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National health insurance has meant increased access to health care, particularly by the uninsured and those with low incomes. Some also propose national health insurance as a means of controlling the rapid rise in medical expenditures. These are conflicting objectives. However, these differing objectives go to the heart of the debate over national health insurance. The divergent objectives also illustrate the difference between the public and self-interest theories of government.
Objectives of National Health Insurance
To understand why this country has not had national health insurance it is necessary to understand the actual rather than the stated objective behind such a visible redistributive goal. Further, the debate over the structure and financing of national health insurance actually represents the controversy over the underlying objective to be achieved. Discussing the possible goals of national health insurance therefore clarifies the design features of different national health insurance proposals and provides insights into why this country has not had national health insurance. The public and self-interest theories provide competing explanations regarding the objectives underlying national health insurance and the difficulty of enacting legislation to assist the uninsured and working poor.
Universal Coverage
According to the public interest theory, the motivation underlying national health insurance is to increase access to medical health care by the uninsured and those with low incomes. The poor either have no health insurance and must fall back on Medicaid if they become ill, or their health insurance is less comprehensive than the health insurance purchased by (or on behalf) of those with higher incomes. In support of the goal of universal access are the numerous studies that document the size of the uninsured population (approximately 15.6 percent or 45 million people) and the problems encountered by those with low incomes who are seeking medical health care.
The financing mechanism consistent with a goal of increasing access to those with low incomes would be income taxes and an income-related premium. The funds to finance universal access would have to come from those with higher incomes. Thus, the public interest theory would predict that national health insurance would be redistributive, that the main beneficiaries would be those with low incomes, and that the costs would be financed by higher-income groups.
According to the self-interest theory, although many people support increased services to the poor, this is not, nor has it ever been, the driving force behind national health insurance. Those with low incomes already have national health insurance; Medicaid is national health insurance for the poor. Medicaid is generally acknowledged to be an inadequate program. Because it is administered by the states, Medicaid eligibility rules vary from state to state; those states with the lowest per-capita incomes also tend to have the lowest percentage of their population, as a percentage of the federal poverty level, covered. In aggregate, according to 2003 data, only about 42 percent of those below the federal poverty level are eligible for Medicaid.
There is also a sharp cutoff from eligibility if a person's income increases. A disincentive exists for a Medicaid-eligible low-income person to earn additional income because their loss of medical and other benefits would exceed the additional wages earned. Medicaid also pays providers lower fees than either Medicare or private insurers. Thus, many providers refuse to care for Medicaid patients. Even though a person may be eligible, she may have difficulty finding a provider who will treat her.
The inadequacy of Medicaid, however, is neither the result of malevolent bureaucrats nor a lack of will on the part of legislators or the administration to improve it. Instead, the funding provided for Medicaid, and its eligibility, reflect the preferences of the nonpoor, who provide the political support for programs to those with low incomes. Eligibility levels and medical benefits provided to Medicaid recipients reflect how much the nonpoor are willing to tax themselves to provide benefits to those who are poor.
If the motivation for national health insurance were to increase access to health care by those with low incomes, Medicaid could be improved. Eligibility could be increased, up to and beyond the federal poverty level; a gradual cutoff of eligibility could be instituted as wages increased; benefits could be enhanced; and more generous payments could be made to providers to increase their willingness to see Medicaid patients. It would not be necessary to enact a separate national health insurance program to achieve this. The middle class, however, is unwilling to fund such an increase in Medicaid eligibility and benefits. If the middle class is unwilling to improve Medicaid, why would middle-class people be willing to tax themselves to enact national health insurance for the poor? Therefore, one must conclude that the main objective of national health insurance is not to help those with low incomes by increasing taxes on those who have higher incomes.
Using the Power of Government to Benefit Politically Powerful Groups
An alternative goal of national health insurance is one that is consistent with the self-interest theory, namely, to use the power of government to benefit politically powerful groups. Groups are politically powerful when they are able to provide legislators with political support, that is, votes, money, or volunteer campaign time. Politically powerful groups attempt, through the legislative process, to redistribute wealth by receiving benefits in excess of their costs.
Previous visible redistributive programs, such as Social Security and Medicare, provided the aged with benefits in excess of their contributions to such programs. (With regard to Medicare, other politically important groups also benefited, such as the AFL-CIO unions, hospitals, and physicians.) Regressive taxes (a payroll tax up to a certain wage level) were used to finance these programs, which were borne by the nonaged. The size of the payroll tax was hidden, and made more diffuse, by imposing half of the tax on the employer and the other half on the employee. A regressive financing mechanism was necessary if the aged and the retirees from the AFLCIO unions were to be eligible to receive benefits in excess of their costs. The reason health policies change over time is that groups who have borne a diffuse cost find that the cost has increased to where the group develops a concentrated interest in reducing it. Once a diffuse cost develops into a concentrated interest, the group has an incentive to represent its interests in hopes of reducing that cost.
To understand the pressures for health reform, it becomes necessary to understand the objectives of those groups having a concentrated interest.