The private market can’t solve the nation’s health care problem.

Well, that’s a provocative headline. Is it true?

It’s today fashionable to think the Supreme Court will rule that the feds can’t force a person to buy health insurance (or broccoli – and I like broccoli). There are some interesting takeaways:

  • It’s hard to think of a federal solution to the nation’s health care crisis that uses private insurance. Certainly Obamacare is the best solution conservatives could come up with. It was created by the Heritage Foundation, a conservative think tank.
    But if you can’t force a person to buy insurance, adverse selection is inevitable. It is present in all insurance markets, spectacularly so in one as expensive as health care. The healthy opt out; the death spiral begins.
  • Paul Ryan’s proposal to revamp Medicare would seem unconstitutional or unworkable. He would hand a voucher to retirees and let them buy private insurance. That would, in theory, work fine as long as the voucher was generous enough to cover the insurance.
    But as I understand it, the whole point of the system is to slowly force some (initially modest) insurance costs onto seniors, so their shopping decisions can power the private market.¹
    Without a mandate, one of those shopping decisions is to not buy insurance. And that’s a choice some seniors will make – a few healthy ones at the beginning. Then adverse selection starts; more healthy people drop out of the market; the price of insurance continues to accelerate; the death spiral begins.
  • The only federal solution, it would seem, is single-payer plan, a sort of Medicare for All. It’s good enough for Grandma, I guess.
    Everything else lacks a way to coerce consumers into the market. That failing will trigger adverse selection. (Remember, it was the adverse selection problem that created Medicare nearly 50 years ago.)
  • But that’s a moot point. The past two Democratic presidents have proposed major health care reforms, Clinton in 1994 and Obama in 2010. In the elections that followed, Democrats lost 117 seats in the House of Representatives, 54 in 1994 and 63 in 2010, and lost their Congressional majorities both times. I don’t think the Dems will be taking on health care again in my lifetime.
    The Republicans could propose something, but I don’t think health care reform is a Republican priority. It certainly didn’t get much attention in the 20 years under Reagan and the two Bushes. And the Democrats’ electoral results would not tempt them to rush in.
  • Absent both a constitutional pathway and the political will, there’s no national solution. That leaves each state to solve its own problem.
    There’s some sense to that, as states have always regulated insurance.
    New England seems to be leading the way. Massachusetts has Romneycare; Vermont is enacting single-payer, though that plan could be imperiledby the Supreme Court’s deliberation.—————–
    ¹ If the voucher covers all costs forevermore, seniors will use it to buy the most expensive plan, eliminating the potential for cost control.
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2 thoughts on “The private market can’t solve the nation’s health care problem.

  1. GB says:

    You seem very hung up on adverse selection, but you’re ignoring the issues that make adverse selection such a problem: rules on community rating, take-all-comers, etc. You can’t have a functioning insurance market if the insurer is expected to act as a subsidizer of high-risk groups. Eliminate those rules and the whole adverse selection question is drastically reduced.

    There seems to be a perception that the choices are i) the current broken “private” system, ii) Obamacare, iii) socialized medicine a la Canada or the UK. But the current system is hardly a private system. The whole structure is driven by various regulations and tax breaks. For example, the major reason why most people get their health coverage through their job is that there’s a massive tax incentive to do so. That’s silly – just as silly as expecting people to get their auto insurance, or their groceries, through their employer. The whole damn system needs to be deregulated, so you actually have a functioning market, as opposed to the current system, which is a crippled version of a market, with the most important benefits of a market (incentives, transmission of knowledge) eliminated.

  2. jimlynch9999 says:

    You suggest an interesting experiment, though no one else in the world – literally – has made that experiment work. Are there any nations that are abandoning their government-heavy solutions to embrace the free market that you envision? Are any even considering it?
    I think the issue here is that in a free market, insurers have the right to not insure.
    But there are public policy issues involved. A nation has an interest in the health of all of its citizens, not just the ones that insurers want to underwrite.
    For most p/c insurance markets, it makes sense to listen to the market. If you build a property in a five-year floodplain, you shouldn’t be able to get property cover. If you are a lousy surgeon, you shouldn’t be able to get malpractice insurance. The interests of the insurance company and of public policy coincide.
    But it’s hard to tell people that they shouldn’t have health insurance because they survived leukemia or their child was born with a three-chamber heart. No government is willing to do that, and I guess I don’t blame them.
    Once government decides those persons are entitled to health insurance, adverse selection rears its head.

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