OBAMACARE JULY 8, 2013
The Obama Administration’s decision to delay enforcement of Obamacare’s “employer mandate” produced some predictable reactions on the right. House Speaker John Boehner started talking about “train wrecks,” Erick Erickson advised Republicans to “go for the kill,” and so on. But the announcement also produced an interesting discussion, from some interesting people, about why we even ask employers to provide health insurance. This debate is worth having—not only because it helps explain why Obamacare looks like it does, but also because it highlights one of the biggest differences liberals and conservatives have today.
The discussion started with Ross Douthat, the conservative New York Times columnist, who observed on Sunday that the employer-based health system is not particularly popular with wonks on the left or right. In an ideal world, he said, employers wouldn’t serve this function at all. Ramesh Ponnuru, the conservative writer at National Review, responded with a partial defense of the employer system. It serves some legitimate functions, he explained, and a lot of normal people (i.e., people not like Ross, Ramesh, or me) seem to like it.
They are both making sound arguments. If you follow these debates at all, you may have heard people say that the employer system was some kind of “historical accident.” That’s not quite right. To simplify things a bit, employer-based insurance traces its origins to the late 1920s and early 1930s, during the Great Depression. Modern medicine as we know it—use of sophisticated anesthesia, the sanitary technique, etc.—was finally available in most of the country. It meant that people who were sick had a real shot at getting cured. It also meant that people who were sick had to pay huge medical bills, frequently more than they could afford. Their only hope was to pool resources, so that there was a pot of money available whenever somebody needed serious medical attention.
What they needed, in other words, was insurance. But insurance companies had tried selling health policies before, customer by customer, as special “riders” on life insurance policies. Not surprisingly, only sick people opted to buy it. The product was not financially sustainable. They ended up with a bunch of sick people running up huge bills, forcing the companies to charge more for premiums, making the product even less attractive to customers. The insurance companies basically gave up, leaving nobody with coverage.
Hospitals felt the impact as much as individuals: Without paying patients they couldn’t cover their expenses, either. And in Dallas, Texas, the director of Baylor Hospital had an inspiration: He approached the Dallas public school system, where he had worked previously, and proposed to set up a plan: Teachers could pay a small fee every month. In return, the hospital would take care of their medical problems. There was just one catch, he said: The majority of teachers had to sign up. Only with such a large number of participants, he realized, would the plan have a statistical likelihood of enough healthy people to cover the costs of the sick. The plan worked. Soon other hospitals were copying Baylor and, later, employers started offering insurance as a fringe benefit. During the 1940s, the government decided to exempt health benefits from wartime wage controls and, later, to declare employer health benefits exempt from personal income taxes.
This is the part of the story conservatives and libertarians like to tell—how government policy reinforced the employer system—and there’s something to that. But the employer system would probably have taken hold even without those government decisions. Businesses liked it because it made employees less likely to leave for other companies. Labor unions liked it because it gave them something else they could obtain and then protect in collective bargaining. Hospitals liked it because it meant patients could pay their bills. Workers liked it because they had access to care and protection from financial distress.
If you want the full story, with all the details, you should check out The Blues by Robert Cunningham and Robert Cunningham III, The Divided Welfare State by Jacob Hacker, and The Social Transformation of American Medicine by Paul Starr. The key point is that the employer system performed an essential function: It created large groups of people, most of whom were likely to be healthy, so that there were enough premium dollars to cover the costs of those people with serious medical problems. Wonks call this creating a stable “risk pool.” An insurance plan can’t function without it. It’s the reason insurers don’t go bankrupt. It’s also the reason that pretty much anybody can get an employer policy, no matter how old or how sick, once they’ve started working for a medium or large company.
Elsewhere in the developed world, governments long ago figured out another way to achieve these goals. They created real national health insurance plans, so that in each country the entire population was, in effect, one giant risk pool. The U.S. missed a chance to do this in the 1930s, when President Roosevelt rejected a proposal to make health insurance part of Social Security. (He reportedly feared political opposition from state medical societies would undermine the rest of the law.) It missed another chance in the 1940s, when President Truman proposed such a system but couldn’t get a Republican Congress to enact it. The Clinton health care plan sorta/kinda proposed to do the same thing, but that didn’t succeed either—in no small part because, under the Clinton plan, some people with employer insurance today would have given up that coverage and gotten it through a new government system (though the insurance itself would still have been private). Critics seized on that, and the fear of losing existing coverage was one reason the Clinton plan never passed—a political lesson the architects of Obamacare had very much in mind when they crafted their proposal. They envisioned employers continuing to provide coverage, at least for the immediate future, and concentrated on reorganizing the health insurance market for people who don’t get employer coverage now. (Mostly, that’s people buying on their own or people too poor to pay for insurance.)
Is this an ideal situation? Not really. But is it better than the alternatives? That depends on what alternatives you have in mind. And here we get to a big, frequently under-appreciated difference between left and right.
Liberals would still prefer a national health insurance system—if not a truly government-run program, like they have in France or Taiwan or Canada, then some kind of public utility model, with private insurers operating under heavy regluation, like they have in the Netherlands or Switzerland. These days, conservatives tend to prefer systems where people purchase private insurance on their own, in a market without a lot of regulation as to what kind of benefits insurers can sell or to whom they must sell them. In such systems, people without a lot of money or with pre-existing medical conditions can’t typically get standard insurance. The conservative answer is to provide alternative methods of coverage. One model is the “high-risk” pools that historically have provided insurance to people unable to buy coverage on their own, but only at a higher cost or with less protection than regular insurance.
As you’ve probably guessed, I’m with the liberals. Partly that’s because the national health insurance model has proven quite successful, both abroad and here in the U.S. where it’s been tried. (Medicare runs by the same principles.) The conservative model is essentially untested. There’s also a difference of values here. The liberal model appeals to my sense of social justice: It’s not separate systems for the healthy and the sick. It’s one system, for everybody, with everybody contributing in return for the same guarantee of financial protection. In the conservative model, sick people aren't entitled to the same level of protection as healthy people, which seems particularly unjust given that sick people are the ones who need protection the most.
These worldviews may not be quite as incompatible as they seem. Then again, Obamacare was in many ways an attempt to reconcile the ideals of left and right, at least as they existed until relatively recently. That’s why Mitt Romney signed a similar proposal when he was governor of Massachusetts. It's why, before that, conservatives at the Heritage Foundation first developed the model for it. And while conservatives like Douthat and Ponnuru seem genuinely interested in constructive conversation and compromise, they have little company on the right and none at all among elected leaders of the Republican Party.
Until that changes, this debate about employers is extremely interesting and extremely academic. For now, we're stuck with the employer system we have—for better and for worse.
Jonathan Cohn is a senior editor at the New Republic. Follow him on twitter @CitizenCohn