Universal Healthcare, Hold the Socialism

By Aditya A. Sivaraman | Sunday, February 11, 2007

Both sides of the political aisle are experiencing very competitive primary fields for the 2008 presidential nomination. For the most part, the Democrats and their star-powered candidates have dominated the public’s attention. In addition to Hilary Clinton and Barack Obama, the Democratic primary promises to be as dramatic and dirty as it has been in the past. On the other side of the aisle exist quieter, though no less monumental, politicians who seek their party’s nomination. Senator Sam Brownback of Kansas is officially in the race. Senator John McCain, a likely candidate, is both a war hero and an extraordinarily popular Republican. Throw into the mix gentlemen like former mayor of New York Rudy Giuliani and former speaker of the house Newt Gingrich and it’s easy to see that the Right has quite the array of superstars as well. An oft forgotten name in this toss up, however, is the former governor of Massachusetts Mitt Romney.

Governor Romney spoke on Thursday, February 1st at the Dartmouth-Hitchcock Medical Center to a group of physicians, administrators, students, and media outlets on his plan to provide universal health care without forcing an unwieldy government intervention onto the nation. This was no political stump speech. The people Romney was addressing were experts in the field and were not about to tolerate political maneuvering in place of a tangible proposal. Romney, however, fared well.

Governor Romney is no stranger to tough competition and needing to deliver. He began his academic career at Stanford; within two terms at school, however, Romney decided to heed the call of his maker and become a missionary in The Church of Jesus Christ of Latter-day Saints. He worked for 30 months in France before returning to continue his education at Brigham Young University, where he graduated as valedictorian. Upon graduation, Romney attended the joint JD/MBA program at Harvard; he was a Baker Scholar who graduated in the top 5 percent of his class. He began his career in consulting and rocketed upwards to his former position as a Republican governor in one of the most liberal states in the union. Despite this political setback, Romney pragmatically used his line-item veto and political savvy to enact critical economic and health care reforms in his state. Pressure and competition don’t faze this man at all. Romney’s credentials include being the CEO of Bain and Company and founding Bain Capital. He’s an intelligent businessman who is open to the idea of global warming and embraces the free market. An obvious leader and articulate orator, Romney didn’t miss a step in his analysis of the current state of American health care.

Romney stated that the number of people without health insurance in Massachusetts is staggering. Of that number, half of them make less than $45,000 a year, and three-quarters make less than $75,000 per year. This income demographic just doesn’t see the point of health insurance. This is of particular interest because this demographic can afford to buy the insurance but chooses not to. This is due in large part to the “free rider” problem of the current health care infrastructure. Individuals who are not offered corporate health care don’t buy it privately because they can just show up at emergency rooms if they have an acute condition and get treatment for free.

The other demographic that is effected by a lack of health care is the group making $30,000 a year or less. This group simply cannot afford health insurance. Insurance companies are also reluctant to sell this group any kind of affordable insurance because they fear that the lower-income individuals who buy insurance will be those who do so because they know they will need to cash in on it. The adverse selection effect of lower-income class health insurance has made market for cheap health insurance very risky, and has been a chief contributing factor in keeping companies from investing in the market.

Given the situation, Governor Romney seems to have created a brilliant solution that satisfies both the need for universal health care and the realities of the insurance industry without needless government interference or takeover of the health care sector. His policy required all citizens of Massachusetts to have health insurance. This requirement is critical for the entire system to work. First, it achieves the ultimate goal of universal health care, admittedly by fiat. Second, it gets the insurance firms on board and assuages their fears about selling health care to the lower classes. By requiring all people to have health insurance, adverse selection cannot exist – no matter what the ailment, there will always be individuals who pay for the treatment of others, which may counter his claim that his program doesn’t give in to needless government intervention. The universality creates a normal distribution curve of patients in which premium rates can stay low and policies can be flexible.

In terms of the middle class, Romney and his group of specialists and consultants discovered the reason that individuals don’t seek out non-corporate health insurance is because it is comparatively more expensive. When corporations buy insurance for their employees, they are able to pay for the insurance with pre-tax income. However, when sole proprietors attempt to do so, they must pay for the insurance post-tax. Romney’s plan equalizes the playing field, eliminating disincentives for individual buyers.

Governor Romney’s plan is most successful in dealing with the lower classes. Individuals in this demographic would be able to choose a provider, choose a policy, and then pay what they can on a sliding scale. Their health insurance will be heavily subsidized (as much as 90-95%). At first glance, it may seem as if this step is impossible without dramatically raising taxes. Romney’s plan, however, simply calls for the reallocation of currently existing health care funds. In the status quo, the state of Massachusetts (and many other states) gives money to hospitals that take on a disproportionate share of uninsured patients (the DISH fund). Romney’s plan would take the money from the DISH fund and, instead of giving it to hospitals, would use it to subsidize the health insurance of individuals. This puts the money directly into the hands of the patients, who can then choose which hospitals they want to go to and what procedures they want. This plan has made the process more efficient on both ends. Previously, when individuals got health care for free, they had no incentive to refuse superfluous treatments and procedures. Hospitals, which would receive funding based on the care they provided, had a very strong incentive to act inefficiently and rake in DISH funds for procedures that may not have been necessary. In the new system, since individuals pay a portion of their health insurance, they have an incentive to keep their premiums from going up by refusing wasteful procedures, and hospitals no longer have any incentive to prescribe the same procedures.

This plan is fine in theory, but does it hold up? Romney cited statistics from a study done by the Boston Medical Center, one of the biggest hospitals in Massachusetts. This hospital treats approximately 100,000 patients per year who don’t have health insurance. BMC conducted an experiment in which it gave 20% of their uninsured patients fake “insurance cards” that they could use at the hospital as if they had real insurance. These individuals were told to come for regular physicals and were assigned to a physician. The experiment showed that these individuals showed up for treatment far more regularly. They showed up for primary and preventative care instead of only receiving care for acute conditions. The result was stunning: the average cost of an individual in the experimental set was only one-third as large as the cost of an individual in the control set without insurance. This result falls squarely in line with Romney’s belief that preventative care is key and that acute care on its own is “not humane and… not economic.”

Compare this result with the alternatives of socialist health care and the status quo. Medicaid, in Romney’s words, is a “terrible insurance program”. Medicare has no co-pay, no deductible, and coverage automatically stops after an arbitrary income level. This means people have no incentive to accurately report their income; worse yet, they have no incentive to get a second job or a higher-paying job in fear of losing their state health care. Most damningly, since people don’t pay any part of their health insurance, they have no stake in the system and no incentive to allow it to run efficiently. Socialist health insurance, such as that utilized by Canada, involves government takeover of one of the biggest, most vibrant sectors of the American economy and would cause massive inefficiencies. Romney compared socialist health care waste to that produced by other government organizations, such as the military and the postal service. Government has an incentive to spend wastefully for political purposes and can’t allocate services and funds efficiently like the market can. Romney’s plan is a form of co-insurance: the fact that the insured pays a certain percent of the insurance allows market forces to work. The effect of this is that the government-facilitated health care plan runs like the private sector. Waste is cut out because the government doesn’t provide health care, but merely makes it possible for consumers to find the product that benefits them the most. Romney strongly advocates the free market for health insurance: “If you think health care is expensive now, wait until it’s free.”

Governor Romney’s plan offers universal health care at a price that is one-third of what it costs not to insure people. It avoids the problems of government meddling in the private sector, and doesn’t end up succumbing to the tragedy of the commons. Universal health care could to be one of the most important issues of the upcoming election; one candidate already has a solid post-election strategy.

Universal Healthcare, Hold the Socialism

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