Do we want healthcare or health insurance?
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The nonpartisan analysts at the Congressional Budget Office have concluded that the House "repeal and replace" bill would strip healthcare coverage from 23 million Americans in 2026.

That legislation is bizarre as a work of health policy. Instead, it is better understood as a tax cut bill for the most affluent, paid for by removing federally-funded health coverage from the poorest and most defenseless.

But this cynical bill reflects an underlying policy divide between conservatives and progressives, which is whether the federal government should be in the business of promoting a functioning health coverage system, or health insurance markets. The differences are fundamental.

A functioning health coverage system means that every American has access to the full range of medical services necessary for the preservation of life and the promotion of good health, either at nominal cost or at prices commensurate with their incomes. 


Because medical care is costly, and those costs rise with age, functioning systems require substantial tax-funded government involvement. But at the same time, privately-paid medical costs are greatly reduced. Medicaid and Medicare are examples. Ignoring labels, this is the model followed in all other developed countries.


Functioning health insurance markets mean private competitive markets, where supply and demand shape both the nature of the products and the prices at which those products are sold. Pre-ACA major medical policies and the deregulation of insurance markets point in this direction.

Since the passage of the House bill, Americans in town halls across the country have come down squarely on the side that they want low-cost access to healthcare, whatever the label placed on it, not access to health insurance. Their intuitions are absolutely right.

Insurance is ill-suited as the model for supporting the health of a country’s citizens. The fundamental role of insurance is to address the financial impact of ‘adverse fortuities’ through the law of large numbers — random bad outcomes, not correlated with each other, but that are susceptible of statistical modeling when viewed in the aggregate.

Your home or automobile insurance are examples. Insureds shed the financial risk of a very large but improbable loss and substitute in return a much smaller but certain loss, in the form of insurance premiums.

From an insured’s perspective, uncertain risks are shifted; from the perspective of the group, the risk has been pooled and made predictable.

When everyone in the pool faces certain or highly probable costs, true insurance simply cannot exist, because there is no risk shifting. This is why you can buy fire insurance for your home, but not lawn maintenance insurance. Healthcare is closer to the lawn maintenance case. 

We all incur regular need for healthcare; delayed maintenance leads only to higher future costs, lost productivity and early death.

In turn, all insurance faces two unique problems. The first is adverse selection: Those who for reasons known to themselves, and not visible to the insurance company, are most in need of insurance will be the first in line to buy it, thereby skewing the aggregate risk profile of the insurance pool.

The other is moral hazard, whereby people with insurance may choose to behave in a riskier manner than those without (not changing the batteries in your smoke alarm, for example, because you know your home is fully insured).

Health insurance, in particular, is bedeviled by the first, which is what leads insurers to exclude pre-existing conditions — even those unknown to the insured at the time she first is insured. Moral hazard is a bit more easily addressed, through deductibles and the like.

Health insurance in the form of “major medical” policies that contain very large deductibles and that focus on catastrophic care can more or less function as genuine insurance, subject to the fundamental problem of adverse selection, and with it, carve-outs for preexisting conditions.

The problem is that they are simply unaffordable for many, and always will be, so long as healthcare itself is costly and probable — few live to 90 or even 65 with no significant medical issues.

In response, conservative policymakers often suggest limited government subsidies (through tax credits), and “Health Savings Accounts,” to offer taxpayers the ability to set aside income each year tax-free to deal with more predictable health maintenance issues.

But these are solutions that work only for more affluent Americans, because they alone can afford to fund those HSAs or pay the premiums in the first place.

Many millions of working Americans simply cannot afford the most routine medical bills. For example, a poll conducted by the Public Religion Research Institute looking at the economic situations of white working class Americans (as a proxy for Donald TrumpDonald TrumpBiden to move ahead with billion UAE weapons sale approved by Trump Fox News hires high-profile defense team in Dominion defamation lawsuit Associate indicted in Gaetz scandal cooperating with DOJ: report MORE’s political base) found that one-third of those polled could not afford an unexpected $400 expense.

How does a Health Savings Account benefit them?

The Affordable Care Act has been responsible for a dramatic decline in the number of personal bankruptcies and debt collection balances precisely because it removed healthcare-related financial crises for millions of Americans without large financial reserves of their own.

The interests of the country are served when the economy prospers, but almost two-thirds of our national income comes from our personal labor. Rational economic policy thus points to government investment in human capital (through education), but also to maintaining the complex machines that are the drivers of economic growth — which is to say, our physical and emotional selves.

We know that greasy machinery must be maintained to stay in service, and of course the same is true of human machinery.

Meanwhile, pre-ACA experience showed that relying excessively on employer-provided healthcare stunts growth, by trapping employees with preexisting conditions from striking out on their own, or even from switching employers.

The country prospers when government makes healthcare universally available, and funds that through rational tax policy not tied to one's employer.

The only solution to adverse selection in health insurance markets is to throw everybody into the pool. The ACA did this through its mandate.

The House bill actually does this as well, in an even more draconian fashion, by threatening those who allow their health coverage to lapse even for a short time to be banished into ‘high-risk pools,’ which have been and always will be tremendously underfunded.

Everyone participates in Social Security, like it or not, and that is the obvious direction forward here too.

Most Americans today, in fact, are enrolled in some sort of government-assisted health coverage program, not true insurance. Medicare and Medicaid are the most obvious examples. Even before the ACA, many (but not all) private employer-provided health programs also delivered reasonably-priced health services, through broad coverage and modest deductibles.

Surprisingly, these also have always been underwritten by the federal government, to the tune of almost $300 billion every year, through hidden tax subsidies. The remaining "employer" costs fall largely on the shoulders of employees, in the form of lower cash wages.

Medicare or Medicaid for all — call it what you will — divorced from one's employer offers all Americans the assurance of reasonable investment in their health.

What employers today spend on private health plans instead would be collected instead through the payroll tax system, thereby eliminating the distortions attendant on tying coverage to one's specific employer, and introducing more progressive funding of health services.

Private insurance and bespoke medicine can coexist along this for those who can afford it.

Health insurance is a luxury item for a few; reasonably priced healthcare services are what most Americans actually want.

Edward D. Kleinbard is The Ivadelle and Theodore Johnson Professor of Law and Business at the University of Southern California's Gould School of Law, and a Fellow at The Century Foundation. Kleinbard was one of four individuals honored as 2016 International Tax Person of the Year by the nonpartisan policy organization Tax Analysts. He is the author of a book, “We Are Better Than This: How Government Should Spend Our Money,” published by Oxford U. Press.

The views expressed by contributors are their own and are not the views of The Hill.