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To Your HealthWhy modest reform is preferable to single-payer health care.

By Michael Kinsley
Posted Friday, March 17, 2006, at 6:08 AM ET

In the March 23 New York Review of Books, Paul Krugman makes the case for a health-care system that is not only "single payer," meaning that the government handles the finances, but in some respects "single provider," meaning that the government supplies the service directly.

Krugman and his co-author, Robin Wells, correctly diagnose the problem with the Bush administration's pet health-care solution of encouraging people (with tax breaks, naturally) to pay for routine care à la carte instead of through insurance. Like Willie Sutton in reverse, this notion goes where the money isn't. Annual checkups and sore throats aren't bankrupting us: It's the gargantuan cost of treating people who are seriously ill. People who can get insurance against that risk would be insane not to, and the government would be insane to encourage them not to.

Most lucky Americans with good insurance are doubly isolated from financial reality. They don't pay for their health care and they don't even pay for most of their insurance—their employers or the government pays. Of course, one perversity of the current system is that you can lose your insurance either by losing your job if you've got one or by taking a job (and losing Medicaid) if you don't.

Krugman and Wells are persuasive—it's not a hard sell—about the nightmarish complexity and administrative costs of the current fragmented system. But they don't do much more than simply assert that a single, government-run insurance program would be more efficient. Even the most competitive industry can seem wasteful and inefficient when described on paper. Dozens of computer companies making hundreds of different, incompatible models, millions spent on advertising: Wouldn't a single, government-run computer agency producing a few standard models be more efficient? No, it wouldn't. Krugman and Wells duck the issue of rationing—saving money by simply not providing effective treatments that cost too much. They say let's try single-payer first. So, I say let's try some more modest reforms before plunging into single-payer.

Krugman and Wells note repeatedly that 20 percent of the population is responsible for 80 percent of health-care costs. But that doesn't explain why health insurance should be different from other kinds. 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. The value of the subsidy is the difference between what the individual pays and what the insurance would cost in the free market. If people were buying health care or insurance with their own money, they might or might not spend too much—whatever "too much" is—but no one else would need to care if they did.

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 health care than the average citizen would choose to buy on his or her own. And this is what people want. Krugman and Wells believe that the average citizen will be sated by whatever bonus comes out of single-payer efficiencies. In this day of $100,000-a-year pills, I doubt it.

Even though we don't do it, most Americans surely think we ought to guarantee decent health care to everyone. In fact, most would probably be uncomfortable saying it's OK to have anything less than equal health care 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? Current government programs don't protect poor people very well against the cost of becoming sick. They do much better at protecting sick people against the risk of becoming poor. People who can afford insurance ought to protect themselves against a catastrophic health expense. But subsidizing this insurance for them is not only unnecessary, it is futile and unfair. No one is better able to afford health care for people of average means or above than they are themselves.

Krugman and Wells say that private insurance is flawed by "adverse selection": Insurance companies will avoid riskier customers. Only a single payer (that is, an insurance monopoly) can insure everybody and spread the risk. 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.

If you're not as hopeful as Krugman and Wells about being able to avoid rationing, you face the question: Should people be allowed to opt out of rationing if they can afford it? That is, if the system (private or single-payer) won't pay for the $100,000 pill, should you be able to pay for it yourself? Fear that this would not be allowed helped to kill the Clinton health-care reform 13 years ago. 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.

There are the makings of a deal here. Better-off or better-insured people could be told, individually or as a group: Give up your health-care subsidy, and you may opt out of any rationing-type restrictions that the system imposes. And if a few smaller reforms like that don't work, maybe, it will be time for single-payer.

