Magazine | January 27, 2014, Issue

A New Health Safety Net

National catastrophic coverage should complement markets

Are conservatives ready to think about health care independently of Obamacare? Because even if the Affordable Care Act achieves its goals, American health care will remain extraordinarily expensive, incomprehensibly complex, and inaccessible to millions. The Left is largely unified around the idea of eventually implementing a single-payer system — a type of “Medicare for all.” This approach is at least superficially attractive: Single-payer countries seem to adequately meet the basic health-care needs of all their people with much less complexity and at lower cost. On the right, the widespread assumption is that the ACA mess should be replaced by — what, exactly?

What most conservative ideas have in common is a preference that the private sector take on responsibilities increasingly assumed by government. In theory, there is also much that is attractive in this approach. Unfortunately, though, the idea that private is preferable runs contrary to most Americans’ experiences with health care.

Americans see the private health-care sector behaving badly: Rapacious insurers and providers seemingly work in tandem to make health care expensive, confusing, and unreliable. Many conservatives love to say that America has the best system in the world, but how can a system so opaque, costly, and ineffective be considered good? How can we reconcile claims of great doctors, hospitals, and technology with our system’s extraordinarily high rates of unnecessary care and all the resulting injury and death?

Many conservatives claim more specifically that private insurance can meet social needs, but that is not how health insurance has actually developed in our country. Tax advantages for employer-provided insurance have had the perverse effect of making any other way to pay for any care prohibitively expensive. There is nothing market-driven about this situation, in which even routine care is accessible and affordable only for those who have insurance. Nor is the business model of that insurance — which drives up the volume and cost of predictable care, and therefore the premiums paid for it, while declining to insure people whose health-care expenses are unpredictable — market-based. It may be “private sector,” but it is a private sector highly distorted by government policies, and a major cause of the problems we need to address: complexity, high prices, unreliability, and terrible service.

Health care will improve only if consumers are empowered to make both private and public actors accountable to the one force capable of disciplining them: a competitive market. The alternative to a public, single-payer system is a private, as-many-payers-as-possible system.

There is no more powerful economic force for good than direct competition for price-sensitive, quality-conscious customers. In any segment of our health-care industry dominated by actual customers paying their own money — dental care, optical care, cosmetic medicine, over-the-counter drugs, clinics for undocumented aliens, concierge care for the rich — we usually see the normal benefits of the consumer economy: clear pricing, transparent service, efficient record-keeping, and value. Apart from these areas, current health-care policy requires consumers to buy medical services through powerful intermediaries, such as insurers and Medicare and other public agencies, even though these intermediaries have either refused or been unable to exercise meaningful discipline.

Advocates of this system criticize calls for normal markets by invoking the very complexity that the absence of markets has created. They say things like “Who wants to shop around when you have a heart attack?” or “How can we ask consumers to navigate our complex system on their own?” One gets the impression these are the only Americans who have never shopped for anything other than health care. Functioning markets would reduce the amount of work consumers need to do and force providers to do more work to serve us. They would make the experience of buying health care more like the experience of buying anything else — in other words, easier.

Obamacare is a Rube Goldberg solution to the problems of a system that was already Kafkaesque. No matter how we receive health care, we experience this system’s incomprehensible structure, hidden costs, and bureaucratic weirdness. It requires us to negotiate “pre-approvals,” coordinate the services of specialists, and scrutinize indecipherable bills. It has so under-invested in information technology that health care has the worst customer service, the most primitive record-keeping, and the least responsiveness of any American industry. Worst of all, the lack of competition and transparency allows truly awful practitioners to provide care, useless care to be sold as essential, and dangerous sloppiness to be covered up.

#page#We hear all the time that technology is driving up the cost of health care — a weird claim on its own terms, since technology has elsewhere tended to reduce costs while improving quality — but has the fundamental structure of any industry, much less a tech-driven one, changed less in the past 50 years than that of health care? Doctors remain the gateway into the system. Hospitals — even if now largely through their outpatient services — are still the providers of much of the major care. Drug, device, and equipment companies are the source of most technological innovation. And insurers and public agencies continue to be the payers, driving — in theory, if not in practice — improvements in value, quality, and safety.

However, all this unusual industry stability has been accompanied by a lot of change in the nature of health and of care. To begin with, Americans have gotten much healthier in the past 50 years. We smoke less, drink less, eat better, enjoy a cleaner environment, have far fewer accidents, and are wealthier (itself a major contributor to health). Health care has gotten better, too — more conditions can be controlled with pharmaceuticals, and fewer surgeries require long-term hospitalizations.

Health care is also more often long-term and planned. For most patients, even cancer treatment now involves a choice of options and facilities; that’s why cancer centers advertise. Health care has gone from being something used primarily in emergencies to being a service consumed with deliberation.

