are long waits to see doctors, rest assured that the wealthy and the powerful will get to the head of the queue in almost every country. But walk-in clinics (with posted money prices) are potentially providing low-cost, high-quality care to low-income families in cities all across America.
Just to drive this point home, the American health care system today (which is not what I favor) is probably more egalitarian than the health systems of either Canada or Britain.
Finally, every system in which care is rationed leaves individuals with the opportunity to pay out of pocket to obtain the care they cannot promptly get from their primary insurer. In Britain there is a vibrant parallel system of private care and private health insurance alongside the NHS. In Canada, there are fewer private options, but Canadians can cross the U.S. border for care — and many do. Invariably, people with money who are also defenders of socialized medicine take advantage of these options — giving rise (naturally) to charges of hypocrisy.
I would incorporate out-of-pocket spending options in a much fairer and much more straightforward way. I would encourage everyone — rich and poor — to consider adding to their public subsidy personal funds to obtain more care and prompter care. For example, an estimated 25,000 British cancer patients die prematurely because the NHS does not cover drugs that are routinely available in the United States and on the European continent. These drugs are generally very expensive and in most cases they are probably buying only a few months more of life. Patients who buy them privately, however, do so at considerable personal expense. I would allow supplemental insurance to cover the cost of these drugs and this insurance would likely be very inexpensive if purchased by healthy people.
More generally, I would allow people to add to their defined contribution and buy richer, more generous insurance if that is what they prefer.
Now to the Goodman plan for national health insurance — which is more liberal than all the plans that liberals seem to like.
I would offer a fixed sum, refundable tax credit to everyone. The amount would be roughly $2,500 for an adult and $8,000 for a family of four. The subsidy would be financed by replacing existing tax subsidies for health care and health insurance and by making some other tax credits (such as the $1,000 child credit and the Earned Income Tax Credit) conditional on proof of insurance for children.
The family tax credit I would offer is about half of the cost of typical employer family coverage. Nonetheless, I would expect insurers to begin offering plans that cost $8,000 or a little bit more. They would control costs by offering narrow networks (much as Walmart is now doing for its employees) and by eliminating coverage for procedures with marginal or questionable value. People who want to see any doctor and enter any hospital with very little out-of-pocket expense at the time of treatment would have to pay closer to $16,000 in annual premium. But that extra payment would be after-tax, with no subsidy from the government.
[Notice how easily I just solved the problem of cost. Those who want it can pay less for care than what the British pay — without a single demonstration project!]
People who turn down the tax credit and elect to remain uninsured would not be completely out in the cold. Unclaimed tax credit money would be sent to safety net institutions in the communities where the uninsured live. If the uninsured need care and cannot pay for it, these funds would be available for that purpose. In a sense, I am describing a system of universal coverage — even though not everyone would have an insurance card. Also, in the safety net system I would expect that rationing by waiting would be common.
The Obama administration the other day announced a long list of people who would not be subject to the ObamaCare mandate to buy health insurance. These included the Amish, Mennonites, legal aliens, Indian tribes, the homeless and millions of people who are not required to file income tax returns. By contrast, I would not have any mandate and I would not leave anybody out. I would offer the tax credit to everyone. I would also make unclaimed tax credit money available to pay for the care of any uninsured person who cannot pay his medical bills.
I would keep Medicaid as a backstop. Anyone, even Bill Gates, would be free to add about $500 to his refundable tax credit and enroll in Medicaid. By the same token, people in Medicaid would be able to leave that system and claim a tax credit to purchase private coverage if they prefer. [Hey, if the left wants a public plan option competing with private options, I’m happy to let them have it.]
I would not allow anyone to game the system, however. People would not be able to wait until they get sick to buy insurance or upgrade to more generous insurance with impunity.
I would place very few restrictions on what people must buy to qualify for the tax credits, other than these two: (1) reasonable catastrophic insurance and (2) change of health status insurance that would pay the extra premium needed if a person’s health deteriorated after becoming insured and there was a need to switch to another health plan. The first restriction protects society by insisting that people insure for care they are unlikely to be able to pay for on their own. The second leaves the insurance market free to price risk — thereby allowing a market for the care of sick people to thrive and flourish, as health plans compete to solve their problems.
There are some transition issues that I will ignore here except to say that I would keep one ObamaCare program that could be very useful: the federal risk pools. These are a much better way of dealing with the problems of pre-existing conditions than destroying the market for risk. The risk pools should also provide change of health status coverage — paying the extra premium needed if a chronic patient leaves the risk pool and enters another plan in the future.
