I didn’t want yesterday’s op-ed in the New York Times by economist Robert Frank on healthcare reform get by without comment. In the article Dr. Frank staunchly makes the case for changing our system of healthcare insurance to a single-payer system in which the government is the only provider of health insurance. This is a system used in many developed countries.
The case he makes is based on a concept borrowed from the insurance industry—adverse selection i.e. the idea that costs of administering private health insurance plans rise because insurance companies incur rising costs in their drive to avoid insuring people who’ll cost them more.
Just so. As health economists have long known, market incentives induce private insurers to spend vast sums to avoid people who may actually require health care. This problem is mitigated (though not eliminated) by employer-provided group policies. Because Mr. Bush’s proposal would steer people toward individual policies, it would actually strengthen the incentive to shun unhealthy people. Such people can now keep their insurance by not changing jobs. But no private company would want them as individual policyholders at a price anyone could afford.
That Mr. Bush’s proposal will not shrink the ranks of the uninsured is not its most serious problem. Far more troubling is its embrace of a system under which we spend more than twice as much on health care, on average, as the 21 countries in which life expectancy exceeds ours. American costs are so high in part because the reliance on private insurance multiplies administrative expenses, currently about 31 percent of total outlays.
Most health economists agree that government-financed reimbursement is the only practical way to control these expenses, many of them stemming from insurers’ efforts to identify and avoid unhealthy people. Canada’s single-payer health system, which covers everyone, spends less than 17 percent on administrative expenses.
There are lots of problems with Dr. Frank’s article including logical fallacies (appeal to unnamed authorities, overgeneralization, etc.) and, as others have pointed out, he doesn’t seem to be familiar with the nature of the healthcare systems he admires e.g. France’s. Since I’ve favored a single-payer system for 30 years, I have no particular interest in critiquing the article in detail.
There is one point I want to make: converting to a single-payer system isn’t enough. It might have been enough a generation ago but now the assumption of rising costs is so much part of the fabric of our system that much more is required. Increasing costs of administration on the part of insurance companies aren’t the only source of increased bureaucratization nor the only source of increasing costs. The built-in assumptions of the healthcare industry will guarantee that costs keep percolating upwards without or without private insurers.
We need to re-fashion how services are delivered as well as how they’re paid for.
We’re only going to get one bite at the healthcare reform apple for a generation and, since the problems with our system are likely to be aggravated by a change to a single-payer model, we should do it right the first time.
I’ve posted my little healthcare reform manifesto here so, if you’d like a little flesh on these bones, check it out.