Not a Public Option — A Public Market

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Are American and European health care systems really so different? Never mind Britain’s National Health Service (Britain is always the exception to “Europe”) — if you compare the heavily regulated markets for private insurance in Germany, Switzerland and the Netherlands, how are they distinguishable from the heavily regulated market in the United States?

I know — European markets are better-organized. Governments have more central control. This blog has covered the differences. But the notion that America has a “free market” for insurance is a lie. What America has is a regulated mess of health plans driven by employer rather than individual choice, with “rationing” decisions left just free enough by the government to let corporate apparatchiks deny vital coverage as a business model.

Since the ’60s, between Medicare and HMOs, the American system has socialized. In the meantime, European systems have privatized. Neither approach is perfect. In Europe as well as the United States, the medical industries are trying to strike an equilibrium between private and centralized care.

In that sense, the U.S. has a brilliant chance this year to learn from Europe without aping it. No free-market system of health coverage exists on Earth, but America could find a new compromise. The trouble is that the main bill now stalled on Capitol Hill suffers from a serious lack of vision.

The strength of European systems is portable coverage: You choose a plan and take it with you, from job to job or into unemployment. All hospitals, by law, will admit you; there’s no calling ahead to approve an ambulance or a paramedic. Plenty of Americans will recognize such flexibility as a sensible, ordinary freedom they lack.

But it comes at the cost of higher taxes and, as a rule, an extremely un-American diktat ordering every grown citizen to carry insurance. These are the aspects of nationalized health that Congress has adopted, and they’re what drive reform opponents up a tree. The main bill in Congress, moreover, won’t make coverage portable. It might — might! — offer a “public option,” but options as a whole will be limited. The reform coming down the pike, in other words, will impose European-style burdens without adding much freedom.

So what else can we do? For starters, there’s the Wyden-Bennett bill, languishing in the Senate, which would use a voucher system to let any employee shop for new insurance if a given employer-provided scheme isn’t up to snuff. The idea is to bring real competition to the U.S. market by putting basic plans on a public exchange. It would also be voluntary. “Sign-up will be as simple as checking a box on a tax form,” according to the bill’s sponsors.

Barring solutions proposed in a recent article in The Atlantic Monthly — which would dismantle the whole insurance industry — I think vouchers are the way to go. Aside from price distortions introduced by insurance itself, the main trouble with American health care is crooked incentives. Doctors recommend fee-for-service procedures because that’s how they get paid; insurance companies deny payment because that’s how they stay in business.

European systems reverse those incentives with public pools of money. The German government collects a tax based on income but hands around money through a back door to insurance companies, based on individual risk — for the same taxpayer. Insurance companies therefore have an incentive to cover the sick and infirm (more money from the government!) while the patient pays a set, affordable rate (about 15 percent of income, shared by an employer). Doctors under the system earn set salaries and work from strict budgets, which is a drawback, but Germany also has a small market for rich customers with wholly private coverage.

The un-American part is that everyone pays into the pool. You can’t go commando in Europe — meaning “uninsured” — and the right to go commando is an American tradition that may or may not be protected by the Constitution. A Wyden-style voucher system could solve that. Instead of a single, government-run “public option,” imagine a strict, voucher-funded public exchange for basic insurance plans. If you opt in, you pay with a deduction on your paycheck. In return you get a voucher good for any insurance on the public exchange — and a raise from your employer, to compensate for not taking his insurance plan.

The incentive to buy in as a taxpayer is obvious. The incentive to participate as an insurance company — by offering plans that submit to strict regulation — would also be huge. The competition for business would improve treatment, and outside the voucher marketplace a less-regulated market for expensive or specialized insurance could run along largely as before. The penalty for going commando could also be stark enough to please the most Darwinian disciple of Ayn Rand: a massive medical bill, unsupported by the state.

The main resistance to a voucher scheme now is the threat it would pose to what’s arguably America’s most unique health care problem of all, its employer-based (and unportable) coverage. President Obama’s advisers thought from the outset that it would shake things up too much — the controversy might kill any hope for reform. But the summer has not gone well for Obama, or for the main bill in Congress. A national obsession with a “public option” has led to a lot of nonsense on both the left and the right. Maybe it’s time for a re-think?

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