Toward a Just Healthcare System That Does Not Bankrupt Us

 A Shared Lack of Realism

A recent podcast  focuses on the current impasse over extending the premium subsidies under the Affordable Care Act. The podcast says that the impasse reveals the lack of realism in both parties to the debate. Republicans, the podcast says, insist on reforms that help to control costs but do not deliver immediate relief to working Americans. Democrats, on the other hand, insist on relief for working Americans without reforms to control costs. Both are morally and politically unrealistic. The podcast claims correctly that the system as it stands is unsustainable. It cannot survive without continually expanding government assistance because its incentives drive rising costs. 

The Free Market Cannot Solve the Problem

However, the Republican solution to this problem is unrealistic. The Republicans want to give money directly to individuals and to rely market constraints on costs. Markets rely on bargaining between buyers and sellers. Sellers are constrained by the fact that they cannot sell a product above a certain price. The market “clears” when the price is at a level where the amount supplied is equal to the amount that consumers are willing to buy.

Inevitably, in such a system, some people cannot buy a particular good at the market price. It is too high for them, and - according to market theory - they choose rationally not to buy. That system makes sense and works well as long as the goods in question are goods that not everyone needs. If some people can afford to pay $5000 for a designer handbag while others cannot, we do not feel that any serious injustice is involved. (There may be injustice in the distribution of income, but that is a different question.) 

However, not all goods are like $5000 handbags. Some things meet real, universal needs. For example, if the family of a little girl in Wisconsin cannot afford to buy her a warm, winter coat, we feel that one ought to be provided for her in some other way. In Wisconsin’s climate, every child should have a warm coat. Most of us feel that healthcare is like a warm, winter coat. It should be available to everyone. So, if the healthcare market cleared at a level that denied healthcare to some people, almost all of us would see that as unjust.

Health insurance changes the incentives that market depends on. There is another problem with the idea using market constraints to control costs. Healthcare is so expensive that most people cannot provide it for themselves without insurance. However, insurance separates the payer (the insurance company) from the consumer (the patient).  A consumer who does not have to pay has no incentive to bargain over costs. Health insurance prevents the market from controlling costs. 

To solve this problem, deductibles and copays are introduced, but if they are to be large enough to work, they will again place healthcare financially out of reach for many people. If the deductibles and copays are small enough that everyone can pay them, they will be too small to achieve their goal of controlling costs.

So, there is no way to use market constraints to control costs in the healthcare system and at the same time, make healthcare available to everyone. We will have to resort to non-market methods to control costs, and healthcare systems in various parts of the world have found various ways to do that. In Germany, the insurance providers negotiate collectively with the healthcare providers. In Britain, the government itself provides most healthcare services. Health maintenance organizations charge a fixed price per patient and manage the costs internally. Thailand uses a similar system in its government hospitals. All of these methods work to some degree, and none works perfectly, but they all are based on a recognition that market cost constraints are incompatible with the idea that no one should lack healthcare. Republicans must become realistic about cost control in health care and abandon the idea that the market can do what is needed.

Democrats Must Also Become Realistic

Democrats must also become more realistic. Extending the subsidies to make insurance affordable under the ACA is necessary today because healthcare is a human right, but extending the subsidies is not a long-term solution. If the Democrats win the elections of 2026, they must begin to look seriously at making the healthcare system sustainable as well as just.