A blueprint for U.S. health insurance policy

Abstract

There is no shortage of proposals for U.S. health insurance reform. In our recent book, We've Got You Covered: Rebooting American Health Care (Einav & Finkelstein, 2023), we offered one more. It grew out of our internal debates over healthcare reform, between two academic economists who work (often together) on U.S. health policy but have not yet been involved in making that policy.

We started by trying to define the goal: what is the problem that healthcare policy should address? There are many good reasons for government to be involved, but the reasons are usually assumed rather than articulated when proposing or evaluating a specific policy proposal. That's unfortunate. It's hard to have a constructive debate about solutions unless we've articulated—and hopefully agreed upon—goals.

We therefore spent a fair amount of time trying to identify the driving impetus behind our history of health policy reforms and attempted reforms. From this, we ended up concluding that our health policy has been motivated by an enduring, if unwritten, social contract: access to essential health care, regardless of resources.

We expected a fair amount of push back on this definition of the goal of U.S. health policy. After all, we are a society known for advocating independence and liberty, and for lifting oneself up by the bootstraps. We are also, (in)famously, the only high-income country without universal health insurance coverage. We therefore devoted about a third of our book to trying to convince our readers that in fact this social contract exists, and that the myriad problems with the current U.S. health insurance “system” reflect our failure to fulfill our obligations, not their absence.

Somewhat to our surprise, in the many reactions we've received from readers across the political spectrum, there has been near-universal agreement with our premise: that the U.S. is committed as a society to trying to ensure access to essential medical care for everyone, whether or not they can pay for it. Reactions have instead focused on particular elements of our proposal for how to fulfill this commitment.

We described what we thought an ideal system would look like, freed from political, but not economic, constraints. It contains two main elements. The first is universal coverage that is automatic, free to the patient, and basic. The second is the option—for those who want and can afford it—to purchase supplemental coverage in a well-functioning marketplace. We argued that we could thus fulfill our social contract without tackling the other multi-trillion-dollar elephant in the room: the problem of high and often inefficient healthcare spending.

In what follows, we briefly describe how we arrived at these key elements.

We estimate that about two thirds of Americans—those who are covered by Medicare or by private health insurance through an employer—would want to supplement beyond the basic. There are two key design issues with supplemental coverage: how it is priced, and how to prevent it from eroding the adequacy of the care provided through basic coverage.

From Nixon to Clinton to Obama, presidents have bundled proposals for universal coverage with proposals to reduce the level of healthcare spending. The instinct is understandable. After all, coverage and costs are arguably the two great problems in the U.S. healthcare system.

We, however, have deliberately shied away from tackling the problems of healthcare delivery. That's because we can tackle the problem of coverage—and fulfill our social contract—without tackling the problem of healthcare delivery. We do not have to hold our healthcare commitments hostage to improving the efficiency of healthcare delivery.

Which is a relief, since we don't (yet) have the silver bullet for dramatically lowering healthcare spending while fulfilling the dictate to “do no harm” to the patient. Nor, we hasten to add, does anyone else. Despite what you may have heard on TV. It's indisputable that there is a lot of waste in U.S. health care. But the old adage about advertising is also true: half of spending is wasted, we just don't know which half.

However, even without “bending the cost curve,” we could provide our proposed universal, free basic coverage that fulfills our social contract without raising taxes. To see this, consider the level of government healthcare spending in other high-income countries whose universal basic coverage with (almost) no consumer payments looks similar to what we propose. The UK is one example. Canada and Germany are others. In 2019, total healthcare spending in these countries was about 8% to 9% of their economy, with most of this spending financed by taxpayers. Guess how much U.S. taxpayers spent in that same year on health care? Also about 9% of the economy (World Health Organization [WHO], 2019).

Of course, total spending on health care in the U.S. as a share of national income is much larger than it is in any other country—17% in the U.S. in 2019—compared to an average of 9% across high-income countries. That higher U.S. spending, however, primarily reflects higher private spending, not higher public spending (WHO, 2019). Our taxes are already paying for the cost of universal basic coverage. We're just not getting it.

Because total healthcare spending need not change under our proposal, the healthcare system and the provision of medical care need not change either. That will be reassuring to those worried about health insurance reform disrupting a sector that amounts to almost one fifth of the economy, but disappointing to those who would like to radically improve the efficiency of U.S. healthcare delivery. Whatever your perspective, these issues are distinct from the reform that is required to fulfil our social contract.

Likewise, we deliberately left unspecified many of the health policy debates that loom large in the public zeitgeist. Will basic coverage be provided through a single, public payer who directly employs the healthcare providers (as in the UK or the U.S. VA), or through multiple private payers paying private healthcare providers (as in Switzerland or the Netherlands or Medicare coverage for prescription drugs in the U.S.), or through some combination of the two (as in Australia or Medicare coverage for hospital and physician care in the U.S.)? These and many other design questions can involve important trade-offs. But their resolution is not a requirement for fulfilling our social contract. The experience of other countries makes that clear.

The experience of other countries provides another reassuring observation. We developed our proposal from first principles by focusing on the problem that needs to be solved and what is essential to that solution. But once we did this, we were struck—and humbled—to realize that, at a high level, our proposal contains several key components that every high-income country (and all but a few Canadian provinces) has embraced: guaranteed basic coverage which must be delivered within a fixed budget (two things the U.S. currently doesn't have), and the option for people to purchase upgrades.

The lack of universal U.S. health insurance may be exceptional. The fix, it turns out, is not.