Ezra,
Scott Adams, of Dilbert, has a term for such system: Confusopoly. Companies will make money by confusing what they cover and what they don't cover and the more successful you can confuse consumers, the more you will get. See land-line telephone service for details.

Charles Murray already covered such a proposal and did it in a more egalitarian manner. Namely, it was part of his $10,000 to every American adult 21 years of age or older and not in jail. $3,000 was to go to medical insurance.

Oh wait, Mr Klein dismissed it like a petty whippersnapper.

Forgot.

"Forget community rating and preexisting conditions and all the rest -- insurers can't price anyone out because no money changes hands between consumers and insurers. Rather, the government reimburses the insurers on a risk-adjusted basis."

1. If the "government reimburses the insurers on a risk-adjusted basis," then how can pricing adjusted for pre-existing conditions just disappear?

2. If the govt promises to provide $x, but allows anyone to "pay extra for supplementary insurance," how can we be sure that $x is sufficient?

3. If the govt allows anyone to "pay extra for supplementary insurance," how can you say that no one will be priced out? The price for some insurance will be higher than some people can afford.

Sounds okay, except for the VAT. Much prefer funding come from progressive income tax as well as cap gains and estate taxes.

So what's the point of the insurance companies? If the govt. is reimbursing them on a risk-adjusted capitation basis, why doesn't the government just go ahead and pay for the goods and services itself? What are the companies doing except taking a cut? Why not just get rid of them?

Isn't this a lot like the German system? Or is it France?

Who needs a "voucher"? What the hell is it, anyway? Better yet is a universal catastrophic coverage entity. Claims over XXX for any individual or 2XXX go to this Federal umbrella coverage corporation. Underneath the umbrella, insurers and employers can insure to their heart's content if they follow certain basic rules -- most important, no pre-existing conditions, with certain coverage, deductible and co-pay standards. Not having exposure above XXX or 2XXX will bring the private-policy cost down enormously. Some coverage, deductible and co-pay standards will allow for ready comparison by consumers, and thus more competition.

Could you please include in your comments some analysis of the quotation below from the paper. To anyone who has ever done any rate regulation, it makes the blood run cold.

"The regional boards would pay each plan and company a risk-adjusted premium for each person or family enrolled. To minimize the financial incentive for plans and companies to cherry-pick the healthiest patients and avoid enrolling sicker ones, the government would adjust the premium for age, sex, smoking status, preexisting conditions, and other factors, as determined by the National Health Board."

the 2XXX is the family limit.

Funding? Move over Medicaid and SCHIP money to subsidize low-income purchase of private insurance beneath the umbrella. Some charge to insurance companies who want to play underneath it to fund the entity. Some taxpayer surcharge. Combination of surcharge plus cost of exposure-capped private insurance should be less than premiums for current unlimited-exposure private insurance, because insurance companies need to earn a profit on the cost to cover the unlimited risk.

Agree with the above. If the system amounts to a hybrid between basic government-provided service and more extensive supplemental service, there is going to be a drift towards a system heavy in the latter and light in the former. People will be financing the basic insurance for everybody, but only the supplemental for themselves -- so it will be cost effective.

Watch Charlie Rose tonight--he is on, along with his brothers. Topic: Health Care Reform

One hates to become overly cynical with respect to debates about UHC, but that's nonetheless where I've ended up, and for the life of me I can't see the point in wasting time discussing a plan with a vanishingly small chance of being enacted.

There, I've just gone ahead and wasted a minute. Anyway, thanks for the (continuing) yeoman's work on healthcare policy analysis, Ezra.

Just gonna throw this out there. Why not just have an insurance version of a W-2/1099 that is sent to the IRS and the individual. Set the parameters according to dependents and keep it on the individual level? Vouchers seem entirely too rigid. And unfair in many ways.

I agree with ostap; citizens may not be writing checks under this proposal, but insurance companies would still have incentives to dump people with a family history of cancer or whatever, and if they do, those people would still be screwed.

Big decisions within the system are made not by Congress or by insurers, but buy a Federal Reserve-style National Health Board that has, in turn, twelve Regional Health Boards.

This seems dubious. Congress would still fund the program, right? And insurance companies would still fund Congressmen, right? Even if the independence of the system could be protected somehow, having 12 separate Regional Health Boards — it's not as bad as 50, but it's not as good as one would be.

I like how this plan includes the freedom to buy additional coverage on top of what the voucher provides. We don't have this in Canada and in the UK it becomes really expensive to buy extras (i.e. you have to give up all state benefits and buy entirely private care).

Here is my counter libertarian plan that will make people weakly better off but cost the same amount. First use a progressive tax to collect the same amount of funds as would be needed under this universal plan (use VAT or income tax). Now distribute these funds to individuals as you would under the voucher system but without any restrictions (i.e. cash). Finally use some fair system (like the voucher plan does) to equalize insurance costs.

