We are at a critical time—a unique juncture at which we can rethink our health care policy in a fundamental way. To do so, reform-minded conservatives should abandon or at least heavily qualify their resistance to state involvement in health care. The American government has been significantly involved in the provision and regulation of health care for decades. While some conservatives present an “either-or” picture of government involvement in health care, the truth of the matter and the present situation call for a frank consideration of new possibilities.
One such possibility is represented by the island nation of Singapore: it enjoys one of the best, and almost certainly the most cost-effective, health care systems in the world. Singapore provides universal coverage to its citizens, achieves excellent results in terms of promoting life and health, and devotes an extraordinarily low percentage of GDP to medical expenditures. The Trump administration, which advertised itself as free from ideological blinders of both the Left and the Right, could choose to pursue a middle way that is both principled and well designed. In adapting the Singapore model to the American situation, we can and should take advantage of our federal system, with the individual states as experimental laboratories for democratic reform.
Beyond the skirmishes and personality conflicts of the current political cycle, the question of how to arrange our national health care occurs at three levels. First, what would an ideal health care regime look like, given the general constraints imposed by human nature and our current state of technology? Second, what would the best reforms be, given the existing institutions and practices (political, economic, and social) in the United States? And last, what reasonably fair and practicable solutions could be passed by Congress and signed into law by President Trump, in both the near term (in 2018) and medium term (by 2024)? I will take up each of these three questions in sequence in the following three sections, and then conclude with some thoughts on the broader political implications of health care reform.
Securing National Medical Care
There is always a great deal to be said for the free market, for the free exchange of services among individuals, families, and voluntary associations (both for-profit and nonprofit). As is well known, such commercial freedom is often the best way to ensure the market discipline necessary to ensure an efficient allocation of limited resources. Of course, in America today, we do not have—and have not had for fifty years—anything like a free market in health care. Should we aspire to return to a libertarian utopia? I think not. No one wants to see fellow citizens dying or suffering simply because they lack the funds for needed medical care. Voluntary charity might take care of this problem in a world without administrative costs and complexities—as it did throughout our past when hospitals were almost entirely run on an eleemosynary basis. However, in the modern world, organizing medical care along the lines of a set of voluntary charities would be extraordinarily burdensome, and we would undoubtedly find thousands of people whose needs fall through the cracks of a ramshackle system. Given the transaction costs of organizing the delivery of medical care through voluntary associations, it is quite rational for Americans to prefer to use tax revenues to fund a universal safety net, a guarantee of medical care in extreme circumstances.
In addition, Americans quite reasonably want effective protection against the dual risk of losing their savings, as a result of the costs of medical care, and of finding themselves unable to afford critically needed care, once those savings have been exhausted. In theory, private insurance, purchased in the free market, could offer protection against these risks. However, private insurance has also failed to provide an adequate solution in recent years: the cost of medical insurance has become unaffordable for many people; insurers can withdraw from marketplaces unexpectedly and have every incentive to reduce covered services; and people with “preexisting conditions” often have difficulty finding insurance under a purely voluntary, private system. Only social insurance, backed by the full faith and credit of the government, can minimize the risks involved.
Moving beyond the free market leads to a crucial distinction between ordinary and catastrophic medical expenses. The ideal solution would be a dual system: free market for ordinary expenses, and federally funded, universal social insurance for catastrophic ones.
The island state of Singapore has enacted such a solution. For ordinary medical expenses, Singaporeans purchase their medical care in a free market, using both private funds and health savings accounts, which are funded by a mandatory payroll deduction and managed by the government. All Singaporeans have the option of Medishield, a low-cost social insurance system that covers catastrophic expenses and carries a relatively high deductible (about $1,400 per person per year). In addition, a Medifund program is available for all whose medical expenses exceed the resources available from a citizen’s health savings account and Medishield coverage. The health savings accounts (Medisave) can be used to pay for medical care for the members of one’s extended family and can be bequeathed to one’s heirs.
