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Are There Trade-offs in Public Health Insurance Design?

January 15, 2021

Topics: Quote of the Day

By Katherine Baicker, Ph.D.
JAMA Health Forum, January 14, 2021

The importance of access to health care and the financial protections that insurance should provide have never been more salient, and the potential consequences of the costs and gaps within the patchwork system in the US have never been more dire. Would the US population be better off with a simple, single-payer, uniform Medicare-for-all–type of insurance plan?

Trade-offs abound in policy decisions about health insurance. Although the advantages of moving to such a single-payer plan might be appealing, there are large hidden costs that must be considered.

First, having a single health insurance plan to cover the heterogeneous US population can actually make people worse off than tailoring the generosity of benefits to different people’s needs and preferences. In work I carried out with Mark Shepard, PhD, now at the Kennedy School at Harvard University, and Jonathan Skinner, PhD, at Dartmouth College, we highlight that the costs of having a uniform public insurance benefit have increased dramatically since Medicare’s advent in 1965.

One reason for the sharp increase in the costs of having a uniform public insurance benefit is the dramatic advances in health care within the last half century, with many more intensive—and costly—treatments now available. Providing all the care that might possibly be available is a much more expensive proposition now, necessitating forgoing many other things. A second reason is the substantial growth of income inequality. A person with a high income might be willing to devote resources to expensive care of only minimal health benefit, whereas a person with a lower income may need to devote those same resources to housing or education. A third reason is that, as tax rates have risen, the economic cost of raising funds to cover public insurance programs has become much larger.

All of this means that providing the same public insurance plan to everyone would leave segments of the population worse off. This could be higher-income groups, if the public benefit is limited and they are prohibited from going around it; or lower-income groups, if the benefit is comprehensive and too few resources are left to be devoted elsewhere. An alternative that might be better for everyone would be a basic public health plan available to all coupled with increased spending on other social insurance programs for lower-income groups, with the option to augment those benefits with privately purchased wraparound plans—more like the Medicaid-for-all who want it proposal.

A second factor in evaluating the costs and benefits of having a single plan is the trade-offs that are inherent to insurance plan design. Different people value different features in their health insurance, even if the overall generosity of the plan is held constant. Of course, most would prefer lower costs and broader coverage, all else being equal. Although most want the same care but at a lower price, lower cost sharing means higher premiums, whereas narrower networks can lower premiums.

Amitabh Chandra, PhD, at the Kennedy School and the Business School at Harvard University and I explored the answers given by a nationally representative survey sample about what features in a health insurance plan were most important to those surveyed, focusing on the trade-offs among elements such as lower co-payments, more expansive networks, lower premiums, and more comprehensive coverage. People were remarkably divided in their preferences about those dimensions, and given the option, they would make different choices about their insurance coverage.

The impetus for a single-payer plan is often not only the hope of reducing costs but also the goal of expanding coverage. The same survey suggests that altruistic concern for other individuals’ access to care, encouragingly, cuts across the political aisle. Faith in whether the government or the private sector is best able to effectively provide that care is much more sharply divided.

Another potential drawback of having a single plan is that competition among plans has the potential to drive down costs and accelerate innovation. This requires true competition within the insurer market, as well as among clinicians, hospitals, and other health care facilities, which is not the case in many parts of the country. There is genuine debate to be had about the potential for the introduction of a public option to increase choice and competition to promote higher value.

The costs of a single, expansive public program point to the potential benefits of giving enrollees a choice among insurance options—free or heavily subsidized for lower-income populations—to expand coverage while allowing people to make choices that reflect their priorities and drive value. There is an example along these lines in the Medicare Advantage system already in place, and most patients enrolled in Medicaid receive their insurance through privately managed plans.

None of this is meant to say that the current system is serving the US population well now. Individuals are paying more and getting less than they should—and this is particularly true for vulnerable populations. Instead, acknowledging the societal value of expanding coverage and increasing affordability, as well as the unavoidable trade-offs involved in the design of public programs, would move the country toward implementing a fiscally sustainable, high-value public insurance safety net.

Katherine Baicker, PhD, is dean of the Harris School of Public Policy, University of Chicago.



By Don McCanne, M.D.

Are there really trade-offs in accepting single payer Medicare for All? What are the hidden costs, if any?

Katherine Baicker says that having a single plan can make people worse off because their needs and preferences are different. Needs and preferences may be different but that is why you need a single plan which can cover all reasonable needs and preferences. You often cannot predict a year in advance what the needs will be.

She states that the costs of having a uniform benefit has increased since Medicare’s advent in 1965, but essentially all costs have increased since then. That is what inflation does, though maybe there is also a disproportionate increase due to increased volume. But if those services are beneficial, we should keep them. We can afford them.

She also mentions the increase in tax rates, though Trump recently reduced tax rates for the wealthy. She says that it might be better to have a basic health plan for everybody coupled to increased spending on other social programs for lower-income groups. It is true that taxes should be progressive to pay for social programs, but that does not mean that benefits should be arbitrarily sorted out for health care coverage. All essential benefits should be included.

She states that premiums, co-payments, provider networks, and comprehensiveness of benefits could be made variable by providing different insurance coverage plans, but those are insurance gimmicks that should have no place in a universal public plan financed by progressive taxes.

She expresses concern that a single plan would forgo the benefits of competition, but that is fine since what we really want instead is cooperation.

But then she concludes with the statement, “None of this is meant to say that the current system is serving the US population well now.” That is correct, and that is why we should want a single, comprehensive program that covers everyone – a single payer, improved Medicare for All – a plan that would serve us all well.

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About the Commentator, Don McCanne

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Don McCanne is a retired family practitioner who dedicated the 2nd phase of his career to speaking and writing extensively on single payer and related issues. He served as Physicians for a National Health Program president in 2002 and 2003, then as Senior Health Policy Fellow. For two decades, Don wrote "Quote of the Day", a daily health policy update which inspired HJM.

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