The Future: Medicare for All?

1) Kling and I both believe that providers are too strong in the current American system. I believe that if you make the price of health care visible at a level where consumers have to make either a monthly choice, or the government has to make a choice between spending money on health care versus other priorities – which becomes a political choice between visible tax increases, and/or cutting other services, as it is in the UK, Germany and other countries – then you can get to reasonable trade-offs. And in that situation the power of the collective will outweigh the power of the individual special-interest. Of course it is quite possible that the government and/or private payers could be captured by the industry (as it has been by defense in the U.S.) But then what will be the significant difference between that and what we have now?

2) It seems to me that, as Kling agrees that consumers cannot make rational decisions at the point of service, the entire concept of exposing them to price information by unit of service breaks down. So the rational option is to get them to compare prices for overall bodies of service, or if you like, healthcare experiences. You can probably organize this in different ways, but the easiest and most familiar seems to be the annual premium for a comprehensive HMO type plan. Alternatively, you can remove the decision another step by having the government rationally allocate resources, using a technique similar to the British NICE. This of course gets rid of the need for the government to directly subsidize those who cannot afford those premiums, and thus prevents that group from being segmented off into a “separate but equal “pool – which is a great fear of those Democrats who resist the privatization of Medicare.

You will note that those are the two main techniques of, on the one hand, the Enthoven school and, on the other, the single-payer crowd. When Kling says that those techniques will be insulating consumers from the cost of their health decisions, I would refer him to the point that John Cohn made that he does agree with: almost all the costs of health care are spent on a very few sick individuals. If it is not the providers, then somebody else will have to control those costs. Clearly the sick individuals are not in the best position to do so, so some other technique or intermediary must be used. Saying anything else can work is the great fallacy of the political end of the consumerist health care movement. (Although I appreciate Michael Cannon will beat me up for this statement!)

3) I want to stress that my favored outcome for reform of the American health care system is an Enthoven type model in which there is compulsory membership in universal national or regional pools, and in which providers supply pre-paid care, complete with global pricing for a set of clearly defined services. Having sat through Enthoven’s classes in the early 90s and watched the industry pick apart the Clinton plan, which was closely based on his ideas, I’m extremely cynical about its chances of ever passing. Instead I believe that the industry will destroy any reform attempt until the health care system becomes so patently wasteful and unfair that there is a genuine political revolt. At that point, single-payer – probably by extending Medicare for all – will be the obvious political answer. It will be some mix of Kling’s three variants of single-payer, and hopefully will evolve into a system where competition is carefully managed to improve the consumers’ experience–this is roughly what is happening in Holland and (one might argue) also in the UK and Sweden. But my point is not that I want UK-style 1950s single-payer, although I do think it is an improvement over what we have now – certainly for the cost. My point is that that is what we are likely to end up with, unless the healthcare industry decides that it is able to stop gilding the lily now. So far I’ve seen no evidence of any voluntary shared sacrifice on the industry’s part.

If Kling really thinks that this forecast lacks political reality, one only has to run the numbers out into the future and contemplate a typical family premium approaching 50% of the median income to realize that our current employment-based system is only sustainable for the middle class for a decade or so. When the middle-class becomes those people who they used to be scared of providing socialized medicine for, then their views (or at least enough of their views) will change. I don’t think this is a short-term process, which is why I’ve said elsewhere that the current round of Arnie/Romney/AHIP health reform is unlikely to succeed.

Meanwhile, if we are talking about ignoring political realities, then Havighurst’s call for eliminating tax deductibility of health benefits would absolutely be in that category, at least currently. I do like Kling’s idea of capping the amount. This is similar to what the British government did with capping mortgage interest deductibility in the 1980s, which has now essentially been eliminated by time and inflation. But you may remember that a commission addressing this last year was immediately ignored by George Bush. Frankly if we have the political will to do this, I suspect it’ll be part of a much, much bigger reform.

