Health care is not really my issue, so I probably shouldn’t opine, but, you know, I’m a blogger, so who’s gonna stop me?
The main purpose of the health care bill passed by the last Democratic Congress was to create a functional individual insurance market. Right now, in many states, individual health insurance is basically impossible to buy, either because insurers are restricted from underwriting individuals (so they have to treat everyone as if they are an enormous health risk, and coverage is obscenely expensive for everyone), or because insurers are not so restricted (in which case they will do everything they can to determine if you are a serious risk of costing them money and, if you are, they won’t sell you insurance at all).
Without a workable individual insurance market, people basically get their health insurance either as a benefit of employment or from the government. The result is a two-tier health system in which a large group of people get insurance, but don’t know what they are paying for it and have no leverage to drive cost reductions by making choices, and a smaller but still large group of people who have no insurance. The structure of the system rewards waste, driving costs inexorably higher, and also pushes more and more people into the second, uninsured group.
To make an individual insurance market possible, you need to get everybody – or, at least, a reasonable cross-section of everybody – into the risk pool together. That’s what the mandate and the regulated exchanges were supposed to do. And other changes, such as the tax on “lavish” employee benefits, provided a further incentive to move more and more of the insured out of employer-provided insurance and into the new individual-insurance market.
What was left out was Medicare beneficiaries. Serious cost controls were contemplated for Medicare, but they were going to be imposed by the insurer, in this case, the government. One problem with this is that since consumer choice would not be driving the cost controls, it might well be that these would be sub-optimal from a consumer point of view. But another problem is that consumers would know exactly who to blame for any cost controls they didn’t like, and how to get them to change their ways. If every cost control is a political decision, every cost control carries political risk, and therefore is less likely to be made. If, on the other hand, the cost controls are imposed by private insurers, there is a layer of politically plausible deniability insulating politicians from the specific decisions made.
Leaving the specific details aside, Ryan’s and Obama’s health care initiatives are complementary, not competitive with each other. Without a functioning individual insurance market, you can’t voucherize Medicare. And without pushing most individuals into the individual insurance market, that individual market won’t really be the giant risk pool you need to drive the health care system in a more efficient direction. Obama’s plan nudged beneficiaries of private, employer-sponsored insurance into the national pool. Ryan’s proposal shoves the beneficiaries of government-provided insurance into that same pool.
Broadly speaking, there are two plausible endgames for the American health insurance system. Either most people will get most of their insurance from a regulated individual market – that’s the direction both the Obama and the Ryan plans push us. Or, alternatively, most people will get most of their insurance directly from a single payer – the government. The debate over which of these is the better vision in the abstract hinges on whether private insurance plays any positive role in a universal health care system, or whether all it can do is extract rents (plainly, in a non-universal system, private insurance can play the negative role of driving bad risks out of the system altogether). I don’t actually have a strong view on that – I do feel like consumer choice is a vital driver of innovation that controls cost, but you can incorporate a very considerable degree of consumer choice in health care within a plan that doesn’t have a material role for private insurance at all, the DeLong Plan being a good example of such. But I am convinced that the two-tier system we have now has been a big driver of the pathologies of American health care. And in a very important sense, Ryan’s proposal – again, focusing on the basic concept of voucherizing Medicare, specific details aside – builds on what Obama and the Democratic Congress did to move us away from that system towards a system where everybody is in the risk pool together.