Singapore’s system has proven extraordinarily successful. Singapore ranks sixth in the World Health Organization’s ranking of health outcomes; the United States ranks thirty-seventh. Singapore’s citizens have a life expectancy greater than Americans, while spending an amazingly low 3.9 percent of GDP on health care, compared to over 17 percent in the United States.
Contrary to typical conservative ideology that assumes only free-market reforms will drive cost control, the Singaporean system is remarkably effective at keeping a lid on health care expenses. According to William Haseltine’s Affordable Excellence (Brookings, 2013), Singapore delivers health care for about a quarter of the cost of services in the United States. First, Singapore does harness market incentives in the primary care market, which is out of pocket. More significantly, Singapore restricts drug prices and, through its public ownership of 80 percent of the hospital system, controls hospital expenses as well. A Singaporean system for the United States could provide universal coverage at a cost that is much less than the current system, and many times less than the “Medicare for all,” single-payer system favored by the likes of Bernie Sanders and Elizabeth Warren.
The Sanders single-payer system, in contrast, would be incredibly expensive. It would move 90 percent of total health care spending to the federal government, doubling the federal government’s total health care expenditures. This would increase federal spending over the next ten years by $32 trillion (according to the Urban Institute). The federal debt would blossom by at least $16 trillion according to the Tax Policy Center, even with all the new taxes proposed by Sanders: a new payroll tax of 11 percent, plus increasing revenues from federal income taxes by 9.5 percent.
A single-payer system would completely displace ordinary markets, even though it would retain the illusion that one is free to “purchase” (with federal funds) the services of the doctor or hospital of one’s choice. A single-payer system requires ubiquitous regulation and rationing of medical care in order to avoid a fiscal black hole that would absorb all of the nation’s resources. The system would force the federal government to intrude into every medical decision, no matter how minor.
Reforming Current Practices
There are two institutions whose existence constitutes a constraint on reasonable reform: Medicare and the private medical insurance business. It would be unfair at this point to limit Medicare coverage to catastrophic expenses. For over fifty years, Americans have come to rely on automatic, universal medical coverage at age 65. They have planned their retirements based on this assumption, and it would be unfair to renege on such long-standing commitments. Any reasonable and just reform must leave Medicare essentially unchanged.
What about the private medical insurance business? There are approximately 444,000 employees working directly in this field, out of 2.3 million employees in the insurance sector as a whole. Private medical insurance generates $801 billion in premiums per year. Adopting something like the Singapore model would entail the radical downsizing of this industry, since its function would largely be absorbed by the combination of health savings accounts and social insurance for catastrophic expenses. Is it prudent and fair to bring such a business sector abruptly to an end? I would argue that it is.
The four hundred thousand employees of the private medical insurance market could be absorbed by other branches of the insurance business and by the much larger sector of financial services. They have the abilities needed to qualify for many other forms of white-collar work. Compared to the total cost of health insurance, the retraining of four hundred thousand is not an insuperable barrier to reform.
In addition, some private medical insurance would survive in a Singapore-like system. Americans would be free to purchase (with after-tax dollars) private insurance for uncovered benefits (psychiatric care, cosmetic surgery, care for allergies, etc.) as well as significant but non-catastrophic medical expenses. Without tax exemption, however, the demand for such insurance through employers would undoubtedly decline greatly.
Why, then, shouldn’t we seek to repair Obamacare (the Affordable Care Act)? Based on the model of Mitt Romney’s Massachusetts plan and on earlier ideas developed by the Heritage Foundation, Obamacare has the advantage of preserving private medical insurance, including employer-provided, tax-exempt health benefits, as the linchpin of our medical system. In fact, Obamacare attempted to expand this private system by requiring every American to purchase an insurance package that satisfies a demanding schedule of included treatments and services. The designers of Obamacare intended that this mandatory enrollment would cross-subsidize those with expensive preexisting conditions while enabling private insurance companies to make a generous profit, despite their loss of the right to discriminate in price with reference to preexisting conditions.