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Michael Kinsley is a columnist for Time and the founding editor of Slate.
Photograph of doctor on the Slate home page by Katharina Hesse/Getty Images.
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Remarks From The Fray:

[Kinsley] confuses adverse selection with ability to price discriminate. Adverse selection arises because insurance companies are unable to assess individual risk very accurately. As a result, they must charge premiums that reflect "average" risk in their client pool (computable from actuarial data), which may make it too expensive for the relatively healthy (people usually have a much better sense of their own health than some insurance bureaucrat browsing medical records). This, in turn, could lead to a vicious cycle – clients drop out from the healthier end of the spectrum, and premiums rise to adjust for this fact. The problem (to the extent it is empirically relevant) cannot be solved by customizing premiums to the health status of individual clients, because it is the difficulty of measuring the latter which is the source of the problem in the first place. It is also obvious, if one understands the phenomenon, that it is accentuated when clients have the option to self select. This is precisely the reason group insurance policies taken out by large firms often secure a better rate on the premium than individual policies bought on the open market.

Regarding subsidies, their primary value is redistributive. It is true that the average subsidy must match the average taxpayer's contribution to this end, but taxation being progressive, there is an implicit net transfer from the rich to the poor. Do we want a society where the prosperous are compelled by law to look after the sick and the poor? It's debatable, of course, but let's not lose sight of the fact that the crux of the matter is ethical, not some technocratic issue of "economic efficiency". It is true that subsidies in general create distortions by encouraging over-consumption of the subsidized goods or services. It is not a serious possibility in this context, since for insured individuals, the private cost of health care services is zero anyway (except for deductibles). It doesn't matter much for patients' incentives whether the hospitals are reimbursed by the government or the insurance company.

--Sissyfuss1

(To reply, click here.)

Any working doctor will tell you that his or her office is driven to near insanity by attempting to bill -- and rebill -- and rebill -- such a variety of insurance companies. And that's just the inefficiency at the providers' end, and not fully reflected in the general calculations of "administrative costs" of our current health care system. Not to mention the enormous amount of time wasted by medical professionals on non-treatment matters, time that could be spent healing, not arguing with insurance companies. As a physician, noting the bloated profits of the insurance companies, and the outrageous salaries taken by their executives, I can only lament for the needless profiteering in our health care system. [...]

--Feldzmo

(To reply, click here.)

The suggestion that health care rationing for the "obscure" poor is preferable to an open process affecting Mr. Kinsley's peers is morally repugnant. [...] We can forgive Mr. Kinsley [for] not understanding the cost of health insurance for the average family. He could have just been more honest and said wealthy people should be exempt from any regulation, as they are in some European countries. [...]

The high cost of new technology can be misleading. The real problem facing any reform in the US will be the need to reduce the growth of incomes in the entire medical industry. While we all might agree CEO's make too much, it is when we try to reduce the number of mid-level bureaucrats or reduce the pay of hard working people who provide, administer or do research in health care that we will see the true test of any reform.

--BrianL

(To reply, click here.)

[...] The main cost of health care currently is due to its inefficiency. This cost is twofold. It is first a human cost. The number of deaths due to medical error every year is 195,000 which is the third cause of death in the US. A big part of those errors (but not all of them) could be avoided if a single medical file could be put in place so that every doctor in the country could access you medical information. [...]

--okaz

(To reply, click here.)

[...] The problem is catastrophic health situations. The solution is government reinsurance for catastrophic health care situations.

That means insurance companies can count on paying only up to $X in a single year. Above that level, the government reimburses the insurance companies for amounts actually paid. The government can charge some kind of fee, but also subsidizes.

Setting $X effectively determines the universality of coverage. If the government made it as low as $100, the insurance companies would provide low rates for everyone. Why not? Because the insurance companies are the first dollar payors, they have the same incentives to save money as ever. And they have better control over the profit stream. [...]

--Philidor

(To reply, click here.)

[...] Our current system has our priorities upside down: we pay the most government funds for the least productive people. Why should we pay hundreds of thousands of dollars on the elderly, who are no longer productive? What is the value of giving an 89 year old man a new heart, or keeping him alive on artificial respiration?

I might support a system of universal health care for children and workers, but once you are retired, you should be on your own, pay for your life with what you saved during your lifetime to care for yourself. It would be affordable, logical, and as fair as it could be without destroying our country.

--JRudkis

(To reply, click here.)

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