RALEIGH — Much of the problem with our convoluted debate over health care in this country is that the debate so often centers around the wrong question: What should policymakers do about the uninsured?
It’s the wrong question because it presumes that 1) those without health insurance are, therefore, without health care, and that 2) insurance is the proper financial vehicle to deliver health care.
Actually, plenty of uninsured Americans receive medical care. They don’t go to the doctor as much as insured Americans, they sometimes wait until a condition becomes so bad that expensive emergency-room care is required, and they often can’t find enough willing providers or dollars to take care of routine needs such as checkups and pharmaceuticals. There is a serious debate to be had about how to reduce the cost and improve the access to health care, particularly as it involves low-income children. Still, if policymakers start out thinking that the health care problem is one of “insurance,” they’ll come to erroneous conclusions.
Americans’ heavy reliance on third-party insurance payments — be they from a private plan or from Medicare or Medicaid — came about not through individual choice, market trends, or even rational if coercive design by government. While some private companies had created insurance plans for their high-risk employees in the late 19th and early 20th centuries, widespread availability of insurance didn’t come about until World War II, when the federal government made two important rulings. The first was that when employers paid premiums to insurers for the medical care of their employees, neither the premiums nor the payouts to doctors and hospitals would be considered as income to the employees for the purposes of taxation. Until the war, most Americans had little experience with the income tax, as there had been no withholding, low rates, and a narrow tax base. The war changed everything. Suddenly it was important to avoid income taxes however possible.
Similarly, when Washington (foolishly) imposed wage and price controls on the wartime economy, employers increasingly found it difficult to compete for the scarce, non-drafted labor available. They found an out in another federal ruling that exempting fringe benefits from the controls.
Hospitals, doctors, and other providers welcomed this shift from patients paying cash directly to patients paying indirectly through health plans. For one thing, it made (and continues to make) patients not particularly price-sensitive in consuming medical services. And second, by this time the providers were dominating the provision of private health insurance through the Blue Cross and Blue Shield plans they had helped to create and had lobbied state legislatures across the country to protect and subsidize.
From the 1940s forward, third-party payment grew to become the norm for health care, not just for the unexpected emergencies or the big-ticket operations but even for routine visits and other small-dollar claims for which the cost of collecting premiums and remitting reimbursements to providers rivaled the value of the claims themselves. It was as though auto insurance had expanded to maintenance and fueling. Imagine the absurdity of filing a claim every time you added a quart of oil or filled your car’s gas tank.
Real solutions to our health-care challenges should seek to reduce the role that insurance plays in the purchase of medical services, rather than simply trying to add more individuals and families to the insurance rolls. Besides, as a recent RAND Corporation report demonstrates, “fixing” the uninsured problem is not as easy as just handing out free insurance. When governments liberalize eligibility for programs such as Medicaid or create new ones such as the State Children Health Insurance Program (S-CHIP), some uninsured people do sign up. But some insured people, or at least those who would otherwise have transitioned into private insurance over time, drop those plans and enroll in free or largely free government plans. The uninsured population may drop a bit, but far slower than projected and at far higher a price per uninsured person.
I detected evidence of this effect here in North Carolina after the 1998 passage of our Health Choice program under S-CHIP. Specifically, after examining the program’s own annual reports, I noticed not just significant growth in enrolled children but also a sizable drop in the rate of private insurance among children eligible for Health Choice. The data yielded a reasonable estimate that about one-third of Health Choice enrollees would have been insured without the program, which is actually a bit better than the rate of private insurance “crowd-out” estimated by RAND for the average state program, which was 50 percent.
By the way, the Health Choice folks had an effective response to my observation. They stopped publishing the private insurance data in their annual reports.
Policymakers need a better understanding of the uninsured population and why comprehensive insurance isn’t the answer to this familiar problem. It’s really the problem with this familiar answer.
Hood is president of the John Locke Foundation and publisher of Carolina Journal.