A lot of what key Republicans say in the health-care debate (and other debates too, such as Social Security) suggests that they fundamentally fail to understand the concept of insurance.
For example, Vice President Pence was quoted over the weekend criticizing Obamacare’s Medicaid expansion for putting “far too many able-bodied adults” on the program. Sen. Ted Cruz (R-Tex.) argued that his ill-considered amendment to the Senate replacement plan — the one that allows insurers to offer bare-bones plans that bifurcate the risk pool and thus invoke the classic insurance “death spiral” — “ensures consumers have the freedom to choose among more affordable plans that are tailored to their individual health-care needs.” A few months ago, House Speaker Paul D. Ryan (R-Wis.) argued that Obamacare’s fatal structural flaw was that it was set up so that the healthy would subsidize the sick.
That’s kind of a description about how insurance works. Pence’s point also makes no sense in this context: We want “able-bodied” people in the Medicaid risk pool. And as noted, Cruz invokes “adverse selection” by allowing healthy people to self-select into cheap plans, leaving less healthy and thus more expensive people to be covered in plans with much higher premiums. These expenses lead the least unhealthy in this sicker pool to take their chances elsewhere, which only exacerbates the problem. Based on this logic, two major health insurance lobbies just announced their opposition to the Senate plan, calling the Cruz amendment “unworkable,” and “saying it would send premiums skyrocketing for those with preexisting conditions and leave millions more people uninsured.”
What’s going on here?
Two things, at least. First, I do think today’s conservatives are uniquely uneducated when it comes to the role of government in mitigating risk. But second, the old Upton Sinclair insight about people being paid not to understand something is also very much in play. Were they to understand the practical implications of their positions, any replacement plan for Obamacare would end up looking pretty much like Obamacare. They’d be forced to strengthen Social Security and Medicare, and they’d have to stop rolling back financial market oversight.
If you look at the health-care systems around the world that fully cover their populations while spending far less than we do with similar, if not better, outcomes, you see many commonalities in their architectures. To manage costs (and avoid adverse selection), there must be a robust risk pool. That, in turn, requires a mandate to participate, with penalties for failing to do so. But some people, by dint of their low incomes, won’t be able to meet the mandate, so they’ll need subsidies.
The government does not have to be the sole insurer, as in single payer systems. Some countries, like Switzerland, Germany, and Singapore, keep private insurers in the mix, but the prices they set and the scope of the coverage they offer is heavily regulated by the government.
Where’s the market failure such that the government must play such a dominant role in health care? That’s actually a simple question. If you’re hungry, we don’t have to feed you. But if you’re sick, you must be treated. That right there takes health care out of the market and gives rise to the large public footprint in health care in all advanced economies.
But that’s just part of the market failure. There are also huge informational problems, meaning very few of us are doctors and none of us know the future. Look back at that Cruz quote above, to the part about how individuals should be able to choose plans tailored to their needs. None of us know what our needs will be, which is why we need insurance in the first place. Of course, I may think I’m invincible, and thus purchase “junk insurance.” But if I’m wrong, and some people will definitely get this wrong, then somebody’s going to end up paying for my care.
That’s also why the Ryan and Pence quotes don’t make sense. It may be less that they don’t understand insurance and more that they don’t think low-income able-bodied or less-healthy people deserve government support to buy coverage. I disagree, but because of health care’s unique nonmarket characteristics, the key point is that when poor and moderate-income uncovered people get sick the rest of us will pay for their coverage through an increase of “uncompensated care,” a cost that Obamacare significantly drove down and that the Urban Institute assures us will soar once again under the repeal plans currently in play.
Similar dynamics exist for insuring against poverty in old age. Social Security reduces elderly poverty from over 40 to below 10 percent with administrative costs of less than 1 percent of benefits, something no privatized system could so efficiently accomplish. Same with regulating financial markets so that they don’t blow up the economy every few years at great cost to the rest of us.
The fact is that none of those functions are consistent with today’s conservatives’ brand, which is all about shrinking government and cutting taxes on the wealthy. Or, as David Remnick recently put it, “liberating the wealthy from their tax obligations or liberating the poor from their health care.” Their funders pay today’s conservatives not to understand the critical insurance role of government. As the health insurance debate reveals, they’re getting their money’s worth.