As we saw in the previous article, the United States has historically relied on a marketplace approach to providing health insurance in the main. There are exceptions, such as the Veteran’s Administration hospitals, which directly provide health care to military veterans. And then there are somewhat hybrid approaches such as Medicare and Medicaid, in which the government acts as the insurer but the the actual provision of health care is through private providers, i.e. doctors and hospitals. But the majority is still insurance by private insurers and actual health care by private providers. In my case, which is typical, my family is on a private insurance plan which is comes from my employer. I pay a portion of the monthly premium as a payroll deduction, but that most likely is still less than half of the total premium. When I started working many years ago it was normal to have the employer pay all of the premium, but the rise in health care costs over recent decades has caused “cost sharing” to become the norm.

What we need to keep in mind is that in the U.S. health care costs have been rising, and more rapidly than in other countries. And this has lead to conflicts among different interests to shift those costs in various ways, but any attempt to change the system (i.e. reform) starts to look like squeezing a balloon: you can squeeze in one place, and it just bulges somewhere else. That is why there are tradeoffs.

For example, suppose a populist politician proposes to stop insurance companies from using pre-existing conditions to deny insurance to people or to limit their insurance coverage. As a consumer I am likely to applaud this. Very few people like to run into this limitation. But as we saw previously, this is a strategy insurance companies use to hold down their costs and maintain profitability. So how will insurance companies respond? Probably they will either raise their premiums, if they can do so (and in the U.S. the government frequently regulates rates). And if they cannot raise rates, they will exit the market. In the U.S. rates are regulated by each of the 50 states,and so there are 50 markets. It is not unusual to see a company stop offering insurance in a state that does not give them a reasonable chance at profitability.

Well, that is not exactly what we wanted. But it does point out that there is no free lunch here. What might induce insurance companies to accept no limits on pre-existing conditions without leaving the market and without raising premiums? You would have to offer them something to make up the loss in some other way. You might, for instance, offer them exclusivity in the market, but that would affect other companies and reduce competition. Or you might do something like mandate that everyone would have to purchase insurance, thus increasing the size of the pool and raising the revenue of the companies. Sounds great, but wait. Mandating that everyone buys insurance means that some people have to spend money they maybe didn’t want to spend. This is where we have to acknowledge that individuals are not a homogeneous group with aligned interests. Some people with pre-existing conditions are thrilled to get insurance, but others (mostly younger and healthier) don’t regard it as a necessary priority. So there is still conflict here.

The political problem here is that most people would love to get high-quality, inexpensive health care when they need it, but also would love to not have to pay for high-quality health insurance when they don’t need it. Now, this is not really different from many other public policy questions that come up, and not just in regards to health care. In the United States this can lead to what are called “unfunded mandates”, which is when the government requires that something must happen, but does not provide any funding to help make it happen. I don’t think the United States is unique in this respect, I am only pointing out that political pressures have that effect.

An example in health care of this kind of “unfunded mandate” is something we discussed previously, which is that hospitals are legally required that treat people in the Emergency Department, at least to the point that their condition is stable. Hospitals call this “uncompensated care”, but it still has to be paid for by someone, and one way or another it will end up being citizens who pay for it:

• Government pays a share through what is called Disproportionate Share Hospital (DSH), known colloquially as “Dish Payments”, which allow the hospital to pass along a share of their uncompensated care costs in proportion to the share of Medicare and Medicaid patients days out of all patient days.
  https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh.html
• In some cases some of this may be passed along to private insurers depending on the contract they have with the hospital.
• Most of this though is left to the hospitals to cover out of their funds. That reduces the money available for other uses, such as new plant and equipment, and may lead to higher prices for hospital services. https://insight.kellogg.northwestern.edu/article/who-bears-the-cost-of-the-uninsured-nonprofit-hospitals

I think the key insight we need to keep in mind is that there is no free lunch, and that we need to pay for the services we expect to have rendered. We can reasonably debate the alternatives in terms of how we pay these services, but there is no avoiding the need to pay for them one way or another.

Funding

There are several options for funding, and all of them have consequences. Among them are:

• Government-regulated Insurance pools – This was the basic approach of Obamacare, and is also employed in other countries. For instance, Switzerland has mandatory health insurance, and Germany has a system that at least superficially resembles Obamacare in that it combines employer contributions, employee contributions, and government subsidies. But as I disclaimed previously I am not an expert on every country and mostly what I know about is the United States.
• Non-Mandatory Private Insurance alone – This appears to be the preference of at least a segment of US politicians, and would essentially be what we had prior to the enactment of Medicare and Medicaid in the 1965.
• Non-Mandatory Private Insurance plus targeted Government insurance – Basically what we had in the US prior to Obamacare. Most people had private insurance (usually through their employer), but Medicare and Medicaid covered specific populations with needs that could not be met that way.
• Basic Government Insurance with optional Private Insurance to supplement – This is now probably the most common among the various developed nations. The government provided health care provides a floor that guarantees a certain level of care to everyone, but people are free to purchase additional private insurance if they wish. France and the UK appear to follow this now.
• Government-provided free health care – Norway does this, and generally ranks at or near the top of world-wide health-care rankings.

The mix of funding in each of these options is different, but once you realize that there is no free lunch, and that health care has to paid for just like any other service, you can see that reducing one component of the financing will only increase another one. If you reduce costs for individuals, the costs to employers and/or government will likely increase. If you hold down government costs, the costs to individuals will increase. And that will lead us to the next topic, the competing interests of all the players in this market.

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