Shuffling

The Washington Post covered the cost of the mandated health insurance for young people.

But it's also essential that young, healthy people participate, said Linda
J. Blumberg, a health-care expert at the Urban Institute, because the
requirement that people have insurance "is really a mechanism for financing
health-care reform."

Yes. Requiring insurance may be simple legislating social responsibility, since our society will provide care of some kind to sick people whether they can pay or not. But controlling the price of that insurance, and requiring it be very comprehensive insurance with limited deductibles and cost sharing, forces the insurer to charge everyone the same premium. In that model, the less risky to subsidize the more risky. The premium paid by the less risky in excess of the expected cost of their particular needs is really a subsidy for the more risky. The mandate essentially becomes a tax on the less risky, administered by the insurers and spent on the more risky.

Perhaps a subsidy for the more risky makes sense, but this structure is problematic. It obscures the debate, as the subsidy is hidden and so more difficult to discuss. Its very definition becomes divisive if liberals insist that it isn't a subsidy at all but a payment for service and that any other definition of the service terms would be "unfair." The structure makes the subsidy and benefits provided more difficult to adjust, whether for social needs or the economy's ability to bear the cost.

This structure also complicates any effort to reduce the cost inflation at the center of the problem. Economists agree that the separation of the consumers from the costs of their care removes their diligence from the service selection process, denying the system the strongest force for putting pressure on costs. Consumers certainly understand quality at a very granular level, and they certainly understand cost -- forcing them to participate in the cost / quality tradeoff decision would give providers incentive to produce better choices. In such an inefficient system, that force would create a long period of declining costs and improving quality. (But I wouldn't underestimate the time or market restructuring required to get it started. This really would be a revolution in health care provision, and wouldn't come easily.) But everyone is covered, and that coverage is comprehensive and restricted in its cost sharing, it would become extremely difficult to introduce consumer forces into the cost control solution.

That would leave cost control to either a regulatory approach, or some negotiated standoff between insurers and providers. Given the local market concentrations of many important providers (eg, hospitals), it's hard to see their incentives to reduce costs. Insurers would have to bring forth new providers, and encourage patients to use them -- and why should patients cooperate without some price or quality incentive? We would probably get some cost control through improved efficiencies in care for the currently uninsured, currently met through uncompensated care pools. But that's a one-time only event.

So it is very hard to see how this helps people who already have insurance. It offers a one-time cost reduction, but then mutes the incentives for cost reduction going forward. It could well increase their premiums by reducing insurers' latitude for medical underwriting. It certainly imposes excess premiums on younger, healthier people who are not currently insured. And it doesn't do much to squeeze the excess costs out of the system and make the resources they consume available elsewhere in the economy.

How did we get here? The Democrats very much want universal coverage on a subsidized basis. Their preferred option is single payer, but this is a nonstarter because of the economic and agency problems it creates. So they turn to other formulations, but it turns out that these have the same problems. You can't get away from economic realities, no matter what structure you use.

What should we do? Address the economic realities. First take the difficult steps to make the system more transparent and economically efficient, which would reduce costs and improve care. That would alleviate many of the coverage problems we see. Then move to address the problems that remain. It's cleaner economically, and a policy matter, and as a political debate.