Universal Healthcare Bills

You’ll have to forgive me for straying from the topic of life in London, but the bills making their way through congress have been really bothering me – not because they are too liberal or too conservative, too expensive or too cheap, but because they don’t achieve their stated objectives.  If you’re not interested in hearing my thoughts on the matter, you should probably just skip this note.  If you are interested, note that I am merely talking about achieving the apparent objectives laid out by members of congress and the administration, that is to say what I would do if I shared their objectives, a discussion for another time that is irrelevant to my complaints.

So, let’s take these as the stated objectives, which as near as I can tell are shared by the leaders of Congress and the President:

1) Universal coverage.  That is to say that every person in the United States should have coverage that meets certain requirements, at the very least, and everyone should be able to afford it.  We’ll call this the base level, and assume that there are no trade-offs allowed (e.g. the government does not want to allow people to have a higher deductible if it means more doctor visits per year).

2) A government-chartered insurer to “compete” with the private insurance companies.  Note again that I am not saying this is a good idea or a bad idea, just that it is a goal.  As an aside, I am not sure whether this can be done honestly, but whenever people say private insurers cannot compete, I keep thinking about the Postal Savings System, which was shut down after private companies bested it in almost every way. I recommend reading up on if you have not heard about it (most people have not).  Health insurance might be different than savings plans though, and it depends on the government-run one being very carefully set up not to have an unfair advantage.

So that’s it for our requirements.  Here’s what I would do:

• Charter the insurer, and set it up in a way so that it’s run at arms-length.  Set it up as for-profit, not-for-profit, whatever.  Perhaps give it a similar capital structure to a private non-profit insurer, and sell the debt at the same rates to the public, have the government buy the rest, and have the government provide the equity for free.  Perhaps the states will own the equity.  It’s material, but there are undoubtedly different ideas out there.
• Set up a national marketplace where every plan needs to have a certain minimum level, and each insurer needs to provide a plan of exactly that level.  Which is to say that there will be a homogenous product competing only on price, in addition to products that compete on features.  Require the plans to be open to everyone (at least for initial sign-up and switching between equal or lower coverage levels) and to have the basic-level plan priced the same everywhere in the country.  This is to say that the basic plan from insurer X will always cost $Y, though insurer A may only charge $B.  Any plan above the basic plan can cost different amounts in different places, but no less than the basic plan. Do not allow the states to require anything additional of the basic plans over the federal requirements.  E.g. New York cannot require that all plans cover plastic surgery for men over 40, etc.  For any plans with more than the basic coverage, the states can regulate them further, including the government-chartered plan.

So far, we’re more or less where most of the bills put us, with the exception of the level regulatory playing field I’ve created for the basic health plans.  Now, here’s where I think it becomes different:

• Provide everyone in the country with a credit of $G at the treasury for their healthcare costs.  $G is the cost of the basic level government run plan.  This is so that everyone can afford insurance, and gets to take their basic dollars where they want them.  Not only that but it’s relatively simple, compared to tax credits, etc.  You just have a database with everyone in it.  Now, allow people to pick their plan.  If they pick their employers plan, their employer can claim that credit, but they do not have to pick their employer’s plan.  If they pick an individual plan, their insurer can claim that credit.  If they pick the chartered plan that organization gets it.  If they pick an individual plan (now, remember, they all have a basic level) that costs less than $G, they will get a check from the for the difference.  Perhaps make it tax-free to encourage low-cost spending.  If they do not pick an insurer assign one to them randomly, or assign them the government one (depending on your political motives).
• Pay for it.  I don’t really care how.  All we’re doing here is shuffling money around anyway, and creating much larger risk pools.  At the very least, remove the tax deduction for employer-provided benefits.  Everyone will get the same amount tax-free, and they have an incentive to pick really cheap plans (that all provide the basic level) because they will get money back.  Right now, the people with the worst jobs, who are the poorest, have to pay the most for health insurance because they pay with after-tax money.  This is hugely inequitable.  So that will undoubtedly create savings because people might choose to consume less healthcare and select higher paying jobs rather than ones with better healthcare (which they can always add on to in the individual market).  Perhaps add a national sales tax.  Perhaps increase income taxes uniformly by income (1% across the board).  Perhaps increase income taxes non-uniformly by income (10% on the “rich”, 20% extra on the poor).  Perhaps increase taxes uniformly per capita ($G per person).  In any case, it should be completely paid for, but the beauty is that it’s easy.

The reason I state these two objectives is because I think it’s the only way that we will create uniform risk pools with truly universal coverage.  Mandates are complicated and do not address the issue of people who cannot pay, but if you give everyone the basic level of healthcare (through either a private company or the government) then a broadened risk pool is automatic.  Not only that, but it’s less legally suspect.  Requiring people to do something through an income tax surcharge would open the door to requiring people to do anything simply by adding a large tax penalty to an opposing action.  However, the federal government is more than welcome to provide any entitlement it likes – you can’t refuse something that you get automatically, and it’s not forcing you to do anything (except your taxes, but you already have to pay them).

Any thoughts?  I’d love to hear what people think.  The problem I have with the current bills is that they are over-complicated, still leave inequities (not in terms of coverage, but in terms of special treatment – people with generous company coverage are much better off  in terms of their tax-adjusted consumption levels than people with an income increased by the cost of that same coverage), and don’t achieve their stated goal of covering everyone.

I know the cost of this plan would be high, but the higher taxes would be rebated directly to individuals, meaning that they would still be in the hands of the public to be spent by the public, essentially just requiring them to consume a particular good.  I could guess that such a tax would not have the same impact on economic growth as others would. E.g. imagine a tax that you got back as a visa gift card that you can also get cash from at ATMs.  Would this impact economic growth?  Probably not because you can use it as cash or in lieu of your credit card.