POLICY: Fuchs’ proposal re-emerges

I’ve been engaging in some comments over at DB’s Medrants on some articles by the Hoover Institution’s Thomas Sowell in which he has been essentially defending the status quo (albeit in what I think is an intellectually weak manner that ignores economic reality and lies about other countries’ systems). So it’s good to have an innovative solution to our health care crisis proposed by America’s greatest health economist–and it’s a bonus that he used to practice right around the corner from Sowell at Stanford’s economics department. In an article called The Universal Cure, Vic Fuchs and Harvard medical ethicist Ezekiel Emanuel propose a way to get to universal health insurance while maintaining the pluralism and innovation in the current system.

On a personal note, I had my first health economics class with Victor Fuchs (a bit like having Tiger Woods give you your first golf lesson) and I was actually at a presentation of the first version of this proposal, which he gave some ten years ago. He has been advocating common sense in health economics for ever, but had been loathe to develop a systemic solution–after all he saw his friend Alain Enthoven having to defend his managed competition theory for his whole career. Finally around the time of the Clinton plan, Fuchs did come up with a policy solution. The way he talked about it was that America held two values:

1) Everyone deserved a basic health insurance plan.
2) You should be free to buy what you want.

His solution was what he called the Ford Taurus plan.  He asked the crowd if anyone had bought a Ford Taurus recently. Someone had.  "How much was the basic model?" $15,000 was the answer. "How much did you pay?" $19,000. "What was the most you could have paid with all the extras, the new stereo and the biggest engine?" Perhaps $24,000. Fuch’s conclusion then? Have a dedicated (sales)-tax that gave everyone a voucher for the health insurance equivalent of a Ford Taurus, and let those who wanted more services pay up with after-tax dollars. (Here’s a brief interview he gave about it at the time)

That’s essentially the same as the plan proposed in this article. Employer-based insurance would end. Instead all under-65 year olds would get a voucher and then choose a health plan.  If you want more services you pay up out of pocket. In a nod to the political process, Fuchs & Emanuel argue for phasing out Medicare very slowly by keeping those who "age-in" with the voucher system. They would also force all plans to offer the same basic insurance package for the price of the voucher, and would have a national board certifying that no games were played over risk-selection.

As an (amateur) economist, I like the dedicated tax idea, because it puts a visible real cost on health care for everyone, and allows us to have a rational debate about how much that tax should be. I also like the concept of keeping innovation and dynamism in the system by keeping health plans and providers competing. It’s also worth mentioning that a private system with multiple actors would be very hard to defraud as opposed to having a straight single payer like Medicare.

Most importantly Fuchs and Ezekeil believe it might actually work politically, as with some touching faith they point out:

    Vouchers hold the promise of securing wide support. Democrats have long favored the notion of universality, while Republicans instinctively favor voucher plans and have longed for the demise of Medicare and Medicaid. Businesses want to stop providing health insurance, and Americans want guaranteed health coverage with choice.

Unfortunately I can’t share their confidence.  The same arguments that the Democrats are using about turning Medicare into welfare might be true under this system, as over time the value of the voucher might fall to the extent that only the very poor got the "basic" plan. Meanwhile the inside health-care business Republican lobby would dislike the notion of having so much of their income based on a tax that was visible and, in the end, controlled by the public–even though in other countries the electorate has often voted to increase the level of government spending on health care. And of course, the getting "to" vouchers "from" employment-based insurance would be a huge bun-fight.

But what Fuchs does present is a rational solution for overcoming the objections to universal health care, without extending Medicare to everyone. As such it deserves to become part of the debate–much more so than Sowell’s ramblings.  But such a solution will be bogged down in details if it’s proposed by a politician. So sadly, I think we’ll see this great idea sink without trace.

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