There is no shortage of proposals for health insurance reform, and they all miss the point. They always focus on the approximately 30 million Americans who are uninsured at any given time. But coverage for many Americans who are lucky enough to have insurance is deeply flawed.
Health insurance is supposed to provide financial protection against the medical costs of ill health. However, many insured people still risk exorbitant medical bills for their “covered” care. A team of researchers estimated that as of mid-2020, collection agencies had $140 billion in unpaid medical bills, reflecting care provided before the Covid-19 pandemic. To put that number in perspective, that’s more than the amount collection agencies hold for all other consumer debt from non-medical sources combined. As economists who study health insurance, what we found really shocking was our calculation that three-fifths of that debt was borne by households. with health insurance.
What’s more, in any given month, about 11 percent of Americans under 65 are uninsured. But more than twice that number — one in four — will be uninsured for at least some of the time over a two-year period. Many face the constant risk of losing their coverage. On the contrary, health insurance—which is very much intended to provide a measure of stability in an uncertain world—is itself highly uncertain. And while the Affordable Care Act significantly reduced the proportion of Americans who were uninsured at a given point in time, we found that it did little to reduce the risk of losing insurance among the currently insured.
It is tempting to think that additional fixes can address these problems. For example, extend coverage to those who lack formal insurance. Ensure that all insurance plans meet some minimum standards. Change the laws so that people don’t run the risk of losing their health insurance coverage when they get sick, when they recover (yes, that can happen), or when they change jobs, give birth, or move.
But these additional reforms will not work. Over half a century these well-intentioned piecemeal politics made it clear that persistence in this approach represented a triumph of hope over experience, to borrow a description of second marriages that is usually attributed to Oscar Wilde.
The risk of losing coverage is an inevitable consequence of a lack of comprehensive coverage. When there are diverse paths to eligibility, there will be many people who fail to find their own.
About six out of 10 uninsured Americans qualify for free or deeply discounted insurance coverage. However, they are still not insured. The lack of information about the range of programs for which they qualify, along with the difficulties of applying and establishing eligibility, means that coverage programs are destined to offer less than they can afford.
The only solution is automatic, free and basic universal coverage.
Automatic because when we ask people to sign up, not all of them do. The health insurance state’s experience under the Affordable Care Act illustrates this.
Coverage should be free at the point of care—no co-pays or deductibles—because leaving patients on the hook for significant medical costs defeats the purpose of insurance. The natural response is to go for small co-payments — $5 for a prescription drug or $20 for a doctor’s visit — so that patients make wiser choices about when to see a healthcare professional. Economists have preached the virtues of this approach for generations.
But it turns out that there’s an important practical wrinkle in asking patients to pay a very small amount for some universally covered care: There will always be people who can’t manage even modest co-payments. Britain, for example, introduced co-payments for prescription drugs, but then also created programs to cover those co-payments for most patients — the elderly, the young, students, veterans, those who are pregnant, those on low incomes, or who suffer from certain diseases. Finally, about 90 percent of prescriptions are exempt from the co-pay and are filled free of charge. The net result was added hassles for patients and administrative costs for government, with little effect on patients’ share of total healthcare costs or total national healthcare spending.
Finally, coverage should be basic because we are bound by the social contract to provide basic medical care, not an upscale experience. Those who can afford it and want to can buy supplemental coverage in a well-functioning market.
Here, it may be useful to make a comparison with air travel. The main function of the aircraft is to transport its passengers from point A to point B. And almost everyone prefers more legroom, unlimited checked bags, free food, and high-speed internet. Those who have the money and want to do so can upgrade to business class. But if our social contract aims to make sure everyone can fly from A to B, then a low-cost airline will suffice. Anyone who has flown on one of the low-cost airlines that changed the airline markets in Europe knows that it is not a great experience. But they get you to your destination.
Maintaining basic universal coverage will also lower the cost to the taxpayer. It is true that the United States, as a share of its economy, spends about twice as much as high-income countries on health care. But in most other rich countries, this care is funded primarily by taxes, while in the United States about half of healthcare spending is funded by taxes. For those of you who follow the math, half of that amount equals… well, the same amount of taxpayer-funded spending on health care as a share of the economy. In other words, U.S. taxes actually pay for UBC. Americans don’t understand that. they might be.
We came to this proposition using the approach that comes naturally to us from our training in economics. We defined the goal first, that is, the problem we are trying to solve but failing to solve with our current health policy in the United States. Then we thought about how best to achieve this goal.
Once we did, however, we were surprised — and humbled — to realize that, at a high level, the key elements of our proposal are those that every high-income country (and all Canadian provinces a few) have embraced: guaranteed basic coverage and the option to buy upgrades for people.
The lack of universal health insurance in the United States may be exceptional. It turns out that the fix is not.
Liran Enaf is Professor of Economics at Stanford University. Amy Finkelstein is Professor of Economics at the Massachusetts Institute of Technology. They are the authors of the forthcoming book We Got You Covered: Rebooting American Health Care, from which this article is adapted.
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