Obamacare collided with a fundamental constitutional obstacle, however. The Constitution does not authorize the federal government to require citizens to purchase any sort of product from private vendors. In National Federation of Independent Business v. Sebelius (2012), Chief Justice John Roberts worked around this obstacle by reinterpreting the enrollment mandate as a “tax” on the non-purchase of insurance. However, in order to be a tax, the penalty must be non-punitive—a contradiction in terms. With a nonpunitive “penalty,” there is no way to incentivize enough young, healthy people to join the private market (or the state-run exchanges). A modest tax on nonpurchase simply does not provide enough incentive to sustain the system. By labeling the penalties a mere “tax,” the Roberts Court gave young, healthy people permission to opt out without compunction, i.e., without thinking of themselves as lawbreakers. The result has been an inexorable death spiral, as the absence of healthy consumers forces insurers to raise premiums, further driving the healthy out of the market.
Even if this dysfunctional mandate could be fixed, a whole host of other problems exist. First, Obamacare cannot solve the problem of runaway medical inflation. It is almost certain to make it worse in the long run, since Obamacare increases demand for medical services across the board while offering little more than slogans to reduce costs. Since consumers and private insurance companies must compete with each other for scarce medical resources, the prices will continue to spiral upward, driven by the artificial stimulation of virtually unlimited federal funds.
Second, Obamacare entails the useless duplication of administrative overhead: we have ended up with the worst of both worlds, with spending funneled through two separate bureaucracies, one private and one public. Third, Obamacare doesn’t provide maximum security, since customers still face the risk of their private insurer leaving the marketplace. If the point is to provide universal security as a public good, it makes sense to simply provide that security directly, rather than introducing a redundant private middleman. And, on top of all these defects, Obamacare still left thirty million Americans uncovered.
But will the American people accept a system that eliminates employer-based medical benefits, with their favorable tax treatment? Americans who have such insurance through work are, by and large, satisfied with the health insurance they enjoy. However, by pouring more and more tax-subsidized money into the market of medical services, our system has perpetuated unsustainable levels of medical inflation. Spending on medical care has grown from about 5 percent of GDP in 1960 to over 17 percent today. In the absence of structural change, it is projected to increase another 50 percent by 2023, to 19 percent of GDP, about $15,000 for every man, woman, and child. The burden of premiums on both businesses and their employees has become intolerable. Increased spending on health insurance premiums have eaten up over 80 percent of all gains in income for the median household in America since 2000.
In adapting the Singapore model to American circumstances, we must take into account another vitally important feature of the U.S. Constitution: the role of the fifty individual states as “laboratories of democracy.” Rather than imposing a single system on the entire country, we can enable each state to craft its own medical care regime. In particular, the high-deductible catastrophic insurance (Singapore’s Medishield) need not exist at a federal level at all. Each state should be free to offer its own catastrophic insurance system, with its own definitions of deductibles and copayments, and its own schedule of covered services and treatments, so long as the coverage is universal and includes all essential services, such as those needed to preserve life, the five senses, and mobility. The health savings accounts, in contrast, would make the most sense at the federal level, funded by mandatory payroll deductions.
Why should the federal government be involved at all? Why not leave health care entirely to the states? There are three reasons for the health care system to be primarily funded by the federal government. First, there is the problem of medical migration. Since Americans have a constitutional right to move to other states and to enjoy (immediately) the full benefits of their fellow citizens there, a state-funded system would be fiscally unsustainable, since Americans with serious and expensive diseases would have a strong incentive to move to one of the states with the most generous catastrophic plan. In addition, the various states would have to compete with each other for doctors, nurses, and other scarce resources. Doctors would migrate to states offering higher compensation. Second, individual states, which do not control their own currency, are subject to fiscal pressures of a different kind than the federal government. Finally, the fraternal charity and solidarity of Americans should naturally extend across state borders.
