In their book, We’ve Got You Covered, Liran Einav and Amy Finkelstein call for universal health insurance coverage, with no increase in government spending.
It’s getting a lot of attention in progressive circles. Yet, Massachusetts Institute of Technology economist and co-author Finkelstein says she doesn’t regard the proposal as leftwing. In a recent podcast, she said the best health care systems in the world are in Australia, Israel, Singapore, and Switzerland. These are all market-based systems.
Surprisingly, a bill that would go a long way toward implementing Finkelstein’s proposal has been introduced in Congress by a conservative Republican.
The Problem
Einav and Finkelstein say U.S. health insurance has three flaws.
First, it is hard to access. Six-in-10 people who are uninsured are eligible for free or highly subsidized insurance but can’t manage to enroll. Second, health insurance doesn’t last. On- in-five people under age 65 will become uninsured over a two-year period.
Third, health insurance is inadequate. The amount of unpaid medical debt is more than the debt for all other consumer expenditures combined, and three-fifths is incurred by insured households.
So, what can be done? Finkelstein and Einav note half of health care spending is by government. That’s enough, they say, to provide every American with “universal coverage that is automatic, free and basic.”
“Automatic” means people are auto-enrolled into a plan. “Free” means the premium for basic coverage is paid by the government and “basic” would be care most of us would regard as medically necessary. People could upgrade beyond that.
Solution Already in Congress
A bill embodying much of this idea is the Health Care Fairness for All Act, introduced by U.S. Rep. Pete Sessions (R-TX). The bill would replace all federal tax and spending subsidies for private insurance with a tax credit—giving every American an equal amount.
Because it would be refundable, even those who pay no tax would receive it. Health plans would compete to provide “basic” coverage at a price equal to the tax credit. People could add their own money for “non-basic” coverage.
For anyone who turns down the credit and elects to be uninsured, the subsidy would fund coverage through a safety net.
An important argument by Finkelstein and Einav is that Americans are paying about twice as much as we should for medically necessary health care. So, if we gave the government’s share to people directly, they would be able to buy essential coverage with that money alone.
Making health care “free” does not mean there would be no role for price-conscious consumers. Under Medicaid’s Cash and Counseling program, for example, homebound disabled patients manage their own budgets and can hire and fire their attendants.
Similarly, under the Sessions bill, health insurers could make deposits to health savings accounts to allow patients to manage their own budgets for diabetes and other chronic conditions.
Making the Transition
A problem with the Finkelstein/Einav approach is the lack of a practical transition. The Sessions bill has a provision for “grandfathering.” Employers would have the choice to keep all their employees in the current system or switch to the tax credit. Sessions believes it wouldn’t take long for both employers and employees to decide that tax credits are better.
Take an executive facing a 50 percent marginal tax rate, choosing a health plan for employees. If family coverage costs $24,000 a year, the current ability to substitute tax-free health insurance for taxable wages is worth $12,000 to her in reduced taxes.
If the executive chooses a more economical plan (resulting in less insurance and more wages), 50 cents of every dollar saved would go to Uncle Sam.
By contrast, with a tax credit approach, the first $12,000 of spending is subsidized dollar-for-dollar by the government. Beyond that, every additional dollar reduces take-home pay by a dollar.
Potentially, the employee now has an opportunity to convert $12,000 of health care spending into take-home pay by being a more economical buyer of health insurance and receiving higher wages instead.
The same principle applies to all employees, regardless of their tax bracket. Sensible ways to reform health care have now been around for almost two decades. It’s time for politicians to pay attention.
John C. Goodman, Ph.D. (johngoodman@goodmaninstitute.org) is co-publisher of Health Care News and president and founder of the Goodman Institute for Public Policy Research. A version of this article appeared on Forbes on August 6, 2023. Reprinted with permission.