If people spend all their allocated funds on health care they will be just as good off as under the voucher plan. If people spend less on health care and more on savings or consumption they will be strictly better off. I guess I just don't see why adults should be forced to spend so much (or anything) on health care when they would rather use that money somewhere else? There is something eerily authoritarian about controlling peoples consumption decisions and I don't think you need to be a conservative to see that.

I've been advocating this for a while. Note that from a purely financial standpoint (how much money everyone has to pay, effective marginal rates of taxation), any subsidized mandate system that's funded by taxation can be precisely replicated by a taxation-and-voucher system. The only difference is that with vouchers, you don't have to create a complicated compliance bureaucracy.

Reserving final judgement until the arguments are clearer, my first reaction is pretty negative:

- Presidential appointment and Senatorial approval will make the system VERY political - and subject to the kinds of manipulation of agencies that BushCO has proved so superior in doing.

- Insurers WILL mislead people into signing with them by hiding the negatives and hyping the positives of their plans. Those who haven't been exposed to the barrage of insurance company appeals to Medicare recipients each year during open enrollment have no idea of the sleazy lies perpetrated by insurers routinely.

- Insurers are still after the bottom line profits, and they WILL find a way to maximize those profits at the expense of either the insurered (directly) or at the expense of the government (indirectly). Collusion among them (via their trade groups) will lead to them controlling the system.

- The minimum coverage will be progressively undercut over time to control costs, and the so-called supplemental insurance will become more necessary and more expensive with no effective controls on that portion.

- We still will have medical records/histories in the hands of private insurers, so better treatment through complete records will be lost.

- Service providers will still have dozens of insurers to deal with, each with their own plans, and each with their own criteria of what is covered and what isn't. Accountants deciding on medical care is still the rule under this system.

- Since insurers (presumeably) can be changed each year, the incentives are for insurers to force out high cost patients through poor service and administrative red-tape, pushing the costs onto the next insurer selected by the patients. This will be especially true of very high cost treatments (organ transplants, etc.). "Not on my watch" will become the business rule for the insurers - kick that patient/treatment down the alley until next year/insurer gets the headache.

Analysis of these alternatives must always consider how the players will game the system, because they will since their existence/profits are at risk.

While there is no formal 'mandate' under this plan, in effect there is. Since the vouchers are 'free', service providers will NOT profide services to those who don't exercise their vouchers (and purchase what will become essential supplementary policies.

I'm not so enthusiastic, but maybe this is nirvana and my scepticism (which is ingrained because I'm not in favor of for-profit medicine) is overworked. But I don't think this an improvement over other plans, and clearly isn't better than truly 'socialized' medicine free from profit motives.

Ezra,

Looking forward to further discussion this week. Generally speaking, this is my favored approach to health care reform. The devil is in the details, of course, but given that no proposal ends up exactly as planned, I'd be pretty satisfied if this was the actual solution. Will hold off on further discussion until the for/against posts-- I'm real curious to see the "against" one, as like the authors, I find that this approach is superior to others proposed.

Wouldn't this plan be a lot better if it included a government health insurance plan competing against the private ones? Also, how does the plan deal with preexisting conditions?

One hates to become overly cynical with respect to debates about UHC, but that's nonetheless where I've ended up, and for the life of me I can't see the point in wasting time discussing a plan with a vanishingly small chance of being enacted.

Why? We've wasted tons of time discussing individual mandates, a plan with no chance of being enacted (because it is correctly opposed by half the left and all of the right)?

JimPortlandOR,

“- We still will have medical records/histories in the hands of private insurers, so better treatment through complete records will be lost.”
LOL have you ever heard anyone call their insurance company for a copy of their medical records? Your doctor maintains your medical records not the insurance company. Got a little off track with your blind hate of insurance companies.
It’s amazing anyone would even give this plan two seconds of consideration let alone take the time to type it up and distribute it. Anyone that has even the smallest knowledge of the current system and its failures knows that disconnect between the consumer and price is one of the major problems. When people aren’t required to pay for their care or make minimal contribution they consume more, less efficiently, and care for themselves less.
High premiums are a great motivation to stop smoking, lose weight, or generally improve your health. High co-pays and deductibles are great motivation to consume care wisely. The last 10 years have shown what happens when you remove those impediments. And here we have a whole plan built on complete removal of personal responsibility.

Why? We've wasted tons of time discussing individual mandates, a plan with no chance of being enacted.

Dilan: An individual mandate plan has already been passed at the state level in my state, and is accepted as a possible eventuality by the presumptive Democratic nominee.

