Column: How to fix the health care market

Published January 10 2017

Imagine that you are out to lunch and the person at a table nearby has a heart attack. What should happen? The answer is obvious — someone should call an ambulance and the person should be treated. As a society we have standards of decency that include helping people when they are obviously in need. Few would argue with that. We will argue, however, about how to pay for the medical care those people receive. What if they are uninsured?

If an uninsured person has a costly medical expense — like a heart attack — he will receive treatment for which he most likely cannot pay. Hospitals must then charge more to others. People who are insured thus end up paying for medical expenses of the uninsured.

How much of a problem is this? The majority of people in the United States have health insurance through their job. The costs of insurance are shared between employer and employee, with some tax benefits as well. The next largest group has government-provided insurance — Medicare or Medicaid. These programs are paid for by tax revenue, largely from payroll and income taxes.

But people in neither category must turn to the private market for health insurance. Those with more health problems will be the first to sign up. These people will also incur the largest costs, meaning that private insurance companies will find them expensive to insure. Healthier individuals then see high premiums, and many thus decide not to buy insurance.

The market impact is clear. When healthier people don't buy insurance, premiums stay high because the pool of people who do buy insurance is riskier and costlier overall. The result is expensive insurance and a large number of people who remain uninsured — around 40 million before the Affordable Care Act.

The problems of health insurance markets are not new. In fact, we have been wrestling with them for more than 50 years, and the historical debate coalesced around two practical options. The liberal solution is a single-payer system — government-run health care, "Medicare for all" as it's sometimes called. The conservative solution, devised by the Heritage Foundation in the 1990s, was to make the private market work efficiently. To do so requires improving the risk pool so that insurance companies can offer lower premiums. The risk pool gets better when healthy people buy insurance, so the solution mandates that they do so and provides subsidies for those who cannot afford it.

The conservatives won this battle of ideas. The mandate and subsidies were first implemented successfully in Massachusetts under Mitt Romney and then expanded to the whole country under President Barack Obama. Strangely, Republicans decided that they were vehemently opposed to this means of fixing health care markets and are now working on the details of repealing it.

The reasons given for repeal are that premiums are high and increasing, which resulted directly from government intervention in the market. Once that intervention is removed, the free market should lead to lower costs and greater efficiency. This narrative is false; a repeal of the ACA is almost assuredly going to lead to higher premiums because of the nature of health care markets described above.

The U.S. health care system spends the most money per person on health care, compared with other wealthy nations. Other rich countries use a single-payer health system and insure their entire populations for around half the cost per person. If free markets for health care worked we would see lower — not higher — costs in the United States.

In the historical debate over how to structure the U.S. health care market, conservatives won a clear victory. The basic form of Obamacare is exactly what they dreamed of in the 1990s.

The counterintuitive movement for repeal seems to be driven by two factors. One is opposition to any form of higher taxes on the wealthy, an ideological purity that has firmly taken root in today's Republican Party. The other is resentment, based on the impression that Obama pushed through the ACA as a handout to minorities, even though the subsidies are purely income-based and millions of people of all races benefit from them.

Repealing the Affordable Care Act is shortsighted and destructive. There is no other feasible plan on the table to address the problem of individuals without insurance. Conservatives who push for it now may end up snatching defeat from the jaws of historic victory. The only other long-term solution to health insurance markets is the liberal one — a single-payer system. In the meantime, millions of Americans will suffer without health insurance while the wealthy save money on their taxes.

Professor Alan Green is chair of the economics department at Stetson University. He wrote this exclusively for the Tampa Bay Times.

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