So there you have it. Except for temporary extra help for the chronically ill (risk pools) and what should be temporary help for the poor (Medicaid), government would essentially treat everyone the same. It would give everyone the same basic subsidy and leave individual choice and the marketplace free to solve the remaining problems.
The result would be a system that would be unquestionably more equitable than what you see in either Britain or Canada and a lot more equitable than what we will experience under ObamaCare.
I believe you.
Congratulations for saying that you are more egalitarian with regard to health care than those on the left. As you say most people perceived to be on the right are also more generous. We should hear these things more often not just because they are true, but also because this type of attitude reflects a more transparent less self centered vision with a willingness to function within the system without asking for all sorts of exclusions.
Of course, and this goes back to the 2008 election. McCain’s healthcare plan (modeled after I believe the German system) would have insured more people than Obamacare.
I really honestly think so many on the left are just partisan, and not principled. See drone strikes, and Obama’s death list. If Bush did those things they were be rioting on the streets.
I also think the left is far more concerned with keeping the wealthy & successful from getting too far ahead, than with bringing the poor up. So they design these stupidly complex systems that give phase-out subsidies that create notches where the marginal tax rate on a poor family can exceed 100%, rather than do the simple thing and just give every man woman and child a refundable tax credit to buy health insurance (or cover the tax bill on their employer provided coverage which should not be tax free otherwise).
John,
If you want a good explanation of why the liberals think and do as they do, here’s a post about David Horowitz
http://www.powerlineblog.com/archives/2013/02/david-horowitz-how-republicans-can-win.php
What a great post. So simple and elegant. How do we get these ideas into the mainstream of political discourse?
Surely there must be a role in our society for some rational discussion of healthcare policy like this. But it seems depressingly rare. Tell us how we can help publicize these ideas, please.
Excellent post.
Nice to see it all in one place. Of course, I love it.
We all just have to keep coming back to it whenever told we have no alternative.
Interesting idea(s).
One sad data bit: what is the evidence for widespread migration by well-off Canadians to services in the U.S.?
The systematic reviews of which I’m aware (as opposed to political noise), indicate otherwise. The last, covering Ontario only, indicated a trivial number of such instances, almost counterbalanced by Americans receiving emergency or elective care in Canada.
John Goodman provides us with a ray of hope. He is a wise man, who needs to keep sharing his message I am truly frightened by Obamacare.
This is an “instant classic” Health Alerts.
Excellent.
Many features common to my approach.
Where do you picture the funds coming from that are redistributed in the tax credit?
Could you comment on my approach of requiring wage earners to set aside money into their own HSA-like accounts which could be used to buy health services directly or health insurance policies?
I have been in the mind of a genius.
Nice post but as a physician I am still left to deal with a third party system that increases the cost of care dramatically. While you may have come closer to solving the pseudo healthcare crisis, it is really a politically drived health insurance made up crisis, it does not lower the cost of health professionals to provide the care.
My suggestion.
Make catastrophic care the norm, with individuals responsible for their deductibles, albeit on a graduated scale adjusted for incomes. Everyone must have skin in the game to bring down costs. Also have the insurance companies far in the background of care decisions, instead of in the doctors or health professionals exam room.
“more equitable than what you see in either Britain or Canada and a lot more equitable than what we will experience under ObamaCare.”
Dont doubt you there!
John,
In stating that your proposal is more egalitarian than that of Physicians for a National Health Program, you are going to have to provide a new definition of egalitarianism.
In fact, Uwe Reinhardt once suggested that, instead of calling our proposal “single payer,” we should consider labeling it “Egalitarian Health Care.”
Your ideas make sense, John, IF the government has the responsibility to provide healthcare to every American. Who is to say that charity will not exist if the government does not provide it? Charity was alive and well before 1965.
Responsible Americans can provide for themselves, especially if the government gets out of the way and stops making all the rules that cause health insurance premiums to rise. Insurance ought not approach the cost of a home mortgage, which will be the case under ObamaCare.
Then that leaves those who are irresponsible and those who have fallen onto hard times through no fault of their own. They need true charity safety nets– not the government charity programs that wind up costing ten times as much.
Free up the taxpayers and encourage real community, protecting those health professionals who provide the true charity care.
THAT is a simple, elegant plan.
Great analysis! Thanks. I notice you use the symbol for commerce not medicine in your header. Is that on purpose?
