May 11, 2006
Health Insurance Posted by John Steele Gordon at 10:15 AM EST No one, I fancy, disagrees with the idea that the way this country funds health care is a mess of the first order. We got into the mess the way democracies so often do: one casual, unthought-out step at a time. What these steps were can be found in an article I wrote for American Heritage fourteen years ago. I regret to report that not much has changed, except the numbers, which have gotten a lot bigger.
While everyone agrees there’s a problem, and a big one that is getting bigger, the arguments break out over how to fix it.
Some want to socialize American medicine, by having a single-payer system in which the federal government provides all health care, paid for through tax money. This has the virtue of being very easy to grasp as a concept. But as far as I’m concerned that is about its only virtue. First, why anyone would advocate turning over 15 percent of the American economy to those wonderful people who brought you the post office is a mystery to me. The federal Medicare and Medicaid programs are even bigger messes than the system as a whole. Second, an all-inclusive single-payer system, no matter how well designed and run, would still be both a monopoly (the only seller of medical services, drugs, and equipment to the public) and a monopsony (the only buyer of medical services, drugs, and equipment from doctors, nurses, pharmaceutical companies, etc.). And monopolies and monopsonies (which are much rarer, and usually involve government in some way—such as the American market for nuclear submarines) have several characteristics in common: they are invariably fat, lazy, uninnovative, ever-increasingly bureaucratic, devoted above all else to the maintenance of the monopoly or monopsony, and always willing to use their market power to set prices unfairly. I favor an incremental system of reform that would utilize, as much as possible, the enormous power of the free market to force efficiency on a system that is presently wasting money by the tens of billions a month, with the government funding the medical insurance of those who lack the wherewithal to pay for it themselves.
There is not enough space to go into the various steps I would advocate, although if there is interest, I can do so in a future post. But there is one step that would save billions by greatly reducing the cost of health insurance and would not cost the federal government a cent. All it takes is a simple act of Congress.
Insurance is the one major component of the American financial system that is regulated entirely by the states. As a result, insurance companies must jump through fifty different sets of hoops if they want to sell an insurance policy nationwide. Worse, state legislatures are much more susceptible to lobbyists than is Congress, which gets much more attention. As a result, many states mandate that health insurance cover many procedures and therapies that the purchaser of the policy might not want but has to pay for anyway. Most states require chiropractors to be covered. Eleven states require policies to cover acupuncture, seven hair transplants. Four insist that massage therapists be covered.
Many states require what is called guaranteed issue. That means that an insurance company must sell a policy to anyone who asks, whenever he or she asks for it, even if already in the hospital with a very expensive illness to be treated.
Those states that have the most of these mandates have the highest insurance premiums, of course, and the differential is not small. One online insurance brokerage, ehealthinsurance, found that a bare-bones policy for an individual ($1,000 deductible, with a 20 percent copay) varies in price by a factor of six. Such a policy would cost $54 a month in Long Beach, California, and $334 in New York City.
Rep John Shadegg, Republican of Arizona, has sponsored a bill (cosponsored by 78 other members of the House) that would allow people, regardless of the state they live in, to buy insurance from any company licensed in any state, under that state’s regulations. In other words, the person who now has to shell out $334 a month to buy a bare-bones policy because he lives in New York City could buy the same policy from a California company for about $54 a month. About 10 years ago, Congress passed legislation allowing people to do their banking out of state if they so chose. There is no reason not to allow them to do the same with insurance. One would think this would be a slam-dunk, as one would think that Congressmen would leap at the chance to offer their constituents radically cheaper health insurance. But no, there is much opposition in Congress to the idea, mostly coming from the representatives from the most highly regulated states. They seem to favor the interests of their pals in the state political establishment over those of their constituents. Further details are available at Rep. Shadegg’s website.
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