Judging by the coverage on CNN the past couple of mornings, I am chagrined to say that the healthcare debate has veered down an unproductive back alley. The discussion appears to focus on the organizational form that health insurers should take: private, government, and/or co-op. We've been down these paths before people! Bone up by reading Melissa Thomasson's excellent (and free) intro. to the history of U.S. health insurance here. Then move on to John Murray's recent book.
My own work on the subject is still forthcoming, in a book on the history of insurance and in Fubarnomics (Prometheus, 2010).
I'm not saying the organizational form is inconsequential. If conditions are right, a government-owned insurer might prove as efficient as a privately-owned one. (See my January 2009 post, "Adam Smith, Profitability, and Efficiency".) More likely, however, it will bloat into a giant, inefficient bureaucracy that will serve mostly to redistribute healthcare consumption in devious, opaque ways. Co-ops (non-profits) are unlikely to innovate much. Mutuals might but then again they might not if the incentive structure between them and their sales forces is not just right. (See Mutually Beneficial for details.) Enough has already been said about the advantages and disadvantages of the for-profit joint-stock companies.
The problem with the debate is that none of those organization forms will make much of a difference regarding healthcare price and hence availability. The root problem is that we pay healthcare professionals (HCPs) for seeing rather than for curing patients. It seems like a simple thing but it's not, it's crucial, especially in the realm of healthcare.
Suppose the automobile repair market were as dysfunctional as the market for healthcare. Would you keep bringing your car to garages, spend hundreds or thousands of dollars, only to get back a car that still did not run right? Not if you were paying for it out of pocket, that's for sure. You'd use every legal lever you could to get the repair dudes to abide by the original estimate ... and in fact many states have laws requiring auto repair companies to honor their estimates within certain parameters, lemon laws, etc. If legal recourse were unavailable, you would at some point sell the car and take public transportation or learn to repair it yourself. (And no I don't think we should fiddle with repair costs to cut down on carbon emissions. Two wrongs don't make a right, says Wright.) Of course there is no substitute for your health so we pay and pay and pay and the law, if anything, protects HCPs' right to bill for merely treating you.
Throw employer-provided insurance into this mix and matters get even worse due to the lack of portability, which is the biggest cause of under- and uninsured persons in the U.S.A., and the dearth of price competition. Insured people don't much care how much their doctors, hospitals, etc. charge or even the fact that they pay for treatment rather than for success. So costs spiral ever upward, usually much faster than inflation.
What should the government be doing, then? Very simply:
1) phase out employer-provided health insurance;
2) reform regulation to encourage the development of "all of life" individual health insurance policies, perhaps linked to life insurance policies;
3) force HCPs to base their fees on results (output), not treatment time (input).
And please, no b.s. comments saying "well then nobody would want to treat the chronically/terminally ill." It just ain't so. HCPs will create balanced portfolios of high volume/low margin easy to cure patients all the way up the risk-return line to 1% chance of curing but a big payday at the end if successful. True, nobody will take patients with absolutely no hope of recovery but then again they shouldn't be treated anyway.
Yes, many details still have to be sorted out like who will judge whether a doctor has cured or helped a patient and close attention will have to be paid to the incentive structures created in the process but THAT is precisely the debate we should be having right now, not the best organizational form for insurers to take.