John:
The crux of the matter is this: that which minimizes suffering is not that which maximizes control. The left is under the spell of a thoroughgoing intellectual infantilism that results from our basic hardwired predilection to exert control over our environment. This has served our species well, but it is at war with enjoying the benefits of spontaneously ordered market activity.
For this reason, I believe most policy debates (including but not limited to healthcare) start too far downstream from the real problem. The real problem is the growing lack of basic faith in the free market system, which is particularly evident among economists. I know you know this, hence your excellent article today. Just wanted you to know “I get it.”
@Steve Dell,
Evidence for Canadians coming to the US for care: medical practices along the border quite prices in both US and Canadian Currency. Businesses exist that arrange care for Canadians in the US.
Offering a direct subsidy or tax credit of 8000 per family will do nothing more than goose demand by 8000 per family times however many families. I am not sure why the government should offer any subsidy or credit at all.
Why not just eliminate the employer deductibility of group plans and let people buy whatever they want with whatever money they have. If there are those who profess to be poor or otherwise cannot pay; and they require assistance; then we can have means tested programs like Medicaid or public clinics funded through tax dollars to help them.
Steve Dell writes: “The last, covering Ontario only, indicated a trivial number of such instances, almost counterbalanced by Americans receiving emergency or elective care in Canada.”
Even if we accept your numbers we would have to multiply them by 9 times to account for our greater population and then recognize that only a small select Canadian group would want to cross borders for treatment and that would be mostly those that had significant problems or knew they faced the possibility of death due to delay in treatment. Those two items might make something that seemed trivial to you on the surface become quite important.
@Jardinero1 You might be right that insurance prices might increase to take account of a government voucher. However, if the voucher could be kept in an account that rolled over and that could be spent out-of-pocket for healthcare, this would not be the case.
“I would keep Medicaid as a backstop. Anyone, even Bill Gates, would be free to add about $500 to his refundable tax credit and enroll in Medicaid.”
Now that’s what I call egalitarian.
Bob, Ok, under your scenario, we goose provider fees directly, instead of indirectly via the insurance. There is no practical difference except that you have cut out the middle man, sometimes a good move.
It begs the question that this is a productive use of other people’s money, which is what a tax credit is. Assuming that revenue forfeited to fund a credit has to obtained somewhere else, all a tax credit does is forcibly transfer spending from Item a to another Item b, in this case healthcare spending. Tax credits are just another way of rearranging spending to the benefit of one party and by extension, to the detriment of another party. There is really no net gain to society from a tax credit. There is the real potential for a dead weight loss to society if spending is directed to an unproductive use. I would posit that most healthcare spending is a dead weight loss to society.
your tax-credit-based plan is fine, john. Now all you need do is obtain a personality transplant in order to enable you to sell it to anyone outside your kooky cult circle
@ Steve Dell
My sampling on Canadians utilizing the U.S system is not scientific, but I can share the following:
In my Medicare Insurance practice in Florida, I have about a dozen Canadian clients who are dual eligibles, both U.S Medicare (through U.S work, marriage etc..) and Canadian Health System. What they share is this:
The Canadian system is much better than the U.S. when it comes to Primary Care. They resent the typical U.S. PCP office where there is a cattle chute approach to care,(low reimbursement rates, greed etc..) and defensive medicine rules,(our excessively litigious system) however, when things start getting serious they are quick to pack up the car and cross the border to get MRI’s Cat Scans, Nuclear Stress tests etc.. Goes without saying that anything on the order of knee replacements, heart surgeries etc…always get done in the U.S. side of the border. We don’t need any rocket science studies or logarithm tables to figure out why this is.
Bob:
Your idea of the voucher rolling over, if not all spent on health care is a great idea.
But, if that was the case, the insurer would lose up to $8,000 a year in subsidies.
I can understand having a sale, in which the item is up to 80% off.
But, doing so every year is utter foolishness
Pay-as-you-go health insurance is just not feasible.
It is more expensive than yearly renewable term life insurance kept year after year.