Perhaps the biggest change is that medical services have become a presence throughout our lives. In any given year, health-care use is concentrated among a small percentage of the population. But over a lifetime, almost every single person now uses a lot of health-care resources, with extensive end-of-life care assuring that the medical industry doesn’t miss out on any previously healthy customer. The need for care is no longer a “risk” to be insured against; it’s a certainty to be planned for.

The health-care system itself, despite these changes, looks like it did in 1965 because provider institutions have been able to use their leverage — especially their political leverage — to retain their positions even as the fundamentals have shifted.

Conservatives should sharpen their critique of Medicare in particular. Self-interested politicians may have to defend this sacred entitlement, but market-oriented analysts can be more honest about its double-edged quality. Medicare is the embodiment of the uniquely American view that it is a good thing to fund all health-care “need” without regard for budget constraints or even a cost/benefit analysis. It has led providers to relentlessly expand the definition of “need,” culminating in the full medicalization of our senior years. The rise of the government as the primary customer of health care has been associated with the rise of the health-care industry as the leading lobbyist, with a predictable impact on quality, price, and accountability. The supposed low price of services paid for through Medicare, and its low administrative costs, are merely optical illusions disguising a series of perverse incentives that, along with a lack of effective oversight, have encouraged the provision of massive amounts of unnecessary care and allowed extraordinary rates of error, with all the harm and death associated.

A lot of very smart people are developing new and transformative medical therapies, and the 21st century may be remembered as a time of breakthroughs that we can’t imagine today. How will our system adjust to such change? How will we exploit the opportunities presented by more personalized medicine? By longer life expectancies? By low-cost monitoring and testing? Will it be able to differentiate between valuable care and costly or unnecessary care? Will it achieve the efficiencies necessary to make health care broadly accessible?

We can get there, but not overnight. The first step will be to satisfy the need for some sort of reliable and universal safety net. Until we solve that problem, we’ll never move on to a conversation about making health-care markets truly competitive.

One of the blessings of the ACA is that the layers of insurance, tax subsidies, public aid, and mandated care that are supposed to magically create “affordability” are being seen for what they are. Ever more Americans are realizing that we’re putting a lot more into the system than we’re getting out of it, and this has created fertile ground for a new approach.

#page#But while more of us are seeing the cost and administrative mess of our current system, we continue to worry about whether we can pay for treatment of a health catastrophe. This concern can be allayed with a national catastrophic-care insurance plan: cradle-to-grave protection of all Americans against the most extreme health crises. It should be single-pool, since much of the complexity of our current system — and therefore the unreliability of our current safety net — comes from the endless transitions between forms of coverage. Such a system should be seen as a safety net much more than as traditional insurance, because bad luck in the genetic lottery will always sentence some share of our population — sometimes from birth — to crippling medical problems. Premiums would be charged, but they should be roughly the same for all, with slight variations according to the age of the consumer.

At the same time, we should try to shift as much funding of health care as possible to individuals. That means building into the national plan an intelligent definition of what is catastrophic, and reducing its coverage benefits over time as Americans build up personal health accounts. In the near term, this means revising the tax code so that it treats individual health accounts more favorably than insurance premiums. This would reduce the incentive to over insure. It also means providing more of our aid to the needy in the form of cash transfers to personal health accounts, so that all individuals can participate equally in the new system. Medicare and Medicaid, by contrast, segregate the old and the poor as second- and third-class customers. For perspective, consider that the cost of subsidized care in our current system — roughly $1 trillion — is enough to grant 100 million people the funds to pay catastrophic-insurance premiums and enjoy a substantial health savings account as well.

The risk of any national-insurance program is that it will lack accountability and become a driver of excess care at high prices, as became the case with Medicare and Medicaid. But there are a number of ways to reduce this risk. The program could be structured like Singapore’s, in which the government subsidizes certain types of care but individuals always make the purchasing decisions directly. The benefit could be defined based on diagnosis, with participating providers required to accept patients at this fixed price (similar to the initial conception of Medicare’s payment system). Premium growth could be limited by statute (for example, held to the rate of inflation), and the national insurer required to balance its books each year.

The transition to a national catastrophic plan and privately funded basic care would take time. At first, the plan would sit on top of current public and private insurance schemes, essentially reinsuring them for catastrophic loss. Over time, as the benefits of running more of our dollars through a “many payers” normal marketplace became clear, we could accelerate the transition to a consumer-driven health-care economy.

The ultimate goal must be to free up the bulk of the money that currently goes into our health-care system — and the bulk of the subsidies we provide to our neediest — and put it back in the hands of the one force capable of truly disciplining health-care providers: consumers. A simple, universal safety net that provides catastrophic coverage will help get us there. We should start working on it now as the long-term alternative not just to Obamacare but to the bipartisan mess that is our current health-care system.

– Mr. Goldhill is the CEO of GSN, a media company, and the author of Catastrophic Care: Why Everything We Think We Know about Health Care Is Wrong.

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