Health care plan
a good first step

By W. David Bradford

There is widespread agreement that the new health care reform measures represent the largest shift in the social contract in the United States since the creation of Medicare and Medicaid in the mid-1960s.

What is less widely agreed to is whether it represents a positive or a negative change.

The U.S. health care system does many things exceptionally well: We provide ready access to technologically advanced health care; we excel in developing new medical technologies; and we guarantee that anyone who shows up at a hospital with a sufficiently serious condition will be well cared for without consideration of ability to pay.

However, the U.S. system does some things poorly: We find it hard to pay for health care in a way that keeps unnecessary costs at a minimum; and for many people physical illness puts their lifetime financial health at risk. Too-high costs and too-low access — these are the twin problem pillars supporting the need for health care reform.

Too-high costs stem in part from the fact that patients don’t pay the full opportunity cost out of their pockets when they use health care — so they tend to use too much. The new law doesn’t do much about that.

Too-low access stems from a double source. It costs a lot to underwrite, or set a price for, insurance for small groups and individuals, who then have to pay more per dollar of benefits.

Second, people can choose not to buy insurance. This inevitably sets up a cycle where healthy people are less likely to buy coverage than sick people are.

As a result, prices for insurance for individual and small group coverage can’t come down. This especially hits small employers, entrepreneurs and people in many low-wage industries.

There is only one solution to this problem: somehow everyone must be covered by some form of insurance. Letting 45 million people remain uninsured imposes huge costs on both the uninsured and on the 260 million people with insurance (who must pay for the care the uninsured receive via higher prices for services, greater subsidies to hospitals and care for serious conditions that could have been treated earlier).

This is the problem that the new law addresses when it mandates coverage, provides cross-state insurance purchases and eliminates pre-existing condition clauses.

Just as we cannot have a national defense that covers only those who are willing to pay for it, we cannot have a well-functioning health care economy if we only let those who currently have some form of insurance pay for it.

Unfortunately, we must require everyone to have coverage. Given that, saying that all individuals must purchase coverage does this in the most freedom-preserving way possible — without the elimination of choice that a “single payer” approach would imply. (Complaining that the law rations care is silly; everything provided by our economy is rationed somehow.)

So, the health care reform takes on the problem of access to insurance, but does not do much to address rising costs. Which of the two problems is the biggest one is not clear — they are both big.

But I believe that you can’t solve the cost problem until you get everyone under roughly comparable financial incentives — that is, getting them insured. Once everyone is insured, then it will be much easier to begin to adjust the incentives in a way that can begin to move costs in the right direction.

So what the Congress did is, in my view, a necessary first step but additional steps must be taken. That’s the way policy actually happens: take a step, reassess, then move again.

When we consider the scope of the problem, this was a good first step.

W. David Bradford is the Busbee Chair in Public Policy in the Department of Public Administration and Policy at the University of Georgia.