The health care dilemma, as I see it

A huge part of the problem, IMO, is that health care today is expected to perform two unrelated and somewhat conflicting functions. The first is to insure people against unforeseen and catastrophic events at the lowest cost possible. The second is to make regular medical expenses more affordable. 

The first function (i.e. insurance in the classic sense, similar to car or home insurance) can be accomplished beautifully by the private sector as long as government stays out of the way. If there were no mandates requiring health plans to cover certain things, then premiums for a basic, catastrophic insurance plan would almost certainly be affordable to most healthy individuals. They could thus purchase a basic insurance plan and keep it for decades, not having to depend on their employers for health insurance, and not finding themselves suddenly uninsured if they lose or quit their job. Whatever happens, I think we will need to move away from employer-provided health care, simply because global competition will make it unaffordable for most companies.

One problem with this, of course, is that people with chronic conditions or past medical problems get screwed. Those who require regular medications for chronic conditions (e.g. Type 1 diabetes, bipolar, etc) would have enormous out-of-pocket costs. People who have had problems in the past (i.e. cancer, genetic heart problems) might have their premiums go up so high that they couldn't afford it. Another problem is that it gives somewhat of a financial incentive for people to wait until they get really sick rather than seek preventative care. One obvious example is maternity: if lower-income women have to pay out-of-pocket for all maternity/prenatal care (or switch to a more expensive health plan that covers maternity), a lot of them will probably decide to skip it. That of course could have really bad consequences for the babies. One could make the argument--and many on the left have--that subsidizing preventative care results in huge medical savings for society as a whole. That's probably the reason behind a lot of the mandates on coverage for maternity, routine checkups, etc.

The second function (making regular medical expenses more affordable) IMO cannot be accomplished by for-profit companies. It simply makes no sense: what service could they provide that would have any value toward accomplishing that goal? Right now, most people's health care is subsidized--but by their employers, not by government. Since it is subsidized for virtually everyone who has it, people naturally demand more of it--even more than they need--and health care costs go way up. Arthur Laffer calls this concept the health care wedge, and blames it for most of the runaway increase in health care costs (http://online.wsj.com/article/SB10001424052970204619004574324361508092006.html). And there is still the problem of people with pre-existing conditions being unable to get coverage. The only way to fix that, of course, is the way Europe does it: with an individual mandate, which is almost certainly unconstitutional.   IMO, ObamaCare is even worse than a public option like in Massachusetts, and may be even worse than a single-payer system. Not only does it have the individual mandate, but it also puts a huge burden on small business which suffocates job creation.

One way to make health care work might be to separate it into two pieces: catastrophic insurance (which would be private) and subsidized care for the poor or those with health problems (which could be subsidized by nonprofits, large corporations, or government). That way far fewer people would have subsidized health care and costs would not go up as much. Of course, tort reform and eliminating state barriers would also help keep costs down.

In Year 1 of Obamacare, family insurance premiums rise 9%

Despite the many flaws in our healthcare system, one positive trend in the 2000-2010 decade was that family health insurance premiums increased by smaller and smaller amounts each year, as you can see in the chart on the right. In 2002, premiums rose by an eye-popping 13.3%. By 2010, however, the annual increase in health premiums was down to 2.9%. It seemed that insurers were finally figuring out how to keep costs down. And Obama promised that his new healthcare plan would also help to lower insurance premiums.

Except that in the year after ObamaCare, insurance premiums rose by 9.5%, the highest annual increase since 2004.

Some ObamaCare defenders are blaming "bad forecasts," although it's hard to imagine why the forecasts would be that much worse in 2011 than in 2010. More likely is that Hewitt Associates and the AARP was correct in predicting that ObamaCare would cause substantial premium increases. After all, if Obama's plan did actually lower costs, then why would he need to hand out all those waivers?

The rise and decline of the welfare state

As this Weekly Standard article explains very well, most of the core programs of the welfare state were established in the 1930's or 1960's, times when the life expectancy in America was well below 70, and lifesaving but expensive treatments for cancer, heart disease, and organ failure were still somewhat rare. At the beginning, entitlements such as Social Security and Medicare were the result of good intentions and the knowledge that the costs would be relatively low. They had no way of knowing that one day it might get too expensive. Perhaps more importantly, they had no way of knowing that any attempt to deal with increasing costs by limiting benefits or raising the minimum age would be rejected out of hand by leftists as "greedy" and "mean."


This quote at the end of the article provides a good summary of the issue:

"Pensions and access to health care remain social goods that a decent society will try to provide to its people. But goods are not rights."

The distinction between social goods and rights is an important one. It is important for an advanced society to ensure some minimum standard for its people, such as a minimum wage, a standard workweek, and basic/emergency health care. But these are not rights, and when people begin to insist on equal health care or generous benefits for all, they find that it soon becomes prohibitively expensive. 

The Problem With Employer-Based Health Care

I had an interesting conversation today with a co-worker who was complaining about her health insurance bills. She is 60 and fairly healthy, but we work at a small company that does not provide health care benefits. She and her husband make about $60,000 per year combined, too much to qualify for Massachusetts' subsidized health care plan. She told me that her premium for her private health care plan had just risen to over $500 per month. Her husband is 65 and on Medicare, but he has a number of health problems and Medicare does not cover all his medications, so he has to purchase supplementary insurance.

I explained that in order for Medicare to cover more things, everyone would be forced to pay a lot more money in Medicare taxes for things that they might not need, and that wouldn't be fair. She seemed to understand that. But I had no answer for her problem of being "squeezed in the middle," where she was not poor enough for a subsidized plan but not rich enough to be able to comfortably afford a private plan.

Generally, I am all for individual freedom. But health insurance doesn't work that way; it is often prohibitively expensive for individuals, and only affordable in group plans that can be provided either by medium-to-large corporations or by government. I am certainly wary of being dependent on government for health insurance. But is it any better to be dependent on large corporations? It seems to me that our current system penalizes anyone who does not work in a medium-to-large company by making it very difficult and expensive for them to get health insurance. It also seems to penalize the corporations themselves, since they compete in a global market with companies who do not need to provide health benefits for their workers.

ObamaCare is clearly not the solution, either. The individual mandate violates any reasonable interpretation of the U.S. Constitution; Congress can "regulate interstate commerce," but it cannot force people to engage in commerce. Also, ObamaCare only increases the costs to business with its new taxes and penalties for businesses that cannot afford to provide health insurance. But could we have a public option that would end the dependence on big companies without requiring massive tax increases? Two essential criteria would have to be met:

1. The health care programs would have to be implemented at the state level, not the federal level. A federal health care program containing an individual mandate would almost certainly violate the U.S. Constitution as mentioned above. Huge federal bureaucracies are always extremely wasteful and inefficient. The existence of different health care programs would allow citizens to vote with their feet if one state's health care program became bloated and expensive (sort of like businesses are choosing to leave California). And finally, some states could decide not to have a public option at all.
2. The programs would need to provide several accordingly priced levels of coverage, including one low-priced, basic plan (no chiropractic, no sex change operations, no substance abuse treatment, etc).

 I have to say that Massachusetts' public health care program was very useful when I was serving in AmeriCorps, and thus obviously had no employer-based health insurance. There are problems with costs that need to be addressed (tort reform would help lower medical costs overall), but I don't see why a similar program couldn't be implemented in other states.