Healthcare Reform

The present social contract or benefit system inherited from the 20th century is a mix of citizen-based and employment-based benefits. Social Security and Medicare are classic citizen-based entitlements — federal programs for individuals that are linked to a history of employment but not to any particular employer. The employer’s role in Social Security is the purely administrative one of collecting the payroll taxes. (Most economists argue that the “employer portion” of the Social Security payroll tax is actually passed on to be paid by the employee.)

Our healthcare system, by contrast, is predominantly employment-based. Most employees get health insurance through their employers. The employer-based health insurance system was not designed by anyone. It simply evolved over time. During World War II, federal wage and price controls inspired some firms to offer tax-sheltered health benefits to lure workers in the tight domestic labor market. After 1945, the unions in the heavy industry sector of the economy made tax-favored employer-provided health insurance one of the objects of collective bargaining, and the practice spread to other businesses. But employer-provided health insurance has never been universal, because many small businesses and contractors do not offer it to their employees. As a result, more than 40 million Americans lack health insurance.

Back in 2001, Halstead and I used the ideal of a portable, universal, citizen-based healthcare system as a criterion by which to evaluate different healthcare options. Five major alternatives to the present patchwork system had been discussed during the healthcare debates of the 1990s: single-payer; individual mandate; pay-or-play; a universal employer mandate; and health savings accounts. In practice there are only four options, because health savings accounts are a crackpot libertarian idea that would not work in practice.

A single-payer system is one like Social Security or Medicare, in which the government pays for basic medical care out of taxes. (Depending on the design, a single-payer system can pay private doctors and hospitals, as Social Security and Medicare do, or can be joined to a single-provider system with public doctors and hospitals; conservatives and libertarians dishonestly equate all single-payer systems with single-provider “socialized” systems.)

An individual mandate system, like that in Switzerland and the one adopted in Massachusetts in the last decade, requires all citizens (and legal immigrants) to purchase private health insurance, while subsidizing some or all of the purchases. A highly subsidized individual mandate system would essentially be a system of government vouchers given to individuals to purchase health insurance.

A pay-or-play system is one that would maintain the existing employer-based system for most Americans, but compel employers that do not provide health insurance for their workers to pay into a fund that would be used to purchase health insurance for non-covered workers.

Finally, a universal mandate system would require all employers to provide health insurance for their workers.

Of these four options, two were citizen-based, that is to say, universal and portable — single-payer and individual mandate — while two were tied to employers, pay-or-play and universal mandate. If our goal is a citizen-based social contract, then the best approach would be a universal, single-payer system, which could be compatible not only with private doctors and hospitals but with private health insurance, on top of a basic plan. Judging that single payer was not politically feasible in the near future, Halstead and I supported an individual mandate system.

The individual mandate system is far inferior to single payer, in my view. But it is less bad than the other options, or so it seemed to me at the time. Pay-or-play would maintain a two-tier labor market, divided between those with employer healthcare and those without it. A universal employer mandate would eliminate the two-tier labor market, but at the price of further burdening corporations with welfare-state duties that the government rather than business should undertake. 

Flash forward to 2009. The evolving Democratic healthcare plan seems to be a hybrid of three approaches. There is a public plan (single-payer), and an individual mandate (individuals must show they have healthcare coverage by their employers or purchase their own). Essentially, however, the plan looks like a version of pay-or-play, in which most Americans will keep their employer-provided health insurance, while those who aren’t offered insurance by their employers will be compelled to purchase it.

I am not a healthcare expert and can’t say whether a plan like this, if it is passed, would accomplish goals like reducing unsustainable rises in costs and ensuring universal coverage. And a flawed reform is often the price of progress. Politics is the art of the possible, half a loaf is better than none, the perfect is the enemy of the good — supply your own clichés, if you don’t like these.

Nevertheless, if a reform like this is enacted, then it seems to me that we are no closer to the ideal of a citizen-based social contract than we were before. Progressives hope, and conservatives fear, that the public plan over time will absorb more and more American workers, eventually becoming a de facto single-payer system. But until the baby-dinosaur public plan eats up private health insurance in the U.S. and grows up, there would be a patchwork system in which more Americans would be covered (a good thing) but in which most Americans would continue to obtain their health insurance through their employers (a bad thing, both from the point of view of individual mobility and economic growth).

My own views on this subject have changed since Halstead and I wrote about it in 2001. I still believe that single-payer would be best — and I still believe single-payer is politically impossible in the U.S. I would now put more weight on eliminating a multi-tier labor force that allows businesses to game the system — for example, by outsourcing some tasks to private contractors, in order to avoid paying health benefits to full-time workers. A universal employer mandate would prevent this problem. An employer mandate might raise the costs for small businesses — but then, it might not, if government provided subsidies to reduce the costs to employers of employer-based health insurance for all.

Another argument for a universal employer mandate is the resistance of much of the public to the loss of their existing employer-based benefits. In the words of Hilaire Belloc: “It’s always best to cling to nurse/ For fear of finding something worse.” Those of us who argued for non-employer-based systems underestimated the fear of change on the part of the public. Politicians haven’t made that mistake. Both President Obama and Congress have assured the voters that they will not be forced to lose their existing employer-based healthcare, if they have it. In light of this political reality, keeping existing employer-provided healthcare while mandating it and subsidizing it for all employees of all companies might be more feasible than moving to an entirely different system.

For what it is worth, my own thoughts on this topic continue to evolve. In 2001 my order of preferences looked like this: single-payer, individual mandate, pay-or-play, employer mandate. In 2009, my order of preferences looks like this: single-payer, employer mandate, individual mandate, pay-or-play. If avoiding a two- or three-tier labor market, with different classes of workers with different rights, should be a goal as well as portability and universality, then maybe a government-subsidized universal employer mandate would be the second-best system if single payer remains politically out of reach.

Unfortunately, the Obama administration and Congress appear intent on giving us a version of pay-or-play, which, though it might solve some problems, from the point of view of advocates of a citizen-based social contract is the worst strategic option for healthcare. The status quo, modified slightly by a baffling Rube Goldberg scheme for covering the uninsured, is not what New Deal liberal proponents of universal healthcare have dreamed of since the 1930s. Sometimes half a loaf is worse than none, if the half is moldy and stale.