Many More Than the Uninsured Are At Risk from the Health Care Crisis

Laurence J. Kotlikoff writes in The Boston Globe about listening to Sandra Day O’Connor speak on health care and was impressed with the problem, realizing it affects far more than the currently uninsured:

BIG NUMBERS, like 45 million uninsured Americans, are hard to grasp. But that number came home to me at a recent conference. The keynote speaker was former Supreme Court justice Sandra Day O’Connor. Her topic was our healthcare system, and her message was personal and anguished.

The gist was that even she lives in constant fear of major uninsured health bills. Not her own — those of her son. He can’t afford insurance because his son — her grandchild — has a preexisting condition.

As I listened, a light dawned: O’Connor and the rest of us with health coverage are also uninsured. We too face terrible, albeit more remote, healthcare risks — the risk that our employer will drop our plan, that Medicare will go bust, that our plan won’t cover our needs, that premiums will eat us alive, that our doctor will stop taking our insurance, that long-term care will wipe us out, and that our uninsured friends and family members will need major financial help.

These risks are entirely avoidable. We can have an efficient, transparent system that includes everyone; treats everyone fairly; covers all the basics, including prescription drugs, home healthcare, and nursing home care; and costs little more than what we now spend. But we can’t get there via the piecemeal reforms that President Bush, most of his would-be successors, and our state governors are advocating.

Bush first pushed health savings accounts — a knuckle-brained scheme to get the uninsured to save for all their healthcare costs short of catastrophic care. When that didn’t stop 5 million more Americans from becoming uninsured, the president proposed letting the uninsured deduct the cost of their health plans if they buy private coverage. This makes sense on equity grounds (insured workers receive a tax break), but it won’t help much. Most of the uninsured are in too low a tax bracket or pay too little in taxes for it to make any difference. In any case, the Democrats have nixed this idea.

So the president’s plan C, it seems, is to let the states deal with the problem.

After discussing flaws with various systems, Kotlikoff  provides his own solution:

My solution is called the Medical Security System. It would eliminate Medicare, Medicaid, and (by dropping the tax breaks) employer-based healthcare. The government would give everyone a voucher each year for a basic health plan. The size of the voucher would be based on one’s health status. Those in worse health would get bigger vouchers, leaving insurers no incentive to cherry-pick. Furthermore, insurers would not be permitted to refuse a voucher or otherwise deny coverage.

The government would set the total voucher budget as a fixed share of gross domestic product and determine what a basic plan must cover. We would choose our own health plans. If we cost the insurer more than the voucher, he would lose money. If we cost him less, he would make money. Insurers would compete for our business and could tailor provisions, like co-pays and incentives to stop smoking, to limit excessive use of the healthcare system and encourage healthy behavior.

Nothing would be nationalized. Virtually all of the cost would be covered by redirecting existing government healthcare expenditures as well as tax breaks. Doctors, hospitals, and insurers would continue to market their services on a competitive basis.

I fear that this sounds much simpler than it would be in practice. The big question would be how the size of each voucher is set based upon a patient’s health problems. We would have problems comparable to the DRG system in which hospitals are paid a flat rate for hospitalizations by Medicare based upon the admission diagnosis. It is another simple sounding idea which led to considerable complexity.

As the ramifications are considered there will also be many who object. As the size of the voucher is dependent upon each individual’s health status, this would create fears of providing government with even more personal information. Insurance companies would fear vouchers which do not adequately cover certain problems. There would inevitably be some people who are more profitable to insure and others who they lose money on. Just as we now have Medicare Advantage plans sending out sales people using unsavory tactics to sign up desired seniors, under a plan such as this insurance companies would find ways to target those they find most profitable.

Even if insurance companies could not deny coverage to individuals, they could include conditions in their policies, such as which services are covered, which would make their coverage more or less attractive to different types of individuals. If young healthy women are more profitable to insure, they might be more willing to pay for birth control as an inducement, or they might avoid such coverage if the system is biased towards better payments only for those with medical problems. Their attitudes on covering new, and possibly experimental, cancer treatments would be based upon whether they find it profitable to attract or keep away cancer patients. In the end, I suspect that there would be many problems and widespread dissatisfaction with such a voucher plan, but it would also be an improvement upon the current system.