Don levit
John,
All this nonsense about health care not only being equal in the amount and quality of care but in cost to rich and poor alike will never happen as long as we rein in health insurance income without doing the same to the medical profession, hospitals and drug companies. It’s simple math: Premium amounts under the new Affordable Care Act for health insurance are taxed so more people can have coverage; more regulations are placed on health insurers to reduce costs to keep premiums low; health insurance eligiblity rules are relaxed so more people can be insured, eventually resulting in raging adverse selection; commissions to agents, who have been the backbone of the health insurance sales force for years, are cut and more rules are placed on on health insurers to reduce costs to make health care more affordable —–Yet, the cost of medical care doctors, hospitals and drug manufactureres charge continues unabated because there is no regulation on that side of the health care cost equation. We can’t have our cake and eat it too when it comes to cutting costs. One side of the cost equation can’t continue to rise – without some sort of third party monitoring – while the other side is forced to pair back health employees and sales force resources and coverage (with high deductible health plans and such). Eventually, health insurers will decide they need to be on par financially with medical professionals who enjoy capitalism at the best it can be and leave the insurance business to sell hardware, clothing or cell phones which are less regulated.
Oh, well…..
John, nice pulling together of your concepts. I think I remember Victor Fuchs making a similar recommendation some years ago, though maybe his tax credit would have been variable, with some risk adjustments.
Second, as a matter of language, it seems Obamacare should be characterized as both defined benefit and defined contribution. Is there a word for that?!
Hi John,
You are, of course, a giant among the thinkers on health policy. If we are to achieve true reform, however, we should guard our language and de-politicize the issues.
All that matters in the end is the patient. No one in America–right, left or center–is in favor of any policy that would deny care or cause the suffering or death of his or her loved ones or neighbors. Our health policy, regardless of party, will ultimately continue to reflect our nation’s deep underlying belief in the teachings found in the parable of the Good Samaritan. So our health policy was really set 2,000 years ago, and virtually every American, regardless of religious belief, endorses the values expressed in that teaching.
The fact is that we can reduce health care spending by re-aligning incentives and eliminating useless care. Simple tort reforms like the ones I helped draft in California in 1975 would save a lot. We could save even more billions with a universal policy of medical accident insurance in lieu of our wasteful malpractice system. Such medical accident insurance would go a long way to eliminating or reducing the incredible waste caused by defensive medicine.
REMEMBER, IF WE COULD JUST CUT OUR HEALTH CARE COSTS FROM 18+% OF GDP TO 15% OF GDP (twice what other countries spend), WE WOULD SOLVE OUR ENTIRE NATIONAL DEFICIT PROBLEM.
Given all the collective wisdom of this blog’s readership, can’t we attack the waste in our system and treat this like the national crisis it is? Our children’s future is being mortgaged to the hilt because our country cannot fix its health care system.
This problem transcends politics. Its solution transcends politics. As amusing as it is to attach labels to issues and watch the back-and-forth, it is time to stop, roll up our sleeves and start working together . Our nation, especially the future generations of our nation, deserve our most conscientious best efforts.
Best regards,
Charlie
I totally endorse the defined contribution approaches outlined here, but the Goodman plan for tax credits has some shaky numbers. It was shaky when John McCain proposed it too.
#1 — these tax credits are very expensive. Say that 40 million families get an $8000 credit and 40 million single persons get a $2500 credit.
That is $420 billion a year, no piddling sum.
Dr Goodman suggests we can pay for this in large part by taking away the employer deduction for health insurance premiums.
Well, at least one fourth of the $800 billion paid by corporations comes from government employers and non profits. No recaptured deductions there!
When we look at for-profit corporations, most of them do not pay even near the 35% maximum rate, and will not do so even if they lose this particular deduction.
I would bet that we might get $120 billion in recaptures at best.
Now many businesses will give the employees a taxable wage hike if corporate health insurance disappears.
This might bring in an extra $60 billion in taxes.
So I am still $240 billion short of a balanced budget on these tax credits. We could impose a 4% payroll tax on employers, but I do not see the Republican party sponsoring that kind of bill. (of course it did take Nixon to go to China, etc.)
2. Dr. Goodman suggests that enterprising insurers will come up with an $8000 family policy to meet the new demand.
I am in the health insurance business. The only way to produce an $8000 family policy is with a very large deductible, and very picky underwriting, and no maternity coverage.
Every policy like this that I have seen so far wound up with huge premium increases in renewal years, and some companies just went broke in the middle of year and left patients high and dry.
Look at the numbers. If you insure 100 families, that is about 400 people. All it takes is 20 persons out of 400 to get cancer or need bypass surgery or have a premature baby, and there goes the $800,000 in premiums that you collected. It is just too thin, unless you can send all 20 tough cases to India for cheaper surgery.
What do I conclude? Just this. The $800 billion paid by employers is ugly in many ways, but it is a mainstay of our health system. Both left wingers and right wingers want to replace the employer system, but they have to tread very very carefully.
Comments welcome if I have misfired on any items here.