The reluctant case for national healthcare

2006.03.31 — Culture | Health | Law | by Derek Jensen

In a recent piece for Slate, Michael Kinsley makes a case against national single-payer healthcare, despite being an accredited liberal (East Coast Liberal School of Thought, class of '72—go fightin' Ascots!). However, he makes some errors of logic that suggest that such a system is actually pretty viable.

He argues:

The small fraction of people involved in auto accidents in any year is responsible for almost all the cost of auto insurance. You insure against the risk of being in that group.

What's different about health insurance is the opposite: Much of it isn't insurance at all but a subsidy. ...

A subsidy has to take from someone and give to someone else. Everybody can't subsidize everybody. Or, to put it another way, society cannot give the average citizen better healthcare than the average citizen would choose to buy on his or her own.

Kinsley is arguing that insurance is largely subsidized by employers, altho an economist would point out that there's no free lunch: the "subsidy" comes at the cost of lower wages of approximately equal size. In that sense, everybody really does "subsidize everybody else" or themselves, anyway. That $62 a month my employer pays to subsidize my health insurance is an additional $62 I could have gotten in salary. But my employer wants me to have healthcare and doesn't trust me to see its value and pay for a good plan myself. And my employer is right. That's because of what I call "the reverse stone soup tragedy."

Stone soup

In the original folktale of "Stone Soup," a traveling hobo asks a housewife for some water for his pot so he can make soup out of a stone. He explains that he merely has to boil water and add the stone—plus a pinch of salt perhaps, if she can spare it—and the result is a wonderful soup. Soon, he is casually suggesting a small piece of carrot, a meager potato, a little onion, and by the end, the housewife is volunteering a leftover piece of beef. Together, they marvel at how wonderful a tasty soup can be made of a stone. The hobo leaves, and the housewife is happy to have enjoyed such a meal at the cost of a few simple ingredients.

The "reverse stone soup tragedy" turns the idea upside down. In it, the housewife prepares everything she needs for a fine soup and then gradually discards ingredients one by one as too expensive for soup or more useful for some other meal. In the end, she has only the stone in a pot of water and is wholly unsatisfied with her dinner.

A similar analogy is what happens when I shop for a car. I would be happy to pay $25,000 for a sporty little car with a nicely-appointed interior, premium sound system, and power everything. But when I examine the options, I gasp at the line item costs. $500 for premium audio? I'll take the standard system. $625 for the premium interior and metallic paint? Yikes! $960 for air conditioning? Good grief! But, having stripped the car of these overpriced luxuries and more, I find myself with little more than a stone in a pot of water—albeit at a very reasonable price.

The key is that I would have been happy to pay the full $25,000 for the fully-loaded car, and I would have been happier with the car, and therein lies the tragedy. If we ask individuals to buy their own insurance, this is what happens:

• Poor people will be unable to afford any insurance and end up uninsured, but will suck healthcare from government programs and hospitals (who raise their prices to insurance companies in order to cover the charity work for the uninsured).
• Middle class people will underestimate the value of insurance and end up underinsured.
• Rich people will often overinsure, not wanting to lose a kingdom for lack of a nail.

The result is that rich people subsidize the insurance companies and, to a degree, the middle class, while the poor—who can't get a piece of the pie because they can't get to the table—go without. This is not what we want as a nation.

It turns out that society can give the average citizen better healthcare than they would choose to buy on their own. This is, in fact, almost self-evident. After all, if we let citizens decide for themselves how much they could afford to pay in taxes to keep up the government, they would invariably underestimate it, and the common welfare would suffer.

In a progressive society we recognize that the rich can comfortably subsidize the poor and improve the common welfare enormously by reducing suffering in the underclass. In societies where that doesn't happen, we see huge disparities between the super-rich and working class wage slaves (Victorian England, robber baron America, modern Saudi Arabia). That creates social upheaval that may tear society apart and can even lead to the grisly death of the ruling elite (French Revolution, Russian Revolution, American labor riots, modern Saudi terrorism). So taxing the rich more heavily than the middle and lower classes in order to provide social services creates stability and a healthy bourgeois market that benefits the super-rich enormously.

