Conservative support for the Wyden-Bennett Healthy Americans Act died down noticeably after Ramesh Ponnuru published his incisive critique (here’s a subscriber link) in NR last April, in which he argued that the goal of universal coverage was the wrong goal for Republicans on political and substantive grounds. 

One reason Republicans are embracing Bennett’s bill is that they have mistaken the public’s real anxieties about health care for a demand for universal coverage. Covering everyone sounds desirable to most people, but they do not seem eager to take the steps this would require.

The most obvious of these steps is the tax increase it would require. Ramesh also criticizes Wyden-Bennett on the grounds that it represents a doomed effort to utterly reinvent the practice of insurance. 

Bennett-Wyden makes it illegal for insurance companies to discriminate against people based on health status. It also makes it illegal for them to charge different rates based on customers’ age, sex, or occupation, although it does let them give discounts for people who do healthy things like quitting smoking. These prohibitions make insurance a rip-off for young and healthy people. The bill keeps them from opting out by forcing them, and everyone else, to buy a minimum level of insurance. (Obama shrinks from taking this step.) It also cuts the price of insurance for poor people. The Lewin Group estimates that to administer the plan and enforce this mandate, the IRS would have to expand by a quarter. 

And it might not even work. The senators are probably underestimating the ingenuity of the insurance companies, who might find subtler ways to attract healthy customers and dump the sick ones. (They could pay half the cost of a gym membership, for example.) If it does work, insurance companies will no longer be pooling risks so much as they will be the government’s tool for socializing costs. They would, in effect, become regulated public utilities. The government would have made it impossible for them to act as insurers, and in return provided subsidies to keep them in the business of paying claims. 

This strikes me as an entirely plausible scenario, and it also undergirds Booth School economist John Cochrane’s case for health-status insurance. In Cochrane’s view, the essential problem with our medical marketplace is our reliance on forced pooling arrangements. 

Most policy proposals aimed at providing better long-term health insurance try to further limit competition and expand forced pooling. They strengthen incentives for employer-provided group insurance, create pools based on geography (e.g., the Clinton administration’s 1993 proposal), force insurers to take all comers at the same price, assign high risks to insurers, prohibit competition for healthy customers, force (or “mandate”) healthy people to buy high-priced insurance, mandate payment levels and treatments for expensive diseases, and so forth.

Alas, each of these steps reduces competition, and reduces people’s freedom to choose the insurers and providers that best serve their needs.

The logic of forced pooling eventually leads us to national health insurance, a single pool that will eliminate putatively destructive competition among insurers. Cochrane goes on to suggest that health-status insurance can resolve the tension between the desire for competition and choice and reliable long-term insurance. He makes a persuasive case, political realities notwithstanding. Cochrane is best known for his work on asset pricing, and he is far from from a health care wonk. And so his intention is not to develop an actionable plan that will address the political challenge posed by rising health care costs in the short to medium term.

One can also make the case that the forced pooling that Ramesh and Cochrane both object to is inevitable. In 2007, Stephen Cecchetti of Brandeis made explicit a claim embraced by many center-left health economists.

While I may shy away from knowing the details, I am interested in the medical equivalent of my credit score – call this my “health score.”  Without revealing the specifics of any future diseases I am likely to contract, a health score will summarise my overall health-care risks.  And, each year, with new information on my weight, blood-pressure, and the like, my score will be refined.

The fact that we will all have health scores has profound implication for insurance; or, more accurately, for the failure of market-based insurance. If I have the information revealing that I am likely to be healthy, living a long and low-medical-care-cost life, this knowledge alone will create adverse selection, causing me to forgo insurance for everything except treatments arising from accidents, which can never be forecasted.

For Cecchetti, the upshot is the death of private insurance.

Looking into the future, we see that technology will force private health insurance to disappear at the same time that the social pressure to provide equal access to care will remain.   This makes it inevitable that health care systems everywhere will provide universal coverage and be publicly run.  Governments will replace markets, insuring that the poor and uninsurable receive medical treatment at the same time that the healthy are forced to participate in a comprehensive system.

Of course, this is all speculative. Cecchetti could be wrong about the ease of constructing a reliable “health score” in the near future. But he’s not a crank.

In a sense, the Wyden-Bennett plan is best understood as a way of anticipating the Cecchetti scenario, and creating in effect a single national pool that nevertheless gives individuals and families access to a variety of competing private — or, as Ramesh suggests, quasi-private — insurance plans. And its most attractive aspect, certainly when compared to the plans coming out of the Senate Finance Committee and the HELP Committee, is its fiscal impact, as scored by the CBO last year. The CBO concluded that the plan would be self-financing by 2014, and that the fiscal burden of the plan would steadily decline because it links the size of its health insurance deduction, which means it would grow less quickly than today’s tax exclusion for employer-provided benefits. Ramesh explained why this might not fly politically in his article.

We’re being asked to make very profound judgments concerning the nature of the medical marketplace in an insanely compressed period of time. I don’t like it. Virginia Postrel’s Medicare First approach is looking better all the time.