A radical restructuring of the kind envisioned here, on the other hand, is incredibly unlikely to attract the necessary political support to succeed as first step UHC (although future UHC may well move us toward a form of single payer).

Regarding the libertarian blinders:
If people spend all their allocated funds on health care they will be just as good off as under the voucher plan. If people spend less on health care and more on savings or consumption they will be strictly better off. I guess I just don't see why adults should be forced to spend so much (or anything) on health care when they would rather use that money somewhere else?

... this continues the practice of encouraging individuals to take a free ride on society, not paying for coverage but then, if some emergency arises, expecting that they will not be left to die by the side of the road.

That is, if health care was something that was optional ... like whether or not to rent a DVD, or have a subscription DVD service, or subscribe to HBO ... the "just let people decide for themselves how much to spend on health care" argument would work just fine. Except, it turns out that on a very consistent basis, when the car wreck occurs or the cancer strikes, all of a sudden the person that needs care finds that its not an optional want, but a basic need.

People who think a cash payout is somehow a solution need to consider what this doesn't solve. A cash payout is no guarantee that an individual can afford coverage. The voucher would be a guarantee of coverage (and would guarantee that the money is earmarked only for that use) paying out cash would likely just lead to everyone's premiums going up by that amount without any increase in benefits or services.

The voucher as a guarantee of coverage could also be tied to other important factors such as covering those with pre-existing conditions as well as defining the minimum standard of coverage for those using only the voucher. This then puts immediate pressure on insurers to not only streamline their own organization but also hopefully force the medical industry to begin to ratchet down their explosive cost growth.

I still think dumping the private insurance industry as the main stakeholder in our nation's health is the only way we will effectively get control of the system and offer everyone an equitable chance at the life, liberty, and pursuit of happiness that we are supposed to be guaranteed as citizens. But the voucher idea beats the libertarian 'rainmaking.'

I still think dumping the private insurance industry as the main stakeholder in our nation's health is the only way we will effectively get control of the system

Well, yes, but the question is how to dump the insurance industry in an environment where a majority of American profess satisfaction with their own coverage.

That points to a system that combines immediate fixes of some things that are currently broken with forcing the private insurance industry to compete head to head against a public plan in a well-regulated market.

Edwards plan (later largely adopted by Sen. Clinton) incorporated that ... Sen. Obama's plan not as much, but to a certain extent. Obviously McCain's plan is an effort to avoid that ... it is in in part designed to maintain the strategic position in the middle of a large and growing share of GDP for health insurance companies ...

This voucher system? It seems to sidestep the issue of instituting head to head standardized competition between private insurers and a public plan, as well as looking like it might be used in practice to redirect existing public coverage toward private insurers.

So it does look like its heading in the wrong direction.

A few points:

1) Contrast with France: in France, though supplemental insurances exist, they principally reimburse the coinsurance on state-run insurance. They are highly regulated in what they choose to cover or not cover and regulators force them to boil choices down to simple differences consumers can choose from. So, if you want a plan with good vision coverage, the plan brochure will list the price of glass (or the percent reimbursed). The plan cannot choose what optician you go to or charge you twice the price because you need bifocals or high-index lenses.

2) One of the pitfalls of treating insurance as an individual good with an efficient market is that the level of complication doesn't allow for efficient individual choice. Many large corporations hire consultants who go through all of the options on plans and figure out the best one. And most of these companies complain about the cost and level of complication of this. Just try figuring out which insurance covers specific procedures in the US - you'll need procedure codes, doctor information, and it may depend on some arbitrary prior authorization. There is quite a literature on how individuals are not equipped to make good choices on health matters - that's why we have experts called doctors.

3) From what Ezra has posted and what I've devined from other posts, it appears this proposal is trying to deal with the adverse selection problem through risk-adjusters (like CMS uses in Medicare Parts C & D). This would be ex ante (before the plan year started). If the plan were able to lower medical costs, it would get to keep the difference. There is some argument about how well CMS is able to calculate medical costs based on gender, age and prior conditions, but there's little in the way of posturing for specific enrolees. Except that most plans don't like poor enrollees, because they use a lot more in care. If the plan was able to pick and choose enrollees, its experience with prior members would allow it to predict costs better than any government formula, which would lead to adverse selection and its related lack of coverage.

Dilan: An individual mandate plan has already been passed at the state level in my state, and is accepted as a possible eventuality by the presumptive Democratic nominee.

It can pass at the state level because Republicans like Romney and Shwarzenneger will support it. At the national level, it won't get a single Republican vote (they've drunk the Kristol kool-aid on health care reform), and a significant number of liberals will also oppose it (because it will make things worse).

The trick to health care reform is to keep on socializing larger and larger parts of the system (and demonstrating that the socialize parts work well) until you get to a single payer.