Why Government Intervention in Healthcare is Necessary (and Inevitable)

I’m running out of chances to nudge you before publication, so let me say again, please preorder my book (out in less than a week!) if you haven’t already.

As has been said many times, the term “health insurance” is actually a misnomer, and the reason why says a lot about why government has to play an active role in the distribution of healthcare.

Car insurance, flood insurance, and home insurance are typical of what we conventionally think of as, well, insurance; you pay an insurance company an amount of money based on their perceptions of how risky you are as a client, and if in fact you get into a car accident/experience a flood/see your house burn down, they pay out. If the risk is perceived to be high enough, they won’t insure you at all, leading to scenarios like insurers pulling out of Florida thanks to climate-driven disaster risks. The general financial reasoning is that most people won’t actually experience these disasters, meaning that a large portion of the covered pool won’t cost the company anything and their payments will allow for both paying out to the minority of policyholders who make claims and profits. This type of insurance is the kind of service you hope to never actually have to use, and what you pay for with your money is peace of mind. There’s a big set of secondary insurance markets and reinsurance and actuarial processes that try to manage the various risks and, of course, arbitrage some profit out of them.

Life insurance is a little different, in that eventually, the event that is being insured against (namely death) will inevitably come to pass. (I’m sorry you had to find out this way.) On the face of it, that seems like a bad financial prospect for insurance companies; it makes much more sense when you think of life insurance as insurance against early death, unexpected death, as term life policies eventually expire without the possibility of renewal and whole life insurance payouts typically decline steeply as the person holding the policy gets older. Again, you can plan on only a minority of your policyholders dying early enough that you take a net loss on their policies, and the payout pool and profits grow.

Core to these expenditures is the socially-held notion that not everyone has a right to make them; insurance premiums cost money and some people just can’t pay those premiums. In that they match almost every other kind of good or service in our economy. I would actually argue that in the vast majority of the United States people need a car to work and have a normal life, but we don’t have a conception of a universal right to drive and so accept that there are people who can’t afford car insurance. (Of course, millions of people drive without insurance, which creates its own issues.) Robust investment in public transit can reduce the burden of not being able to afford a car, but only our most densely populated urban spaces tend to have such investment. Most people accept the fact that there are people who simply can’t afford insurance for cars, even though 48 states and the District of Columbia mandate some level of coverage. Nor do most people think that we have a social responsibility to provide everyone with home, flood, or life insurance. They’re seen, simply, as commodities you can afford or you can’t.

Health insurance is not really like those other types of insurance. Everyone, eventually, will need healthcare; some need more, some need less, but everybody needs some. Even the healthiest individuals should be seeing a doctor and a dentist at least once a year for routine checkups and maintenance. For some, health insurance is procured with the explicit knowledge of both insured and insurer that the insured will regularly be drawing on it. Reliably, we’ll need more healthcare services we age than we do when we’re young and fit. And so the risk burden is heavily tilted towards our senior population - who are also the people that are past their prime earning years and face the largest impediments to making enough money to pay for healthcare, typically precisely because of various medical issues. This presents a problem that’s part of a larger problem. The lower-order problem is that the young and healthy have little incentive to purchase health insurance based on their risk profile, and even those who choose to purchase some form of health insurance would likely prefer to pay only for bare-bones catastrophic coverage. That means that the lowest-risk potential policyholders would essentially keep their money out of the system, while the highest-risk would have no choice but to remain in it. This results in an insurance pool that would require sky-high premiums to stay solvent and generate profits. Which points to the higher-order “problem”: we have, thankfully, a strong community moral instinct that people shouldn’t be denied medical care because they can’t pay, which destroys the capitalist logic that underlies most purchases.

The moral instinct that everyone deserves healthcare access is most directly articulated in EMTALA, the Emergency Medical Treatment And Labor Act of 1986, which mandates that emergency medical providers have to treat the seriously sick or injured regardless of their ability to pay. You can Google around for horror stories of people dying needless deaths prior to EMTALA. Our commitment to providing healthcare regardless of ability to pay can also be seen in the “preexisting conditions” clauses of the Affordable Care Act, which prevents insurers from excluding potential customers by dint of their preexisting health conditions and which is widely popular, even among Republicans. Then there are Medicare and Medicaid, which provide government-subsidized care to the elderly, the poor, and the disabled. We seem to believe, as a society, that nobody should die of a preventable disease because they’re poor.

