The Fix Is In for Health Care

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America’s health-care system doesn’t need a Band-Aid; it needs intensive care. So argues Laurence Kotlikoff, a College of Arts and Sciences professor of economics and the author of The Healthcare Fix, published this month by MIT Press.

The nation’s health-care crisis is actually three intertwined problems, Kotlikoff explains in his book: the millions of uninsured Americans, the growing health-care burden on American business, and, he writes, the “enormous future fiscal obligations” of Medicare, Medicaid, and Social Security. Ignoring these issues would be “suicidal” for the American economy.

The health-care reform plans of the presidential candidates don’t go far enough and could even make matters worse, according to Kotlikoff, also a research associate at the National Bureau of Economic Research. The exception, he says, is Democrat Mike Gravel, a former U.S. senator from Alaska. Kotlikoff is an economic advisor to Gravel, who has adopted Kotlikoff’s health-care fix: universal coverage through a government voucher program.

The debate has become so complex and the current system so entrenched that it can seem impervious to sweeping change. But that’s just what Kotlikoff calls for in his 92-page volume.

“There are many aspects of the health-care issue, and you can easily miss the forest for the trees,” he says, “but I think the forest is quite simple.”

BU Today: Why does America’s health-care system need an overhaul?
Kotlikoff: We have three different crises. We’ve got 47 million people uninsured. We’ve got employers going broke because of health-care costs. And finally, we’ve got Medicare and Medicaid costs exploding, particularly with the retiring of the baby boomers, and threatening the solvency of the entire government.

Do you see anything promising in the health-care reform plans of the presidential candidates?
Well, these three crises are interrelated, and fixing just one might make the others worse. For example, the Democrats would like to expand health insurance for the 47 million by increasing the number of kids on the State Children’s Health Insurance Program. That’s laudable on its own, but the problem is that Medicaid expenses are skyrocketing, and there’s a limit to how many years you can let these programs grow faster than the economy and the revenue base.

We need to have one system that provides coverage for everybody and that we can actually afford and whose costs we can control.

So what’s your health-care fix?
The fundamental problem in the health-care market is what economists call the adverse selection problem, or the information problem: insurers don’t know who they’re dealing with when they sell them insurance coverage, so they have to charge very high premiums for the possibility that this person is very sick or has a family history of heart conditions or cancer.

What I’m proposing is a voucher plan, called the Medical Security System, where everybody gets a voucher based on preexisting conditions, and we in effect tell the insurance company, “Yes, this is a person with cancer who lives in this very high medical cost area, and this guy is coming with a government voucher that’s large enough that you should be able to make your normal profit on this guy.”

What if something happens to you that requires care beyond the voucher amount?
Then the insurance company is on the hook. And if the cost for you for the year is less than the voucher, then the insurance company makes money.

How would the voucher amounts be determined?
It would be based on your history of medical conditions and family history. It’s all going to be sent to the government electronically — your health history, your diagnoses, your test results — right to Washington. Any decent economist could set this up on a computer, and then it could run on its own. We won’t need a bureaucracy; all we would need is a machine.

What about privacy concerns?
The government already knows almost everything about the particular health ailments and medications of about one-third of the population, because Medicare and Medicaid now cover about a third of the population. So I’m talking about the government knowing for the entire population what it already knows and has kept secret for decades with respect to one third of the population.

What will the insurance companies know about your medical conditions?
They’ll know everything. They’d be able to learn everything that the government knows. And the insurance companies already do know what our conditions are, and they’re also not making that public. Blue Cross knows everything about my health situation. They pay all the bills. They see exactly what the bills are for. They know more than my wife. They haven’t been blabbing it to anybody.

And what about the current concerns over insurance companies knowing your risk of certain diseases revealed by genetic screening?
Genetic screening would be part of your voucher determination. You would not be penalized for it. Right now, the reason people don’t get these screenings is that they’re worried about maybe not getting insurance coverage if somebody finds out. With the plan I propose, they’ll have an incentive to find out.

Insurance companies would have no incentive to deny coverage, and they wouldn’t be allowed to under the rules I’m proposing.

If the Medical Security System were introduced in Congress tomorrow, who would lobby hardest against it?
It’s possible that the elderly might be concerned that they’re going to be put in a system with everybody else. But I think they need to realize that what they’ve got in place now is not sustainable, that their Medicare benefits are in grave jeopardy, and that their doctors at some point will stop covering them, because as this system continues to go bust, the government is going to be forced to cut back the amount of payments-per-physician, and some people will just give up on it.

The elderly have a big stake in having something that’s sustainable. And we’re not talking about cutting back their coverage. We’re talking about cutting back the growth in benefit levels from something that’s not sustainable to something that is sustainable. Yes, they’re going to have to be in a health plan. It’s not a fee-for-service plan where they can go to 40 doctors and send 40 bills to Washington. They’ll be in a health plan, but they should be able to choose a health plan that their current doctor is in.

What will all this cost?
I figure this will cost about 10 percent more than the federal government and the state governments collectively are paying, if you look at all the federal and state health-care expenditures, direct and indirect, including tax subsidies, and add them all together. So we’d have to kick in some more money in the short term, but over time we’d been spending less because we’d be able to keep a lid on the total.

The ultimate goal is getting everybody insured with the same coverage. I think that’s something with which most Americans would agree. If person A and person B get cancer, and person A is poor and B is rich, or vice versa, they should get the same care, and they should both pay taxes in proportion to their resources to help cover that care.

That’s what I’m talking about, with the government providing the vouchers but everybody paying taxes to cover these vouchers. You’re protected from your preexisting conditions by the size of the voucher, and there’s no longer an information problem in this market, so the market can operate very efficiently. This is not like going to the moon; this is easy compared to what we’ve done in this country.

Chris Berdik can be reached at cberdik@bu.edu.

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