This is an open discussion about health insurance. I don’t pretend to be an expert, so please add your thoughts and/or tell me how wrong I am. This is the final of three parts.
Part 1: Why health insurance?
Part 2: Challenges to health insurance
Part 3: What does the ACA solve?
The Affordable Care Act (aka ACA or Obamacare) is Obama’s signature legislation, and a step forward for health care in the US. However, it’s very complicated, and few people understand the whole thing–I certainly don’t. Nonetheless, below I present a few ways in which the ACA addresses, or fails to address, challenges in health insurance.
- Individual mandate – As previously discussed, people with high health risks tend to dominate the insurance market, which can lead the market to collapse. The individual mandate addresses this issue by requiring most people to buy health insurance, even if they have lower health risk. This also leads to redistribution from healthier people to less healthy people. The problem with the individual mandate is that it only imposes a minor unenforceable tax on people who don’t buy health insurance.
- Limiting price discrimination – In absence of regulation, insurance companies prefer to charge people in proportion to their health risks. Under ACA, insurance companies can only choose prices based on location and age, and smoking status, and are not allowed to deny high-risk customers. This is great because it redistributes wealth, and in principle increases efficiency as companies no longer have to evaluate the health risks of individual customers. Unfortunately, there’s still some price discrimination as insurance companies offer different plans targeted at different risk groups. Fortunately, the government also regulates what kinds of plans can be made available.
- Expansion of Medicaid – Medicaid is health insurance for low income people (as opposed to Medicare, which is for older people). ACA expands Medicaid to cover a larger group of people. Unfortunately, the federal government can’t force states to enact the expansions, and can offer financial incentives. Some states (mostly conservative ones) have opted out, essentially volunteering to be the control group in a grand experiment. Based on results, the control group seems to be missing out.
- Single-payer? – Many liberals consider ACA to be unsatisfactory, and that a better system would be single-payer healthcare. That means that instead of people shopping for health insurance, the government pays for healthcare (like with Medicaid or Medicare). I’m not saying that it wouldn’t be better, but I don’t understand what exactly about it would be better. In a basic analysis, the government would have a lot of bargaining power, and there’s probably some efficiency advantage to the large scale. On the other hand, when people choose their own insurance, they are incented to pick the insurance with the best outcomes, whereas the government tends to have different incentives.
What other important things did I miss? Could you explain to me what’s so great about single-payer healthcare?
Off the top of my head, all I can think of is that both major single payer systems (Canada and England) also allow people to opt to pay for private insurance as well.
I personally like the German system the best, but I think pretty much anything would be an improvement over the US.
At the very least, I think some form of price and coverage regulation is needed to make US healthcare not terrible.
Side note, but my Medical Sociology professor said that when he was going to college in Belgium, he was warned that “If you ever get anything worse than a headache in the US, take the first flight out – no matter where it goes, healthcare is better than it is there.”
Why would single payer be better?
1. As you mentioned, the bargaining power would drive down health care costs.
2. Single-payer systems are more efficient not just because of economies of scale, but because they don’t have to make profits— unlike private insurance, there are no parasitical shareholders who contribute nothing but expect to be paid dividends anyway. This is why Medicare spends 97% of its revenue on actually providing health services, while private insurance companies complained when the ACA required them to spend 80% on same.
3. Single-payer systems are also more efficient because they eliminate the need for doctors to deal with multiple competing insurance reimbursement systems. Under a system of fractured private insurance companies, doctors have to spend nearly half their time on (unpaid) paperwork dealing with different insurance providers and have to charge more as a result.
4. As long as you’re mentioning incentives, you might want to note that private insurance has a strong incentive to deny care compared to a single-payer system. It’s actually somewhat perverse that you compare the government’s incentives in providing coverage to people’s incentives in choosing it rather than to private companies’ incentives in providing it instead.
5. The existence of a single-payer system does not eliminate private insurance outright, but since single-payer systems are vastly superior to our current system it forces the private insurance companies to be better in order to survive.
Single-payer systems are also more efficient at preventative medicine, which is significantly cheaper than treating late-stage terminal diseases.
Because patients don’t pay out of pocket, they’re no longer barred from visiting the doctor by poor finances when health complications start. Much cheaper to bill a doctor for a screening appointment over a potential health problem than to wait until you’ve got terminal cancer to make an appointment. Catching diseases early results in cheaper treatment and a much better prognosis for the patient.
Contrast America, where the cost of an appointment means the uninsured won’t go to the hospital until they’re on the verge of death. Depending on the condition or disease, it might be too late for a reasonable prognosis, so the hospital racks up an enormous bill on someone who is about to pass away. But if you can go for regular screening regardless of your socioeconomic class, then doctors can pick up on an impending illness earlier and subject you to, say, a $20,000 surgery (which you don’t pay for, at least not yourself) which will nip the problem in the bud, as opposed to spending several million dollars over the course of decades subjecting you to a pharmaceutical that might take care of it later down the road.
Plus, everything Jake said.
I haven’t had too much time to respond to comments lately, but thanks everyone for your thoughts!
@Jake Harban,
For incentives, I was mostly thinking about what kinds of things are covered. For instance, in the US, there would be a lot of pressure on the government to not cover birth control. Of course, we tend to blame that on the nasty people on the right rather than on the government. And anyways I’m not sure that private insurance companies, without regulation, would be any better.
One of the bigger issues not adequately addressed by the ACA is medical costs, both in terms of transparency and control. Despite the improvements it brings in how many people it can potentially cover (as well as other benefits), we are still left with a situation where there’s little if any transparency to how much medical procedures actually cost. Controlling something you can’t measure accurately is problematic at best. Having such transparency and methods to keep costs controlled is a feature of most if not all national health care systems outside the US.
Could you explain to me what’s so great about single-payer healthcare?
I think other comments give some good answers, but I would point out that single-payer is an answer to how a healthcare system can be run, but it’s not the only answer. You can have a healthcare system that achieves high-quality universal or near-universal coverage at a lower cost than the US, and there are many ways to do it. Canada, France, the UK and Germany all achieve this, and their systems are all substantially different from one another.
Canada has a single-payer payment system, and a largely private delivery system. The UK’s NHS is an integrated system where the government runs both the payment and delivery system. France isn’t quite a single-payer but has required insurance paid through taxes, and has a mix of public and private (for-profit and not-for-profit) delivery. Germany has a largely private multi-payer insurance system and a mix of public and private (for-profit and not-for-profit) delivery.
Things they all have in common though are:
– Everyone (or close to it) has access, but everyone (or close to it) has to pay into the system
– Limits are placed in some way as to what is covered
– The payment system is not-for-profit, at least for standard medical care.
– Medical costs are transparent, and some methods are employed to help keep costs from escalating