The 2017 proposal by Senators Lindsey Graham and William Cassidy was a move in the right direction, turning Obamacare (ACA) funds into block grants to the states. In a vain attempt to satisfy the green eyeshade deficit hawks in the GOP, however, the Graham-Cassidy bill imposes draconian cuts in Medicaid in future years, with immediate and deep cuts hitting key swing states like Michigan, Pennsylvania, and Ohio. The proposal’s failure to ensure anything like universal coverage destroyed any hope that it would attract the support of moderate Republicans like Susan Collins, to say nothing of centrist Democrats like Joe Manchin or Heidi Heitkamp.
To succeed, we must go much further, insuring that each state is given fair and adequate access to federal funds, sufficient to fund a universal social insurance program, not merely an expansion of Medicaid to the nearly poor. In particular, if a state unilaterally adopted a Singapore-like universal safety net, it would render private, employer-funded medical benefits redundant. This would mean a huge loss of employer “tax expenditures” in that state, resulting in a massive increase in federal corporate taxes (over $400 billion nationwide) for that state’s employers. Thus any state that adopts such a universal safety net must be guaranteed additional federal funds of sufficient size, or otherwise integrated into a nationwide system, to make up for the loss of tax-deductible employer plans. This would be a rational provision for the federal government to make, since such additional spending would be fully financed by increased tax revenues from those states.
Toward a Feasible Reform Program
Before any significant legislation is possible, there must be structural change in Congress, especially the Senate. In particular, the sixty-vote cloture rule in the Senate is an obstacle to any real reform. The current cloture rule is not an ancient practice—it is actually quite recent, adopted in 1975. Before 1917, the Senate was subject to true filibusters, in which a single Senator could block a piece of legislation by refusing to yield the floor during debate (as the character played by Jimmy Stewart does in Mr. Smith Goes to Washington). But such filibusters required real sacrifice on the part of the participants. They shut down all other Senate business, risking the good will of fellow Senators and of the voting public. The filibuster was abolished in 1917 with the adoption of a rule that allows two-thirds of the Senators present to bring debate to a close. In 1975, this was changed to the vote of sixty Senators (and not just 60 percent of those actually voting). As a result of the 1975 reform, forty-one Senators can block any bill literally without lifting a finger. Because of the two-track system for bills (created in 1970), the minority can block any single piece of legislation they oppose without interfering with the passage of other bills. This made obstruction painless and invisible, with a resulting explosion of pseudo-filibusters: seventeen hundred since 1970, compared to only three or four per year in the past.
In fact, the filibuster was not part of our original Constitution. The original Senate rules included the motion of “previous question,” by which a simple majority could end debate. The Senate accidentally dropped it in 1806, making the filibuster theoretically possible, but the first filibuster did not occur until 1841, more than fifty years after the ratification of the Constitution. The history of the filibuster is rather disreputable: it was most often used to defend slavery and Jim Crow segregation.
We don’t need the cloture rule as a check and balance on runaway majoritarianism. We have plenty of checks already: the two houses of Congress, the presidential veto (which is used more frequently in modern times), and vigorous judicial review by federal judges and the Supreme Court. The Bill of Rights and due process are in no danger. But the cloture rule has produced a dysfunctional arresting of all legislative action. No other country requires a supermajority in the legislature for the passage of ordinary (rather than constitutional) legislation.
The Byzantine “reconciliation” process, created in 1974 and revised in 1985, is no alternative to the abolition of the cloture rule. The Congressional Budget Act of 1974 gave extraordinary powers to the unelected parliamentarian of the Senate to decide which matters are and are not “extraneous” to the budget process. Although the reconciliation process was used to pass ACA-related legislation, the Senate can never properly squeeze something as sweeping and ambitious as a retooling of our health care system onto the procrustean bed of budget reconciliation.
