Public options in health insurance

Occasionally, I get blog post requests and more occasionally I respond. This is one response from a reader who is wondering what I made of the whole ‘public option’ debate in the US over health insurance. This is actually something I worked in for Australia back in 2003 (or thereabouts) and was part of Finishing the Job.

As I understand it there are several problems facing the US system. First, there are 50 million uninsured. Second, many of those who are insured have deals that might mean they are actually uninsured as treatments and even coverage may be denied when they come to claim it. Uwe Reinhardt calls this ‘unsurance.’ Third, too much is tied to employment. Fourth, it is hard to work out what is going on and so competition may be impeded. Finally, it isn’t clear the system with these problems is even economical (i.e., in maximising health per dollar spent).

The proposals cover various things. The first is to set-up an exchange that makes choices easier for consumers. We don’t have that here but anything that improves transparency is, prima facie, not a bad idea. The second is to launch a public scheme in that exchange. The idea is that will be both cheaper and less discriminatory than private plans and so will be able to close some of the uninsured gap. The issue here is that it will surely cost more money because you are paying for more health (which is, by the way, not a bad idea) although if there is a competition issue in private insurance, this effect will be muted.

To the outside eye, this all seems messy. For instance, if a public provider can solve the ‘unsurance’ problem surely with appropriate regulations, private providers can do so to. In Australia, this is done through community rating and last time I looked the industry survived. In addition, universality can be solved be appropriately extending Medicare. Finally, there is a rationale for breaking the whole employment-based system by taxing the benefit while at the same time reducing payroll tax — that way, insurance isn’t likely to be tied to an employer.

That said, when you think about it, the optimal system — whereby everybody in insured to some level of treatment with those treatments reimbursed at a set rate with private coverage being allowed to offer additional treatments, quicker treatment and fancier surrounds — would be really hard to jump to. The transition would be painful especially without publicly-owned hospitals to catch the bits that are missed while the private sector re-organises itself around a new model. When you start to consider transitional issues, the public option — for all its messiness — starts to look more attractive.

[Update: Another interesting perspective]

4 thoughts on “Public options in health insurance”

  1. Another approach to funding health is to realise that most medical costs do NOT require insurance. That is, we can predict pretty well how much we need on average for the “regular” items. These are things like dental work, regular “check ups”, pre-natal, birth and post natal, injections, minor accidents, treatment for diseases such as diabeties etc.
    Major accidents, major unexpected health issues like a heart attack (or even that can be estimated), where people do not have the resources can be covered by simply doing something about them when they happen as we do now.
    Given this view then insurance becomes unnecessary if people have the resources to cover the predictable.
    So instead of health insurance or medicare let us have “medi save” where we give everyone an amount of money each year that they can only spend on health. The money earns interest and can accumulate – but it can only be used to for defined health related matters.
    For those emergencies we pay for them “automatically” with non recourse loans that we can repay from the money we get in the future. We can vary the amount of money each person gets if they have chronic illnesses.
    We pay for capital works through giving every person in the country the right to zero interest loans that can only be invested in health infrastructure – buildings, machines, etc. and which will be paid back from the earnings on the infrastructure.
    This brings choice, frugality, “insurance”, and markets to the provision of health care and can easily be set up as the only change is the flow of monies not the actual physical systems.

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  2. A “better” version of the previous reply can be found at http://cscoxk.wordpress.com/2009/08/23/financing-a-nations-health/

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