And, finally, I can’t really comment on Kling’s reply to John Cohn, as he was mostly dishing it out to Jacob Hacker. But reform of the way Medicare pays for care, and the way variation in care is to be removed, are subjects that will be tackled by a group of elites who actually understand this stuff, out of the view of the public eye. So the real issue is how people get coverage or insulation. Anybody who has observed American politics in the last two decades knows that issue will be decided by a simple slogan like “Medicare for all,” because, after all, the use of similar simple slogans is how we generally decide questions like the fate of the estate tax (“death tax,” anyone?), going to war with Iraq, and other weighty matters. I myself have been a major critic of the way Medicare – and all fee-for-service medicine, for that matter – operates. But Kling can’t have it both ways. If there were no budget-busting Medicare Part B, along with its multimillionaire oncologists, those cancer survival rates would look the same as the rest of the world – I don’t see much of the beauty of the free market in that.

Also from this issue

Lead Essay

  • In this month’s lead essay, Cato Institute adjunct scholar Arnold Kling draws from his book, Crisis of Abundance, to argue that the health coverage most Americans enjoy is not insurance at all, but what he calls “insulation.” “The problem with insulation,” Kling argues, “is that it is not a sustainable form of health care finance… Insulation leads people to over-consume health care services. Americans make extravagant use of services that have high costs and low benefits.” Kling explains how real health insurance would work, and how it would help solve the crisis in health care, and explores how we could transistion to a system over time institutionally and culturally in order to resolve the inconsistent demand for insulation and affordable, effective care.

Response Essays

  • According to health care strategist Matthew Holt, Arnold Kling is correct that consumer insulation from the costs of “premium medicine” is partly responsible for the rising cost of health care, but Holt dissents from Kling’s solution. Holt examines what he takes to be the three main strategies for dealing with “the insulation and overuse of medical care in the U.S.”: a nationalized “single payer system; a system of “managed competition”; and “individual consumer control of spending at the point of service.” Holt argues that the latter two options face deep problems, and that a nationalized single-payer system “is the likeliest outcome in perhaps a decade or so,” even it is not politically feasible at present. “Kling has provided a decent analysis,” Holt argues, “but has proposed a solution that both ignores the political and cultural realities of the health care system, and probably wouldn’t even work in theory.”

  • Clark C. Havighurst agrees with Kling’s “diagnosis of what’s wrong with health care” in the U.S. “as far as it goes.” Havighurst goes further and digs into the reasons the U.S. health system “has evolved into an entitlement program under which everyone expects nothing less than the very best that ‘modern medicine’ has to offer.” Havighurst lays the blame at the feet of the government’s choice to subsidize the purchase of health care by “excluding the cost of employer-sponsored coverage from employees’ taxable wages and income” and lucidly details three different mechanisms by which the tax subsidy insulates workers, consumers, and voters from the costs of health care. Havighurst proposes that “something approaching [liberals’] goal of universal health coverage could be achieved by ending the current tax subsidy and offering refundable tax credits of, say, $6000 to families that spend at least that amount in health plan premiums or contributions to a health savings account.”

  • Jonathan Cohn, a senior editor at the New Republic, agrees with Kling that our current health care system doesn’t function according to the widely understood principles of individual insurance, but he doubts we’d do better at fighting rising costs and maintaining quality if citizens with “real” insurance were free to take price into account in their choice of care. “We have precious little evidence to believe that people can distinguish good care from bad care,” Cohn writes. And the notion that consumer choices will improve over time is, according to Cohn, “a lovely idea, but one that seems highly dubious.” Cohn argues that we need a broader notion of insurance – social insurance – to shield people not only against unexpected illness and harm, but against “genetic and economic bad luck.” Cohn argues that many nations do just fine in managing the cost/quality tradeoffs inherent in a state-controlled system of universal coverage, and that Americans would be happy with such a system “if only they knew how those systems really worked.”