Below I briefly sketch out a possible way to reconcile the success of the VHA and the genomic revolution with the desire to preserve a pluralistic healthcare marketplace.
Despite the many strengths of the VHA, described in vivid detail by my friend and hero Phil Longman, a lot of us remain skeptical about the promise of state-run integrated care. Why? For some, it is a matter of reflexive ideological thinking: if it’s state-run, it must be bad. Others wonder if we can successfully scale up the VHA, and if Britain’s NHS is truly superior to a more pluralistic system. Then there is the concern that we might dampen innovation by putting a large and growing share of the economy under government, which is to say political, control. Though the role of government is already vast in healthcare, more than most conservatives realize, centralizing provision would represent a step-increase.
I approach these questions from another angle: Wired recently ran a cover story on 23AndMe, an innovative venture-financed company that has delivered (sort of) the $1,000 genome.
This new age of genomics comes with great opportunity — but also great quandaries. In the genomic age, we will no longer have the problem of not knowing, but we will face the burden of whether we want to know in the first place. We’ll learn what might be best for us in life and then have to reckon with the risk and perhaps the guilt of not acting on that knowledge. We will, counterintuitively, face even more pressure to conduct our lives carefully, strictly, and cautiously; we’ll practice the art of predictive diagnosis and receive a demanding roster of things to avoid, things to do, and treatments to receive — long before there’s any physical evidence of disease.
So how will this revolution shape the insurance marketplace? Economist Stephen Ceccheti argues, convincingly, that it will inevitably lead to a bigger role for government in healthcare provision.
To understand the problem, think about a simple case in which there are only two kinds of people, those with high and low expected future medical-care-costs lives. Imagine that the insurance company can’t distinguish the two types, so it charges all comers the average cost across the entire population. For the healthy people, the cost of the insurance will look very high, so they won’t buy it. That means that the only people who will buy the insurance are the unhealthy. Realising this, the insurance company will have to raise their price further to compensate for the fact that only the high cost people are willing to buy insurance. This is the classic “lemons” problem that causes markets to fail and was first described by George Akerlof.
Alternatively, if my insurance company can obtain my health score, then, in the same way that lenders use my credit score to calibrate the interest rate they offer on a loan, they will adjust my health insurance premium based on their precise estimate of the cost of my future medical care. And, importantly, a clever insurance company that is precluded from learning my health score directly will find a pricing scheme that leads me to reveal it to them through the choices that I make.
When insurers can accurately predict our health outcomes, “the rationale for insurance disappears.” Ceccheti goes on to explain because we view healthcare as meaningfully different from other goods and services, the political pressure to draw on the widest possible risk pool will become irresistible.
Before we reach that point, many will try to preserve “private” insurance by transforming “private” companies into even more of a regulated utility led by politically connected insiders, i.e., by using community rating and other means to create a more expensive, crude, messy, inefficient version of state-run healthcare. In essence, this “intermediate” system will “socialize risk and privatize profits.” What an utter mess.
Or we could allow insurers to make genomic screening a precondition of coverage, and allow all kinds of precommitment mechanisms. Some individuals will find themselves uninsurable in the new private marketplace: thanks to genetic proclivities, private insurance would be far too expensive. These individuals could then be covered by an integrated public system modeled on the VHA, rather than a public-private system like Medicare. The system would be opt-out. Beneficiaries would be subject to rationing and rigorous attention to clinical effectiveness, etc. That will be part of the bargain. But again, a large, flourishing and truly private marketplace will exist in parallel to drive innovation.
It ain’t perfect, but it makes sense. I think.
Or we could go with the excellent DeLong plan, which I think of as broadly similar.