Big dreams and big questions in Utah
Could a state implement universal healthcare inside its own borders?
People with big dreams in Utah are proposing universal healthcare within its borders, aiming for the ballot in 2026. This is an intriguing idea with little precedent in state politics, the biggest exception being the 2006 Massachusetts reform which inspired/preceded the Affordable Care Act push.
One of my fellow Roots of Progress Fellows, Elle Griffin, is both a Utahn and a writer working to imagine more utopian societies. She lays out a persuasive vision for how universal healthcare could happen at the state level with this plan. Here, I’d like to set up a counterpoint and discuss two major points to surmount before reaching that utopia. With U.S. healthcare costs twice those of our peer healthcare systems and our uninsurance rate a stark outlier, these issues are well worth debate.
The basic framework of the proposed Utah plan, by Common Sense Healthcare for Utah, is to consolidate all insurance offerings into a central nonprofit entity, which would collect income-based payroll premiums from individuals and businesses. This centralized nonprofit would perform the insurer tasks: negotiating prices with providers, dispersing payments to providers, and choosing the structure and pricing of the plans for state citizens.
The skeleton framework of this plan echoes a common model of nationalizing insurance, such as Canada’s universal coverage. (I discuss Canada’s model as part of a series here.) Health services would still be privately run, but the state nonprofit entity negotiates the contracts, reaping the bargaining advantages of a big, central buyer. All citizens are automatically covered by the central entity, simplifying the complexities of connecting patients to a plan in an insurance market. However, simplicity in one area can create problems in another.
The biggest problem with centralizing all plans to a single payor is that prices have been lost. To be fair, the U.S. doesn’t have meaningful prices now either, because of a bevy of regulations and hidden transactions between insurers and providers, but at least they are lurking under there. Why are prices important? Prices signal how demand and supply are interacting. Prices are messages. If prices were truly meaningful in healthcare, like in laundry detergent, consumers can say no to things that are not worth the money (will you pay more for “fresh air” scent or “sea breeze”?) and providers reign in prices when consumers say “no” (guess we should focus on stain removal instead!). Markets with many buyers and many sellers create discipline. With meaningful prices, we can do even more than that. We don’t have to say “no” to the ACL surgery entirely if patients can say “yes” to the cheapest one among their choices. Providers lose business if they aren’t adding value to the system. This adds flexible discipline to the market through competition.
If we move to only one insurer payor making decisions, say the statewide nonprofit trust, you want to know that one decision-maker is as much of a bargain hunter hunter as you are. Milton Friedman has an essay worth reading (as always) on healthcare which reminds us that no one spends our money as carefully as we do, be it private insurer or a nonprofit trust. Have you ever shopped in a marketplace stall where bargaining is the norm? Those vendors can tell when you’re not serious about a price. With no prices provided by demand and supply, what keeps the nonprofit from simply accepting a price increase from providers? Government-run nonprofits have what we call a “soft budget constraint.” Nice and squishy, never making you too uncomfortable. If your household is like mine, I don’t have a soft budget constraint. Poor choices with this month’s budget mean I’m cutting back next month, because that money is gone! The government, however, can be sloppier, because it has a fall back of higher taxes to fix its mistakes.
Without prices, distributing medical services among everyone that wants to consume them must inevitably be re-examined. Maybe the centralized entity- the state trust or the Canadian government- choses exactly the right prices at exactly the right time, but this is hard to do via legislation or even a smart committee. If the prices aren’t exactly right for the demand and supply, then other “payments” will come into play. In Canada’s case, prices tend to be too low. This means that demand outstrips the supply, so Canadians wait longer for care than many other countries. For example, 61 percent of Canadians waited one month or more to see a specialist in 2016, versus 27 percent in the U.S. (A longer OECD study is here, where Canada doesn’t stack up too well, though not always the worst among its peers.)
This payment in time, instead of money, for medical care is generally unavoidable in the absence of true prices from a market, but it could be worse. The other possible “payment” is in degraded quality. This could be shorter visit times or the exit of higher quality providers from the state. (Read how shortages of goods or services will be allocated by time, quality, or connections if price can’t step into that role.)
The high-level question is, how will we keep competitive market pressure in healthcare if prices disappear by switching to one buyer? What are the ideas on this problem for the Utah plan?
The final consideration to ponder in this plan builds on moving in and out of the state, maybe of medical professionals, but also of citizens and businesses. Consolidating insurance to a nonprofit entity takes away a key employer carrot of attracting workers with offering bigger and better health insurance. However, I’d posit this wouldn’t be a negative in the long-run, but could improve labor market efficiency and increase economic growth. Why? Currently, workers choose employers based on job characteristics, but also their health insurance needs. This is highly inefficient. Workers and skills should match to their most productive outlet. Without health insurance cluttering up wage offerings, workers could be paid more in wages, which can be spent in their preferred way, rather than in health insurance offerings, which can only be spent on…more healthcare. (See the Friedman article, or my discussion of rising costs.) Both the economy and the worker reach their potential when workers choose jobs, not insurance. This leads to a more productive and flexible economy.
If insurance was divorced from the job decision, this could attract newcomers into the state. Although Utah may be proud of its landmark offering of high value, affordable care, let’s remember the concept of adverse selection. It’s the biggest issue all the time, everywhere, in any discussion about health insurance when buying is a voluntary choice. In this scenario, the voluntary choice is moving to or leaving Utah.
Adverse selection means that, if you offer insurance, this insurance is most attractive to sick people. (Basics of adverse selection, with a Halloween theme here!) The Utah setting is different from Canada or Nordic countries providing care to all comers, because traveling in and out of Utah is much easier than changing citizenship. If Utah offers great insurance, this may also attract sick people, increasing costs of the program and the tax burden on citizens.
On the other hand, I urged you to engage in this debate because of the 27.5 million uninsured Americans needing a solution. The majority of these uninsured are employed, but cite that coverage is not affordable. Since most working Americans get their insurance from their employer, entrepreneurs and small businesses are often left with expensive, poor choices. A Utah with universal coverage and low costs is an attractive place to start and grow a business, where you can hire workers without the hassle of providing insurance benefits. Whether free movement in and out of Utah is a net problem or net benefit will depend on what workers’ other choices are in nearby states. In either case, there is no doubt this proposal would be a bold undertaking worth watching.
Let me know your thoughts- want to start one in your state today?