Health reform and the election, part two: Does choice have a place?

There's no doubt about it: Americans want choices. In education. In mail services. And in health care, too — even if the government is picking up the tab. In Part 2 of a series on health care reform and the election, experts at the W. P. Carey School and in the broader community discuss the issue of a single-payer health care system versus one that offers individuals the power to choose from a variety of insurers.

There's no doubt about it: Americans want choices. In education. In mail services. And in health care, too — even if the government is picking up the tab. Mark Pauly, professor of health care systems at the Wharton School says that because Americans prefer choice, any health care reform proposal should offer just that. Last November, the School of Health Management and Policy at the W. P. Carey School of Business hosted its inaugural Health Economics and Policy Lecture.

Pauly, who was the guest lecturer, said "My perception of my fellow Americans is that they do not agree on what is the best institutional structure for supplying services, even services with some 'public good' dimension. Some people trust the U.S. Postal Service and other people trust Federal Express.

With anything else in life, people have different preferences and there is no really good reason why we cannot allow all those preferences to be expressed in health care as well." In Part 2 of a series on health care reform and the election, experts at the W. P. Carey School and in the broader community discuss the issue of a single-payer health care system versus one that offers individuals the power to choose from a variety of insurers.

Why candidates should be talking about health care choice

"The strongest normative argument for a competitive market in health insurance is not that it has some magical power to improve productive efficiency," Pauly said, "but that it has the power to allow different people to get different things, instead of everybody getting the same thing." The ideal plan, in Pauly's opinion, would look like Medicare, at least from the consumer's perspective. There would be an income-adjusted subsidy amount (so that poorer people get a larger subsidy and richer people get a smaller one) that the government would give to people to help them buy health insurance.

"People would then be able to choose from among a variety of plans that have different characteristics. There might be plans that are nicer but cost more — you have to decide if it's worth it to you; there would also be more bare-bones, low-cost plans that — if you don't mind being inconvenienced — you might prefer, depending on how you feel about money compared to other things."

School of Health Management and Policy professor Brad Kirkman-Liff agrees that a system with choice makes sense, given Americans' preferences. "If people have the perception that a reform plan will take away their choices, they tend to get very anxious," Kirkman-Liff said.

What's more, he said, a system that offers choices increases the opportunity for innovation, creativity, and some market competition (which can act to control costs). It's more complicated than a single-payer system, but the benefits clearly outweigh the disadvantages.

What candidates are actually saying about health care choice

John McCain's plan calls for a tax credit of $2,500 for individuals and $5,000 for families to "offset the cost of insurance." While still having the option of employer-based coverage, "families will be able to choose the insurance provider that suits them best." Barack Obama's plan also calls for choice. According to the candidate's website, in fact, his plan would "provide Americans with additional options" (than are already available).

Through a National Health Insurance Exchange, Americans could choose from a new public plan or approved private plans, and would receive income-based subsidies to help with the purchase of health insurance. "If I read them favorably enough," Pauly said about the candidates' plans, "both do seem to be moving in the direction of making a subsidy available to people that they could then choose to spend on a variety of plans with different relative prices and different qualitative characteristics. That all sounds like a good thing to me."

Kirkman-Liff also sees the element of choice in both candidates' plans but says, as Pauly also does, that neither plan provides all the details necessary for a definitive proposal. That's okay, Kirkman-Liff said, since Congress will have the responsibility of fleshing out the details of any proposal anyway. But Kirkman-Liff does see "clear differences" in the two candidates' plans.

"Obama advocates a national insurance exchange, a sort of marketplace that provides clear information on the price and quality of competing plans," he said. "McCain's plan, on the other hand, allows consumers to buy from any insurer anywhere — his plan doesn't fundamentally change the existing state-based regulatory framework."

Obama, Kirkman-Liff said, is more precise about the need for transparency and accountability in the health care market. McCain's plan assumes that the market will work across states but that the individual states will bear the responsibility of regulating insurers who will now sell across all fifty states.

Kirkman-Liff said that there are really four distinct parts of the health care system that candidates should be addressing: 1) the public health system; 2) the system that provides care to "uninsurables" — people with catastrophic or chronic health problems that are not insurable in the private market; 3) the private insurance system; and 4) those areas for which individuals should be responsible.

"We need to clarify the roles of each part of the system, and then move forward to work out the details," Kirkman-Liff said. "What makes sense to me is a system that addresses some needs through individual responsibility — there are some costs individuals can pay out of pocket — and some needs through insurance companies or government involvement." A good health care reform plan, Kirkman-Liff said, would take the uninsurable population out of the private health care system and put them into the public system (into Medicare, for example).

"Individuals who have major chronic diseases and catastrophic health problems create too much of a burden for a completely private health system," he said. "Two percent of the country's population is responsible for 30 percent of the costs. But if we take those individuals out of the private system, then it becomes much more affordable to provide people with a variety of choices for their health care."

But is the question of choice even the right question?

Roger Hughes, Executive Director of St. Luke's Health Initiatives, a public foundation for policy research, education and grant funding for health and human services, said that while "the issue of choice plays well politically, it's a red herring." Hughes sees the debate as being framed by a single-payer versus individual voucher discussion.

"But that's not the right way to frame the discussion," he said. Instead of framing the argument as "either/or", pitting the government against the market, as Hughes says some have done, we should "bridge the ideological divide," he said. "The market catastrophe that's unfolding as we speak demonstrates the fact that simplistic answers aren't helpful. We must have regulatory infrastructure in order to have freedoms. The government and the markets must work together, not in opposition to each other," Hughes said.

Yet Hughes is optimistic that policymakers will make a change to the country's health care system (though not in 2009 because of the country's fiscal troubles). "After 2009, Congress will deal with health care reform," he said. "The solution will be the best compromise between the two competing ideologies."

"Regardless of the role of government in paying for health care, the government can, should, and will set the conditions under which the private market has to operate," Hughes said. "More and more people are realizing that's a proper role for the government." All three experts — Pauly, Kirkman-Liff and Hughes — seem to agree that both the government and the market have some role in the provision of health care.

"Previously, the ideological line was: if I was on the left, I only wanted the government to run things; if I was on the right, I only wanted the market to run things," Pauly said last November. Yet it seems, at least, that this debate has moved toward some middle ground.

Bottom Line:

• Americans like choices. As with other services — even other "public goods" — individuals should be able to make choices that express their preferences in health care.
• Both John McCain and Barack Obama have proposed health care plans that allow individuals to choose from a variety of plans with different relative prices and different qualitative characteristics.
• Obama's plan calls for a national insurance exchange, a sort of marketplace that provides clear information on the price and quality of competing plans. The plan calls for transparency and accountability in the health care market.
• McCain's plan may not fundamentally change the existing regulatory framework. It allows consumers to buy from any insurer anywhere, assuming that the market will work across state lines but that the individual states will nonetheless bear responsibility for regulating insurers.
• Both the government and the market have some role in the provision of health care — they must work together, not in opposition to each other.