Sunday, June 14, 2009

In my view, there are worse things than Medicare for all – and the present system might be one of them.

TO BE NOTED: From the FT:

Medicare for all may be the best cure for the US

By Clive Crook

Published: June 14 2009 18:35 | Last updated: June 14 2009 18:35


For the past few months, Barack Obama and his allies in Congress have been striding towards far-reaching reform of the US healthcare system without the public paying much attention. This is changing. Interested parties are studying draft legislation to see where they stand. In spite of the Democrats’ dominance in Washington, reform will not glide through unopposed.

Using a manoeuvre called reconciliation, the administration can get reform through Congress without a single Republican vote. But the Democrats themselves are divided.

They agree on several elements. At least to begin with, private employer-provided insurance will remain the norm. “If you like your present plan”, as most Americans do, “nothing will change”. New mandates, subsidies and a regulated insurance exchange would widen coverage, as in Massachusetts. But controversy surrounds three points: what the reform will cost, how it will be paid for and, especially, what role a new public insurance plan might play.

The nonpartisan Congressional Budget Office is known for its unhelpfully honest analyses. The agency is under attack on health reform even before it has released its numbers: Democrats think these will be unduly pessimistic. Some already want Congress to ignore the CBO and use “directed scoring” instead. (Under directed scoring, policies cost what you want them to.) Even on the administration’s own estimates, reform will cost more than $1,000bn (€714bn, £608bn) over 10 years. Standards have changed lately, but it is still a lot of money.

To their credit, Democrats have promised that the reform will not add to the long-term budget deficit, so taxes will have to go up. The question is, whose taxes? There is a lot to be said for cutting the tax subsidy for employer-provided insurance, which could raise a lot; but many Democrats, including Mr Obama, and most trade unions are opposed. The administration wants to curb tax deductions claimed by high earners, but many conservative Democrats object.

Most contentious is the proposed public insurance option – a government-run plan to compete alongside private insurers to press down on costs and “keep them honest”, as Mr Obama puts it.

Mr Obama is strongly backing the public plan idea and most Democrats in Congress agree with him. A significant minority of more conservative Democrats are sceptical. They worry that a public plan would crowd out private insurers and that the US would end up with a national government-run health plan: in effect, Medicare, the existing programme for the elderly, widened to cover everybody. Many left-leaning Democrats quietly agree with that prediction, which is why they like it.

In my view, there are worse things than Medicare for all – and the present system might be one of them. Medicare for all would give the US truly universal coverage and better control of costs. It would preserve choice of doctor and hospital, and private insurance for supplementary services could co-exist for those who wanted it. The demise of employer-provided plans would make labour more mobile and relieve workers of the worry that losing their job means losing their health insurance.

One obvious objection is that Medicare for all would politicise US healthcare to a degree that the country has not known. Controlling costs by denying expensive treatments and squeezing suppliers’ incomes is something Medicare for all could try to do, but this is a formula for perpetual political conflict – and if it were ineffective, taxpayers would pay the cost.

A less obvious objection is that a healthy private insurance market is worth preserving. The seething hatred many Democrats – and many other Americans of no fixed ideology – feel for private health insurers ignores the value they bring – and the extra value they could add if their incentives were better designed and their customers had the information they needed to make intelligent choices.

If competition is a good thing, competition among insurance providers is a good thing too. Yes, abolishing it reduces one kind of lump-sum administrative overhead, which is all some Democrats seem to care about. But it also abolishes pressures for innovation and other kinds of cost reduction. In other industries, competition pays for itself in spite of the apparent waste of marketing and other forms of duplicated effort. Healthcare is different – but not that different. At the very least, one should pause before shutting competition down.

Shutting it down is not the purpose of the public plan, say its Democratic supporters: the public plan is just one more choice. This is disingenuous. If the public plan had to compete on truly level terms with private plans, how would it be able “to keep them honest”? If it is going to exert the pressure it is intended to and really make a difference, it will have to flex its political muscle, its ability to attract subsidy and its superior buying power: “accept this lower reimbursement or no Medicare patients for you”. A public plan cannot be just another competitor: it is anti-competitive, and meant to be.

As I say, the present system is so bad that Medicare for all might be an improvement. I think the US would do even better to build its reform around competition among intelligently regulated private insurers. But if Medicare for all is what this president and Congress really want, they should come clean, and be out there making the case.

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