DO THE UNINSURED NEED GOVERNMENT INSURANCE?

The most contentious issue in the current congressional health reform debate seems to be whether the government should offer a public health insurance plan for the uninsured.  It’s a bad idea that will only further destabilize our already unsustainable health care system. Here’s why.
If a public plan’s premiums are set at sufficient levels to allow the plan to be financially self-sustaining, it will be too expensive for most uninsured people to afford.  That’s because (1) adverse selection (the tendency of sick people to sign up for individual insurance coverage in greater numbers than healthy ones) will drive rates to unaffordable levels, and (2) the government’s tendency to require unnecessary benefits will drive premiums even higher.  The most commonly promoted way to avoid this is by applying direct government subsidies.  The resulting below-market premiums will then make government insurance affordable.  But it will also make private insurance uncompetitive, creating a rush to the government plan by not just the sick uninsured, but by small employers, people with individual insurance, and even large employers eyeing an opportunity to get out from under their increasingly unaffordable self-insurance programs.
While some critics may applaud this move toward a single-payer system, the fundamental problem remains that such a public program will only worsen out-of-control medical cost inflation—short of outright government rationing of expensive care as done in Canada and Great Britain.  The arguments that increased prevention and electronic medical records will lower costs are myths (see my earlier posting “Will Prevention and EMR Save Money?”).  Industry insiders have long known that prevention virtually always costs more than it saves, and the adoption of computer technology takes decades to yield savings.
The hard reality is that increased top-down government intervention in American medical care has thus far failed to deliver universally available, affordable care.  Exhibit A: Medicare will be bankrupt in eight years.  Exhibit B: Medicaid has become a black hole for state and federal budgets. A public health insurer will just as assuredly fail to perform, whether run by the feds or outsourced.
There is an alternative, but it lies in root-and-branch reform of the American insurance system to enable the combination of regulated markets and social safety nets to meet the health care needs of all Americans.  Do stay tuned.

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