I was born into a Berkeley family of Social Democrats—my father studied Swedish economic policies—then I trained in social-democratic Economics in Scandinavia, before cutting my career teeth in a Norwegian Labor Party think tank. I thereby personify the threat trumpeted by Republicans: the sinister spread of Social Democracy.
So I am cheering wildly for establishing a federally owned health plan, right? Wrong.
Not that I’m particular opposed, either: It’s just not a big deal. Either way, new government-run plan or not, there won’t be much impact on our nation’s enormous health care problems. Our health care dilemmas—high costs, poor access, and mediocre outcomes–stem from much more fundamental issues than who sits on the board of yet another insurance plan.
These include the perverse incentive structures for key decision makers in the industry, including insurers, providers and patients. Insurers earn money by serving the well rather than the ill who need their assistance most, providers don’t become rich by managing care over time but by medically over-treating the critically sick, and consumers are incented to both stay out of the insurance pool until they’re sick and to seek medical help late.
Many health insurance executives I know would like to act more in keeping with the public good, but they can’t. If they did, they’d be driven out of business. Wherever there are large financial tradeoffs, the margins aren’t sufficient to allow choices other than prioritizing the organization’s cash flow. The same would apply to a publicly owned insurance company, as also its executives won’t be immune to the economic forces compelling antisocial decisions. Instead, economic realities in our poorly designed health care market would force behaviors similar to those by executives in for-profit, not-for-profit, and local/state government-owned health plans currently. Unless, of course, we were to see a highly implausible scenario unfold with hundreds of billions in ongoing subsidies, something that in turn necessitates either improbable tax increases or unimaginable charity from Chinese government.
The government’s main role in any sector, a Scandinavian economist would claim, is ensuring that the sector’s “framing conditions” promote both each organization’s viability and the public good simultaneously. Establishing proper framing conditions does not mean attempting to micromanage a sector with hundreds of thousands of critical decision makers. Rather it means shaping incentives at a macro level such that the hundreds of thousands make decisions in line with interests of the whole. Make it so insurers, physicians, hospitals, and patients do good for society in order to do well themselves. Framing conditions and incentives matter regardless of the payer system chosen, whether based on private insurers or a single-payer government entity.
Establishing a new government-run health plan, or not, changes little or nothing of the health care industry’s incentive structures and framing conditions. Thus, the debate about it is a distraction. Having political distractions can be good, of course, if populist rabble-rousers on the left and right thereby are kept from messing negatively with truly critical issues. However, I beseech those of you central to forming policy for the pending reform: Please keep your eyes on more important matters. There is too much at stake if also you ignore the fundamentals.
David Hansen has aided organizations with health care strategy, IT planning, and new venture development for a couple decades, both in Norway and in the USA. He holds graduate degrees in Economics and Business Administration, the latter from within the People’s Republic of Berkeley.