This discussion has gone in so many directions that it is hard to find a way to wrap it up. Unfortunately, President Bush’s latest proposal is such a pitiful response to a huge problem that I don’t even want to talk about it.
Instead, let me embrace, with Matthew Holt, the basic Enthoven managed-competition model, with one amendment. Rather than having all health plans offer identical coverage (which some have thought necessary to preclude adverse selection), I would encourage price-focused competition over the scope and nature of benefits specified in insurance contracts. Plans should be free to offer both catastrophic coverage tied to health savings accounts and comprehensive coverage of care provided by closed panels of providers. In either case, innovation in establishing and administering coverage limits should be encouraged.
Competition will solve the cost problem only if consumers are made acutely cost-conscious (at the margin) and if health plans can make relatively cheap coverage available by aggressively counteracting moral hazard and foreclosing easy access to “premium medicine.” Accepting contractual limits on their entitlements is one way – in my view, the better way – for consumers to avoid paying for care that is useless, unproven, or just not worth paying for in advance. (Out-of-pocket purchase is not precluded, of course, and health savings accounts will make that option more realistic than it was under first-generation managed-care plans, which effectively rationed not just third-party financing but care itself.) The adverse-selection problem could be dealt with by making it hard to upgrade coverage once a health need arose; contractual authority for a plan to invoke limits in a patient’s previous contract in covering a pre-existing condition should be sufficient. On the other hand, risk-selection by insurers could be minimized in a managed-competition framework by pooling the premiums paid by individuals and then paying the various insurers on the basis of the risk profile of the group actually enrolled.
Mark Pauly has recently recognized that – as I have argued for many years — the health sector cannot be efficient as long as all health plans undertake to finance all “medically necessary” care and courts and regulators require all care to meet “professional” standards. “Medical necessity” obviously excludes benefit/cost tradeoffs at the outset, and the law’s tests for determining professional negligence also come from professional sources that pay virtually no attention to cost. Any health policy initiative that leaves these tests for coverage and quality in place is a recipe for ever-higher costs and more “premium medicine.” Interestingly, the Clinton task force in 1993 explored ideas of this kind, but Hillary Clinton and Ira Magaziner wouldn’t hear of them. Because neither of the Bush presidencies seized this issue, we may have to wait for another Clinton administration to return to the managed-competition model, this time (let’s hope) allowing freedom of contract.
It would obviously be difficult to write and administer contracts that specify unconventional limits on coverage and authorize cost-justified deviations from professional standards of care. Patients will not easily accept that fine print in their low-cost insurance contracts precludes their access to some desired service, entitles them to less than the highest standard of quality, or denies them conventional tort remedies. Likewise, courts will not be easily persuaded that a consumer knew that the insurance contract he was purchasing was neither a Mercedes nor a Cadillac. Moreover, courts generally construe ambiguities in insurance contracts against the insurer, even when ambiguity was practically unavoidable, making it hard for health plans to take firm positions against coverage even in many not-so-close cases. These serious problems could be met more or less satisfactorily, however, by requiring truth in advertising, by referencing selected (cost-conscious) clinical practice guidelines in health plan contracts, and by stressing the availability of health savings accounts as alternative sources of funds when coverage is not available. Choices could be clarified by public or collective private development of several standard-form contracts each providing a different level of entitlement to care in the no man’s land where perceived benefits may not justify incurring the associated costs.
As I suggested earlier in this discussion, financing needs to be put on a more progressive (or less regressive) basis, with less reliance on exclusions and deductions from taxable income (which are more advantageous to those in higher tax brackets). Refundable tax credits equal to at least a substantial fraction of premiums paid could enable everyone to purchase at least (very) basic coverage, thereby inviting competing health plans to find ways to provide such coverage. Although some plans would let patients make many spending decisions at the point of service, some restrictions on the spending of insurers’ funds once deductibles are exhausted are inevitable and appropriate. In a market featuring freedom of contract and free choice of health plans, managed health care might finally be legitimized and accepted as an essential feature of an efficient health care system and as a preferable alternative to a one-size-fits-all single payer.
Ironically, the strongest argument for a single-payer plan is a “second-best” one. Despite the attractiveness of the managed-competition model as I have sketched it, the American political and legal systems may be incapable, in the last analysis, of creating and maintaining a market for health care in which public involvement is limited to providing appropriate subsidies for purchasing health coverage and facilitating and effectuating cost-conscious consumer choices. Thus, because political intermeddling is already prevalent in so many spheres, can occur at so many places and in so many areas of government, is supported so effectively by special interests, and is generally so much a part of the American way, there may be no realistic alternative to a scheme in which government is the dominant player. For some of us, of course, it is extremely frustrating and depressing to realize that government’s own shortcomings strengthen rather than weaken the claim that only government can operate a tolerable, workable health care system. Yet, whatever big-government liberals may allege about market failure as a justification for their remedies, in fact it is government’s irremediable incompetence and their own obstructionism that may leave the nation with no alternative to letting government assume more direct responsibility.