If we apply that concept to healthcare, it suggests that a government agency like Medicare could be charged with provided basic healthcare to everyone at little cost to everyone. Middle class and rich folks would buy supplemental coverage for catastrophic and long-term care.

National but not equal health care

I'm not the type who believes that every citizen needs to be fully covered. Kinsley says:

Even though we don't do it, most Americans surely think we ought to guarantee decent healthcare to everyone. In fact, most would probably be uncomfortable saying it's OK to have anything less than equal healthcare for everybody. Should a poor child die because her family can't afford a medicine that an insured, middle-class parent can pick up at the drugstore?

Decent healthcare, yes. But equal? I think few would say that. Providing a poor child with medicine is an obvious and emphatic yes. The question Kinsley should ask is whether society should be expected to provide a 70-year-old homeless man with a heart transplant or just keep him comfortable for his remaining weeks.

Drawing the lines to create the limits that answer those questions will not be easy. What is the cutoff for heart transplants? Actuaries can probably help, amassing statistics that show that 70-year-olds tend not to fully recover from major surgeries. And European national healthcare agencies can help. We could learn a lot about distributing medical services fairly from those who have been doing for decades.

Kinsley goes on to explain how "adverse selection" (insurers declining to insure the worst risks) works:

But anyone is insurable at some price—a price that reflects the cost they are likely to impose on the insurer. Adverse selection is only a problem to the extent that insurance is not really insurance, but rather a subsidy.

But adverse selection doesn't have anything to do with poor people being uninsured. They may be perfectly good risks; they just don't have enough money to pay into the system. That's why they need to be subsidized.

Adverse selection creates a problem for wealthy and middle class people who find they can't get insurance at any price because insurers know that their "pre-existing condition" will generate big dollar claims. But hospitals don't practice adverse selection. As a result, some people rack up huge medical bills and become financially ruined, go bankrupt, and leave the hospital to bear the costs... which forces them to raise their prices... which forces insurance companies to raise their premiums.

Since high-risk people often get medical care anyway, it is most efficient to spread the cost out among all citizens in the first place by covering them in a universal healthcare plan. That would protect them from financial ruin and protect the hospital from expensive losses, lowering healthcare costs for everyone.

Single-payer system?

Now, none of this is meant to suggest that a strict single-payer national healthcare system is the right choice for America. Some form of blended coverage is probably best, so that the rich can get the very best healthcare they are willing to pay for and the poor are covered to a fair degree. This is not completely antithetical to Kinsley's argument; he is arguing fairly narrowly against a single-payer system.

A blended system—call it "single-payer plus"—would help avoid the embarrassing policy choices Kinsley points out:

But explicitly granting some people life and health while denying these things to others is hard, even though this disparity has existed throughout history and is probably unavoidable. In fact, a serious defect of single-payer is that it makes all sorts of unbearable trade-offs explicit government policy, rather than obscuring them in complexities.

The unbearable trade-offs would be made simply by the government not covering anybody for catastrophic, long-term care, like extensive and futile treatments for advanced cancer cases and irreversible comas. We already accept that for Medicare and Medicade, some things are simply "not covered."

What would be covered is long-term comfort care: ordinary nursing-home care, medication for chronic illnesses (including diabetes), and similar things that are critical and crippling otherwise. Everyone should always be able to go to a hospital for care; they just shouldn't expect the most expensive treatments will be available if they don't have supplemental insurance that covers it.

There's no need to tell people to "give up their subsidy," as Kinsley suggests, by which he means institute a system of means testing. If you make more than X dollars, you don't get government coverage. That's politically disastrous: we'll be asking those citizens to be paying extra taxes to cover the national healthcare program but then locking them out of it.

Instead, for all citizens, their healthcare should be covered by a single-payer national provider up to the point of catastrophic and experimental care and certain elective, cosmetic, and unusual procedures (no government Viagra, facelifts, or abortions). People who can afford it would still be able to get supplemental insurance to cover such things. For those without supplemental insurance who need catastrophic, long-term care, the government program would ensure that they are kept comfortable and refer them to charities.

The goal would be to avoid cases where the hospital provides the care anyway and then passes the cost on in the form of higher bills. Wherever that happens, the treatment should probably be incorporated into the program.

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