Enthoven’s ABCDs and why that socialist Gingrich is wrong on standardized benefits

Here's Alain Enthoven's four part plan for fixing healthcare. As THCB regulars might guess, it's familiar and very sensible stuff. (Here’s the PDF)

A. Create an exchange with standardized plans, make individuals buy through the exchange and limit outside subsidies to the value of the lowest cost plan.

B. Tax health benefits (starting with those over the value of the cheapest plan)

C. Phase in the same system for Medicare

D. Phase out employer based insurance, giving everyone a voucher for the lowest cost plan based on a dedicated tax like a VAT.

Meanwhile in the LA Times, Newt Gingrich, who continues to smell blood in the Palin-infested waters, spouts BS that would destroy any sensible Enthoven-style reform. Apparently in Newt-world a regulated insurance package of standardized benefits is government bureaucracy run amok.

What Enthoven and sensible people, whose numbers apparently don’t include Gingrich these days, know is that in order to be able to choose between benefit plans consumers need to be able to make accurate apples to apples comparisons. And when health care needs vary for different people, then everyone needs to be on a standardized plan that can accommodate all those needs. In Newt-land:

Currently, individuals and employers usually make these coverage decisions. This legislation creates a new federal Health Benefits Advisory Committee that would decide instead. For example, if you are a single male with no children, the legislation still requires you to have maternity benefits and well-baby and well-child care coverage. You don't want or don't need that coverage? Sorry, you have to pay for it anyway.

So lets ask Gingrich to explain how in a world where everyone is covered and in which poor people have subsidized access to the same insurance as everyone else, his desire for insurers to be able to write the exact rules they want will not lead to massive discrimination by some plans? What he claims is the ability for a young single male to not buy “maternity benefits” will actually become the insurers’ ability to create a plan that is not attractive to those with chronic illness.

We’ve seen this movie many times. Medicare HMOs in the 1990s and early 2000s clearly risk selected healthier enrollees. Private sector insurers paid off brokers like Marsh and AON to get them better risk groups. If you don't have a standardized set of benefits, insurers will change their plans to attract the consumers they want and reject the ones they don’t—and the end result will be a lot of sick people dumped on the dumb insurer, which will then go out of business and the taxpayer will take over. (BTW even if you have standardized benefit, you’ll still need risk adjustment between insurers at the back end).

And of course and this is something Gingrich must believe in when he’s not in one of his socialist moments, accurate apples-to-apples comparisons of products is a necessary precondition for an efficient market.

I cannot fathom why the right claims not to understand this. So let me give them a little lesson.

When motorists buy gas, the unit of what they are buying (the gallon) is agreed to within the market and mandated by the government. And it’s the same for everyone. In Newt-world the gas station could vary how much gasoline was in a gallon and not tell the motorist. What is not mandated in a market is the price.

The “gallon” is the equivalent of the standardized benefit that Enthoven wants, and the price (or value of the subsidy) is determined by the most efficient insurer in the market.

So when anyone on the right spouts off about buying insurance across state lines, or decries standardized regulations, tell them that they don’t believe in markets or capitalism so they must be a socialist! And as I said, Gingrich has already proved he is one.