On the eve of President Obama's health summit, the need for reforms is growing even as the pathway for enacting them shrinks. Assuming it was possible for Republicans and Democrats to check their partisan animosities at the door, devising smart reforms still would be hard. Healthcare is more than one-sixth of our economy. Rising costs are dragging down major government entitlement programs and making it harder for people to afford private insurance. The ranks of the uninsured have been growing during the recession. And the quality of what we get for this enormous price tag is not very impressive compared with health outcomes in other countries.
[See Best Affordable Places to Retire.] While it's tempting to write off this week's summit as another political effort to capture the high ground of voter opinion, let's hope the discussions can shed some light on this issue. Goodness knows, we need it. Here are five key facets of the problem that need to be explored and debated:
Covering More People. Way back before healthcare reform became an ideological football, there was widespread agreement that too many Americans lacked health insurance and that we should figure out a better way to cover them. What gets lost is understanding that the reasons people do not have insurance are, by and large, economic. Their employers can't afford it or they can't afford it. Providing health insurance to more people thus requires some combination of new subsidies, reduced insurance benefits, and changes to the delivery of healthcare that reduce costs and thus makes insurance more affordable. New subsidies will raise government deficits, which is a bad outcome. Reduced benefits are hard to accept. What kind of health reform would that be? And lowering the cost of healthcare, while a marvelous goal, is a decades-long process that simply can't produce the kind of quick savings that would, by themselves, bring health insurance within reach of those who can't afford it.
Preexisting Conditions. Perhaps the other unquestioned objective of health reform was to prevent health insurers from denying coverage to people because of preexisting health conditions. This right of denial has been a core element of private health insurance. If you force a company to provide coverage to someone who is already sick, the result is not really an insurance product but an expense subsidy. Imagine telling your auto insurer that you were pretty sure you'd get in an accident soon but that it had to provide you coverage anyway. And at an affordable price. The only way to waive preexisting conditions within a private insurance system is to increase the size of the risk pool by requiring more people to have insurance. The premiums from healthy people wind up paying for the expenses incurred by sick people. But if there are not enough healthy people in the pool, and if they are free to opt out by not buying insurance, there is no way private insurers can afford to waive preexisting conditions.
Deficit Neutrality. Providing insurance to more people and preventing insurers from rejecting people with preexisting health conditions is a very hard feat to pull off. Requiring that this be done without raising budget deficits turns "very hard" into "#@*^%$@ impossible." There are clearly some ideological preferences in the Democrats' reform proposals. But the driving factor turning the legislation into such a convoluted proposal is the requirement that we have to somehow pay for more people to be covered against more illnesses without increasing the budget deficit. I'm not saying that's a bad requirement. It's just impossible to meet in the short run. Changing the nature of healthcare delivery is a long-term process, whereas adding people to the insurance roles and expanding coverages entails immediate increases in costs. As you listen to the discussions at the summit, pay special attention to how the reforms would be funded and the timing of when different provisions would take effect.
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Your Expense is My Profit. The health insurance industry has been a convenient fall guy for what ails the healthcare system. Recent proposals for eye-popping rate increases by WellPoint and other health insurers would seem to strengthen that view. Too bad the facts get in the way. Even accepting the fact that insurers may be inefficient, have bloated payrolls (arguable), and pay their executives too much money, the reality is that 80 to 90 percent of the money you pay them gets spent paying bills from hospitals, doctors, pharmaceutical companies, and other medical services and supplies. It would be more accurate to view health insurers as a utility, as you do your local power company. Most power companies provide nice livelihoods for many people. Their executives are well paid. They generally earn attractive returns for their shareholders. Why should health insurers be any different? Making a profit is an accepted goal in this country except, it seems, when it collides with some objective that cannot properly be achieved using normal marketplace incentives.
Socialism, Deja Vu. Most industrial societies long ago concluded that health care could not be effectively delivered by the private market alone. Governments assumed a major role and now manage many healthcare systems. The United States has tried to hold onto private-sector solutions. It's in our cultural DNA. So, it's understandable that supporters of private-sector solutions look with dismay at the President's priorities and the bills produced by the Democrats in the House and Senate. Yet we also point with pride, in most cases, to the 1965 enactment of Medicare. And what did it do? Put government in control of health insurance for older people and, to a great extent, in control of the medical services those people received. In the 45 years since Medicare, nothing has prevented the private sector from "fixing" health care. Have doctors and hospitals devised better and cheaper medical care? Have insurance companies figured out how to provide affordable health insurance that covers more people? The answer seems to be a clear "No." During the summit, evaluate the private-market remedies advocated by opponents of Democratic proposals. Why will they work today when they haven't before?