Consider the French system, which the World Health Organization ranked number one in the world. France maintains a basic insurance system that covers everyone, paid for out of tax receipts. This is comparable to Medicare. People are also encouraged to buy additional insurance that covers more medical expenses—comparable to the supplemental health insurance that many older Americans have on top of Medicare—and the poor receive subsidies to help them buy additional coverage, comparable to the way Medicaid helps out millions of older Americans.
It’s worth noting, by the way, that the Canadian system, which is often used as an example of what universal health care in America would look like, has a feature present neither in the French system nor in Medicare: Canadians are not permitted to buy their own care in areas covered by government insurance. The rationale for this restriction is that it’s a means of holding down costs by preventing affluent Canadians from bidding away scarce medical resources. However, it clearly isn’t an essential feature of universal care. Again, older Americans covered by Medicare, like the French, are free to buy as much health care as they want over and above what the government provides.
The parallels between the French system and Medicare aren’t perfect: There are some features of the French system that don’t have counterparts in America, at least not yet. Many French hospitals are government owned, although these have to compete for patients with the private sector. France also has a strong emphasis on preventive care. The French government provides full coverage—no co-pays—for chronic conditions such as diabetes and hypertension, so that patients won’t skimp on treatment that might prevent future complications.
The key point, however, is that the French health care system, which covers everyone and is considered the best in the world, actually looks a lot like an expanded and improved version of Medicare, a familiar and popular program, extended to the whole population. An American version of the French system would cost more than the French system for a variety of reasons, including the facts that our doctors are paid more and that we’re fatter and hence more prone to some costly conditions. Overall, however, Medicare for everyone would end the problem of the uninsured, and it would almost certainly cost less than our current system, which leaves 45 million Americans without coverage.
In a world run by policy wonks, that would be the end of the story. Americans love Medicare; let’s give it to everyone. Paying for the expansion would mean higher taxes, but even Americans who currently have insurance would more than make up for that because they wouldn’t have to pay such high premiums. Problem solved! Fortunately or unfortunately, however, the world isn’t run by policy wonks. Proposals to institute a single-payer system, aka Medicare for all, face several major political roadblocks.
The roadblock one hears about most often is the implacable opposition of the insurance and drug industries to a single-payer system. Reformers should realize, however, that these interest groups will go all out against any serious health care reform. There’s no way to buy them off.
It may be possible, however, to finesse two other barriers to change: the need to raise taxes, and the public’s fear of losing choice. First, the problem of taxes: Extending Medicare or its equivalent to every American would require a lot of additional revenue, probably about 4 percent of GDP. True, these additional taxes wouldn’t represent a true financial burden on the country, since they would replace insurance premiums people already pay. Despite that fact, it would be very challenging to convince people that a large tax increase didn’t represent a true net increase in their financial burden, especially in the face of the dishonest opposition campaign such a proposal would inevitably encounter. It would also be difficult to pass tax increases of the size needed, even with a strong progressive majority.
The problem of maintaining patient choice is, in a way, similar. Medicare-type coverage would replace much of the insurance Americans already have, and they would be free to buy additional coverage. But a plan that automatically puts people into a government insurance system could easily be portrayed as a plan that deprives them of choice. The opponents of reform would do their best to promote that misunderstanding.
It’s important to bear in mind that these two problems are political objections to a single-payer system, not economic objections. In purely economic terms, single-payer is clearly the way to go. A single-payer system, with its low administrative costs and strong ability to bargain over prices, would deliver more health care, at lower cost, than the alternatives. The perfect can, however, be the enemy of the good. It’s much better to go with a reform plan that’s politically feasible and achieves some of the advantages of single-payer than to hold out for the ideal solution.
Now for the good news: Over the past few years policy analysts and politicians have been evolving an approach to health care reform that seems to be a workable compromise between economic efficiency and political realism. It involves four basic elements:
Community rating
Subsidies for low-income families
Mandated coverage
Public-private competition
I’ll begin by discussing the first three, pause to explain what they accomplish in combination, and then explain the role of the fourth.
Under community rating, insurers are prohibited from charging customers different premiums, or denying coverage altogether, based on their perceived risk of getting sick. “Pure” community rating, which is already the law in New York and Vermont, requires that insurers offer everyone policies at the same premium—end of story. Under “adjusted” community rating, which is already the law in Massachusetts, New Jersey, and elsewhere, premiums can vary by criteria such as age and geography—but not by medical history. The purpose of community rating is to prevent insurers from denying care to people with preexisting conditions and other risk factors; it’s also supposed to reduce administrative costs, because the insurance companies no longer devote large sums to identifying risky applicants and rejecting them.
Subsidies are something we already do, under Medicaid. Reform proposals call for extending these subsidies to cover many people who aren’t eligible for Medicaid but still can’t afford insurance, mainly lower-income working adults.
Mandated coverage says that you must have health insurance, just as car owners must have auto insurance. It’s intended to deal with the problem of individuals who could afford insurance but choose to take their chances instead, then end up in emergency rooms, where taxpayers often end up paying the tab, if something goes wrong. Some plans also include an employer mandate, requiring that employers buy health insurance for their employees.
Combining these three elements leads to a universal health care system run through private insurance companies. People who might have been denied insurance because of medical history are guaranteed access through community rating, people who might not otherwise have been able to afford insurance are helped out financially, and people who might have chosen to take their chances aren’t allowed to.
Massachusetts introduced a system along these lines in 2006. And Arnold Schwarzenegger’s plan for California is similar. Two major candidates for the Democratic nomination, John Edwards and Barack Obama, have announced related plans at the time of writing, although they both also have the fourth feature, which I’ll discuss in a moment.