October 05, 2007

Long Live the Health Care Market

The government does not do everything right.

The preceding sentence was perhaps the least contestable sentence in the history of column writing. But now for the heresy some would like to ignore: sometimes, the government does do things right.

If you are an American who is paying attention (and just by the fact that you are reading this column, you are presumably the latter), you are aware that the current system of health care in this country is floundering. The costs of employer-based health insurance are crippling American businesses, even putting them at a competitive disadvantage in a globalized market. In addition, 47 million Americans do not have health insurance at all, most because it is too expensive and/or their employers are not or cannot help pay for it. This means that there are American families who are one medical situation away from both bankrupting themselves and shifting their health costs onto taxpayers or doctors.

Even those that have health insurance are not thrilled with what they’ve got. Premiums and deductibles seem too high, choice feels restricted, and there is the haunting knowledge that insurance companies have every financial incentive to cover as little as it can get away with.

In sum, the system is disabling employers that pay for health care, leaving those with coverage unsatisfied, and failing to cover millions. All of this may be acceptable if Americans were receiving superior health treatment with better outcomes that people living under other health systems. Largely, however, Americans are not as measured in terms of criteria like life expectancy and infant mortality.

Amidst this wreck are a few programs that do better than the system of private insurers now dominant in our system. Those programs, including Medicare, health care for veterans, and health coverage for poor children, are run by the government. And, at least as compared to the private insurers, the government is doing it right.

Yet this week, as President Bush was presented with an expansion of the popular and successful state children’s health insurance program, or S-CHIP, he found an opportunity to use the fourth veto of his administration. S-CHIP was originally envisioned to cover children in poor families. The program has been successful and as it came up for reauthorization, a bipartisan coalition in Congress agreed on a significant expansion so that it could reach even more of the 9 million American children living without health insurance. Members of Congress are now scrambling to gather the votes needed to override the President’s veto and salvage S-CHIP.

Why is the President so adamantly opposed to the expansion of S-CHIP, an expansion many in his own party support? It presumably is not because he thinks poor children should not be insured. It also is not because he thinks S-CHIP is ineffective. The President proposed his own expansion of the program, albeit a much smaller expansion than what Congress agreed to. The motivation for the veto was in fact precisely the opposite – S-CHIP is very effective. It is so effective and satisfying – like Medicare – that it makes it look as though health care can be successful even without private insurers. It looks as though the government is doing something right.

The President sees S-CHIP expansion as a step along the way toward government-funded health insurance for all Americans. In this, he is correct: the expansion does provide government coverage to more Americans. Where the President is wrong is that this is a bad thing.

In the private market, when one entity does something better than another, it is rewarded with market share. The same should be true where, as here, the government is doing a better job at covering Americans and providing them with coverage for quality health care than is private insurance. S-CHIP is targeted at covering those that private insurers have overlooked or refused to cover. If, based on its effectiveness, it picks up a few families who drop their own private insurance, that is simply the market’s way of punishing private insurers.

The fact is that even if President Bush’s veto is overridden, the United States is not converting to single-payer health insurance anytime soon. None of the major presidential candidates have proposed a plan that goes so far. Where the United States is going it toward a more effective system of coverage by expanding a program that works. Effectiveness is precisely what the market ought to reward, even where it is the government that is doing something right.