Matt Yglesias making the case for government-run health care:
There should be no question that if you give 15 bureaucrats in Washington a budget with which to run Medicare, that they’ll deliver health care services inside the budget cap.
If it’s that simple, why aren’t we just doing that? Why are we talking about how to reduce the growth of Medicare spending? Just put Medicare on a budget – outlays cannot exceed revenue from the Medicare component of payroll taxes. Then let the bureaucrats figure out which procedures and treatments won’t be covered anymore, which are going to get a lower reimbursement rate, etc. Problem solved. Right?
Of course, as the deficit-reduction follies of the 1980s demonstrated – and every weapons system procurement continues to demonstrate – it’s not actually so easy to put government on a budget. There are powerful interests that can be brought to bear to make sure that budgetary discipline is not applied. It’s true that the bureaucrats can’t spend what isn’t appropriated, but the only discipline that can be brought to bear on the appropriators is the eternal vigilance of the bond market.
That goes for private businesses as well – they also can’t be forced not to borrow against future earnings, except by the vigilance of the bond market. We just expect the bond market to offer any given private business less rope with which to hang itself than we expect it to offer a government.
When criticizing proposals to voucherize Medicare, Yglesias – correctly – notes that these schemes “save” money by fiat: they just don’t let the vouchers grow in value as fast as health-care expenditures are expected to grow. But putting Medicare on a budget – strictly limiting spending to some number – would amount to exactly the same thing. The consequence would be some combination of less coverage and lower payments to providers, which in turn would have some impact on the quality of care and the pace of health-care innovation. Why is this a good thing when it’s a consequence of government budgeting, but a bad thing when it’s a consequence of private budgeting?
I can think of two reasons. The first is that the government, as a monopsony, can bargain more effectively than a private insurer can. The question is how large this effect is when you’re dealing with very large private actors. If you have thousands of insurance providers, there’s probably a huge difference. If four or five insurance carriers wind up dominating the national market, I wouldn’t expect the difference in bargaining power to be meaningful.
The second is that private insurers will simply refuse to provide adequate coverage for the price of the voucher. Affluent individuals will be able to buy supplemental coverage, but indigent or even middle-income individuals will be left out in the cold. But this objection, it seems to me, is amenable to regulatory solution – specifically, the kinds of regulations embedded in the health-care law passed in the last Congress. To qualify for the insurance exchanges, plans must provide coverage that meets certain criteria. To the extent that insurers have an incentive to meet the requirements of the exchanges – and if they don’t, then the whole concept of the Democratic health-care reform won’t work – they have to figure out how to drive down the cost of coverage. These are precisely the same incentives that the Medicare bureaucrats have in the strictly budgeted hypothetical – except that a given insurer could lose business if it gets a reputation of having a lousy network of doctors, or not covering certain popular drugs, etc., whereas if you have a single-payer insurer there’s no recourse to alternatives when and if the bureaucrats get something wrong.
Yglesias makes much of the graphs showing that the Untied States has more expensive healthcare than more statist systems, but I don’t see why we should assume expenditures would be linear with the degree of state involvement – nor, more to the point, am I entirely clear how you measure the degree of state involvement in the various hybrid systems out there. The United States has a system whereby private health expenditures are heavily subsidized by the state through the tax system, and where the government single-payer health insurance program for the elderly is not put on a proper budget. You would expect both of those aspects of the American health care system to drive up costs relative to other systems. In both cases, we’re talking about the interaction between state intervention and a free market, not a pure free market system.
The French, Swiss and Dutch systems are also hybrids. Those hybrids are structured with a better alignment of interests to reduce costs than the American system. I think that’s a better frame than “more” or “less” statist.
There is a legitimate question whether private insurers have any productive role to play in health care. I think they do – because I think that multiple competing insurers are more likely to effectively converge on coverage that suits most consumers, as well as to provide alternative forms of coverage for those who prefer it, than a single, government-run insurer is. Relatedly, I expect a system with multiple, competing private insurers to do a better job of encouraging productive medical innovation than a single, government-run insurer. I think those benefits are worth paying for by allowing private insurers to make a profit.
But private insurance can only work as a social matter if you get everybody into the risk pool together, otherwise insurers will compete to get a more-favorable risk pool rather than competing to provide a more compelling package of coverage. That was the promise of the ACA passed by the last Congress: that it would begin the process of slowly moving us away from employer-provided (and government-subsidized, through the tax system) health care toward a regulated private insurance market that everyone participated in individually. Voucherizing Medicare within such a scheme would be another step toward getting everybody into the same pool.
Neither government bureaucrats nor the bureaucrats inside large insurance companies have magic powers. If the goal is to reduce health-care costs, then somebody is going to have to impose budgetary discipline. The debate about the proper role for private insurance – if any – is really orthogonal to this.