Last month, David Rivkin and Lee Casey argued that the individual mandate at the heart of most Democratic reform proposals is unconstitutional. Their argument has been strongly challenged from the left and from the right, and my sense is that the Roberts Court would never dare overturn health reform legislation, regardless of the merits of the originalist argument made by Rivkin and Casey. The op-ed did make me think about what health reform might look like if we put aside achieving the goal of universal or near-universal coverage. In 2006, Katherine Swartz, an economist at the Harvard School of Public Health, published Reinsuring Health, a case for an interim step that would preserve the broad architecture of our current health system, dominated by employer-based coverage, while making coverage far more accessible to those in the small-group and individual markets.
If you follow the health insurance debate, you know that while the federal government offers generous tax subsidies for employer-based coverage, it does not offer the same subsidies to coverage purchased by individuals. Using numbers from the mid-2000s, Swartz estimated that this subsidy amounts to roughly $850 per person covered. If you are self-employed or if your employer doesn’t offer coverage, you see none of this subsidy, which seems more than a little arbitrary. Part of the reason why small firms tend not to offer coverage is because they don’t have the scale adequate to smooth risk across older, sicker employees and younger, healthier employees. Small-group insurance is tough, and the individual market is in many respects even worse.
To address this problem, Swartz proposed a government reinsurance program, financed by general revenues or a dedicated tax or by trimming the subsidy for employer-based coverage at the high end, that would ease the burden on private insurers who offer small-group and individual insurance policies. The top 1 percent of individuals generate 28 percent of medical expenses, but it’s very hard to tell who will belong to this 1 percent. Understandably, insurers spend a great deal of time and effort trying to avoid covering people in the top 1 percent. This is very expensive. A government reinsurance program would agree to take on the expenses of these outlier patients and in return it would ask for cost-saving measures and that the private insurers charge lower premiums that reflect their reduced risk. And these lower premiums would sharly reduce the number of uninsured, even without an individual mandate. This is far from a flawless solution, as Swartz would acknowledge, but it does represent a less sweeping and more importantly less expensive alternative.
This is not my preferred approach to reinsurance. For example, I don’t think it does enough to contain costs, as Swartz would readily acknowledge. In a better economic climate, it might serve as a decent stopgap. My worry is that we actually need to do something far more dramatic to slash costs, and that means rejecting the status quo and Obamacare as currently conceived in favor of an approach that (yes) emphasizes delivery system reform.