This is where the contrast with car insurance or life insurance and similar is most consequential: if you can’t afford car insurance, you can’t have car insurance, and if you can’t afford life insurance, you can’t have life insurance. But we understand that medical care isn’t something you can simply choose to forego; you can’t just say “eh, I don’t really want antibiotics that badly, I’ll live with sepsis” in the same way you can with other things sold in a market. Combined with EMLATA, this creates a “free” rider problem; if you’re going to eventually receive emergency care regardless of your ability to pay, you could just go to the emergency room when you have to and receive care. (This is “free” rather than free because other than for the most destitute people who have essentially fallen out of the formal economy, you’ll be pursued for potentially tens of thousands of dollars in medical debt.) This also creates an efficiency problem; though people debate the specifics, few doubt that there are conditions that are much easier and cheaper to treat with prevention or early on than to treat once they have reached emergency status. This also creates a financial problem; if young healthy people just aren’t in the pool, you have more sick people than healthy and you can’t make the math work.

Indeed, in a system that retains the profit motive and private medical facilities and companies, at scale the only way providing medical care for an entire population of people works is if the young and healthy subsidize the old and infirm. You can get into a whole philosophical debate about the fairness of this setup, but it’s the basic way the elderly are cared for in our society, by being subsidized by the young. And, since the elderly were once the young, the theory is that fairness basically evens out over time. It’s important to say, too, that large pools of customers are essential for securing cheap(er) medical services. Like most things that can be bought and sold, you can get a better deal on medical necessities like drugs and equipment if you’re buying in bulk; the bigger a pool of patients you have, the greater your ability to muscle lower prices out of suppliers. This is very important because medical care has become hideously expensive, much more so than in other developed countries - and no, not because our outcomes are the best. In a completely deregulated “free market” system, young healthy people can mostly pay out of pocket for rare expenses, those who can will purchase insurance that covers catastrophic events but which costs too little to subsidize the old and ill, and the rest are forced to pay untenable premiums or simply go without healthcare, leading to early deaths and a lot of loss from disability in our economy.

But we don’t have a free market healthcare system or anything like it. Most people intuitively believe that everyone should have access to healthcare, even if they deeply disagree on how best to provision it; at the very least, few people would countenance children dying of preventable illnesses simply because their parents are poor. And the crucial thing to understand is that once you extend any societal commitment to provide care, you’re making government intervention into the system inevitable. That’s why various arguments against regulation and entitlements are so wrongheaded, because they suggest a system untainted by government influence where no such system can exist. The default American system of employer-provided health insurance has always left millions uncovered, chained people to jobs they would like to leave behind, and done nothing to guarantee access after retirement. What’s more, part of the reason for our unconscionably high expenses lies in the fractured insurance pools that don’t allow for heavy bargaining. The federal government has, for the first time, released a list of medications that Medicare will attempt to negotiate prices over with manufacturers, pending court challenges; with some 65 million people in the program, that’s a lot of organizing power. In a free market system, the best you would get is one firm with an immense insurance pool, which would necessitate the kind of market dominance that would then present monopoly problems.

You can guess the next part yourself: the biggest possible patient pool would be “every American,” and we could have that pool with what’s typically called a single-payer system - single-payer, in the sense that the government is the one entity that arranges and distributes and subsidizes health care. In addition to having greater ability to negotiate prices (and in effect set them, as some other countries do), a single-payer healthcare system would potentially see significant gains in efficiency and administrative overhead. While people typically assume government-run enterprises are the ones that become bureaucratic nightmares, in fact the private healthcare industry is being swallowed by massive administrative overhead and complexity, particularly in billing and insurance; this is true of patients on regular employer-provided insurance as well as Medicare or Medicaid. A single-payer system could dramatically reduce the complexity and in doing so the number of jobs needed to handle that complexity. (The short-term job losses would be unfortunate but could be ameliorated with retraining programs, and the overall benefits would be huge.) There would be no more awkward transitions out of private insurance and into Medicare, or from one job to another. The essential, indispensable funding transfers from the young and healthy to the old and infirm, as well as from the rich to the poor, could take place through the regular taxation system.

The various ins and outs of this sort of program really matter, and you can of course find an immense amount that’s been written about single-payer or Medicare for All, both pro and con. I am well aware that I’m not going to change anyone’s mind here. What I’m trying to do today is to demonstrate that, first, as soon as we make the moral determination that everyone should have at least some access to medical care regardless of ability to pay, any “free market” issues go out the window and government involvement becomes necessary and inevitable. Second, the point is that getting to this point didn’t take any rabid socialist sentiments or anti-capitalist assumptions. You can get here purely through a pragmatic consideration of the underlying reality. Medicine just is not like other human goods; the basics of capitalism don’t work when people simply cannot choose to go without an expensive service, and if we agree that they shouldn’t have to, then we’re left to comprehend how much simpler, more efficient, and more humane our system could be, if we committed to providing care to everyone via the only organization in the country large and rich enough to accomplish that, the United States government.