Is Fundamental Health Care Reform Politically Impossible?

Paying for it is the real obstacle, but that problem can be solved.

Most industrial democracies employ some form of single-payer health care system. These systems not only deliver universal coverage, they also provide better health outcomes at far lower cost than the largely private health insurance system used in the United States. One of the main advantages of single payer is that it avoids the for-profit private insurance industry’s costly maneuvering to limit reimbursements and avoid issuing policies to the people most likely to need coverage. Health policy experts agree that if the United States were building a health care system from scratch, a single-payer system would be the way to go.

Yet none of the major health reform proposals currently under discussion includes a single-payer program. There’s a simple reason: As the Clinton reform effort discovered in 1993, most voters are reasonably satisfied with the employer-provided health insurance they currently have will and resist giving it up for something new and unfamiliar. To gain any traction politically, any new system must therefore give people the option of retaining their current coverage.

But that doesn’t mean single-payer is doomed.

Ezekiel Emanuel (a physician and White House health policy advisor) and Victor Fuchs (a highly respected Stanford University health economist) have proposed a system under which everyone would receive a government voucher sufficient to purchase any of a variety of competing health care plans. Their employer’s current plan, if they have one, would be included on the list, as would a basic public plan.

If the public plan is really more efficient, as many policy experts claim, its prices would be lower, which would lead more and more people to switch to it over time. Additional volume might then allow it to achieve greater economies of scale, increasing its cost advantage still further. The eventual result, then, might be virtually equivalent to a single-payer system.

As Emanuel and Fuchs emphasize, however, no one should prejudge how the dynamics of this competition will play out. Some private health plans, such as Kaiser Permanente’s, have delivered high average customer satisfaction at relatively low prices. If most people ended up preferring a plan like that to the public plan, well and good. But even then, we’d end up with what amounts to a single-payer system managed by a private company.

The important point is that, no matter which outcome prevailed, we’d end up vastly better off than under our current dysfunctional system. That’s the good news about the Emanuel-Fuchs plan.

The bad news is that, as currently proposed, it is unlikely to be adopted. Ezra Klein recently argued that the biggest obstacle it faces is that most people would be reluctant to abandon their current employer-provided health insurance for insurance paid for by the government. But since the voucher would enable them to retain exactly the same insurance they currently have, it’s not clear why that hurdle would be decisive.

A much bigger problem is that unlike the current system, which is paid for largely by an invisible implicit deduction from salaries, the Fuchs-Emanuel voucher proposal would shift those expenses onto the government budget, where they would be very visible indeed. To generate the required revenue, Emanuel and Fuchs proposed a Value Added Tax, which is essentially a national sales tax. But sales taxes are among the most regressive taxes of all, and with the Democrats in firm control in the Senate, it’s hard to see a VAT being enacted any time soon.

So if hope for fundamental health care reform is to be salvaged, we’ll need other sources of revenue to pay for it. As I’ve argued elsewhere, the most promising candidates are taxes on activities that generate negative externalities. And as I’ll explain in a future post, one such tax in particular has the potential to attract political support from both sides of the aisle.

Author: Robert Frank

Robert H. Frank is the Henrietta Johnson Louis Professor of Management and Professor of Economics at Cornell's Johnson Graduate School of Management and the co-director of the Paduano Seminar in business ethics at NYU’s Stern School of Business. His “Economic View” column appears monthly in The New York Times. He is a Distinguished Senior Fellow at Demos. He received his B.S. in mathematics from Georgia Tech, then taught math and science for two years as a Peace Corps Volunteer in rural Nepal. He holds an M.A. in statistics and a Ph.D. in economics, both from the University of California at Berkeley. His papers have appeared in the American Economic Review, Econometrica, Journal of Political Economy, and other leading professional journals. His books, which include Choosing the Right Pond, Passions Within Reason, Microeconomics and Behavior, Principles of Economics (with Ben Bernanke), Luxury Fever, What Price the Moral High Ground?, Falling Behind, The Economic Naturalist, and The Darwin Economy, have been translated into 22 languages. The Winner-Take-All Society, co-authored with Philip Cook, received a Critic's Choice Award, was named a Notable Book of the Year by The New York Times, and was included in Business Week's list of the ten best books of 1995. He is a co-recipient of the 2004 Leontief Prize for Advancing the Frontiers of Economic Thought. He was awarded the Johnson School’s Stephen Russell Distinguished teaching award in 2004, 2010, and 2012, and its Apple Distinguished Teaching Award in 2005.