The cloture rule can, however, be ended at any time by a simple majority vote, a principle of the Senate that was asserted in 1917 and reaffirmed in 1957. The Supreme Court ruled in United States v. Ballin that each house of Congress is a parliamentary body that can change its rules at any time by simple majority vote. President Trump should insist on immediate repeal of the cloture rule, threatening an all-out war against the GOP establishment if McConnell and his team balk.
Health care reform must be bipartisan, representing a broad consensus. The vast majority of Americans favor universal coverage but oppose a single-payer system that would socialize all medical care, including ordinary, noncatastrophic expenditures. According to a June 2017 Pew Research poll, only 33 percent favor a single-payer system, while 60 percent want federal government to guarantee coverage for all Americans. Bernie Sanders’s single-payer proposal has no chance of passing in the short run. Only one-third of Senate Democrats are signed up as cosponsors. Similar proposals have recently collapsed in super-liberal Vermont and California. The Democrat leadership in Congress is hoping to patch up Obamacare, but a proposal to heavily subsidize private insurance companies with public funds is a political loser, if there ever was one. As Obamacare spirals downward to its inevitable collapse, the path is clear for a bold, populist plan that ensures universal health care at a reasonable and stable cost. If, however, Trump and the Republicans do not act, the country will inevitably turn to a single-payer solution, almost certainly not the best way to provide affordable, universal coverage. It is not enough to be against Obamacare, however bad it is: Trump must propose a bold, positive, and comprehensive initiative designed to work for all citizens.
Health Care and the Trump Presidency
The repeated failure of the GOP to repeal Obamacare in 2017 is actually a good thing for the Trump administration. A repeal-and-replace gambit along traditional Republican lines would have been a political disaster. The American public, by wide margins, wants a universal health care safety net, in which no one can be denied help for preexisting conditions. There are logically only two ways to accomplish this: through private insurance with an effective mandate (which Obamacare attempted), or through a social insurance benefit, providing everyone with publicly funded catastrophic insurance. Obamacare was a failure, running up as it did against a constitutional prohibition. All of the recently proposed GOP plans also fall short, leaving tens of millions of Americans vulnerable to the loss of their savings through the costs of treating catastrophic illness. Had such a replacement plan passed, Republicans could expect to suffer huge losses in the House in 2018, and the loss of the Senate and White House in 2020.
Obamacare was cobbled together to satisfy a host of special interests, including insurance and pharmaceutical corporations as well as hospitals. By contrast, a bold stroke that promotes the real interests of working Americans would transform the political correlation of forces. The support of social conservatives, for example, could be secured via a permanent Hyde amendment, blocking all government funding of elective abortions. Fiscal conservatives can also be brought on board. Under our current system, we already spend more of our GDP on government-funded health benefits than does any country other than Norway. Trumpcare could, in the long run, save the government hundreds of billions of dollars by eliminating the insurance middlemen, by holding down inflation through the bargaining power of a unified social insurance program, and by limiting payments to essential services. Although Trumpcare would not create a stifling government monopsony, as would a single-payer plan, it would still leave the federal government in an advantageous position to hold down the upward spiral of medical inflation, since it would be the purchaser of the vast majority of the most expensive treatments. In addition, the high deductibles and use of personal savings accounts would help to contain costs by reducing the overuse of medical services.
Even if establishment Republicans and Democrats, under pressure from insurance companies and hospitals, blocked Trumpcare in 2018, Trump and his allies would be well positioned to make gains in both the primaries and general elections of 2018. All who voted against Trumpcare, both Republicans and Democrats, would have to explain why they opposed a universal safety net of the kind that the American people want, and why they preserved the failed system of Obamacare.
Finally, Trump cannot afford to outsource his agenda to the conventional GOP leadership of the House or the Senate. Former Health and Human Services (HHS) secretary Tom Price, a twelve-year veteran of the Congress and a conventional Republican, lacked the imagination to lead the reform effort. Let us hope his replacement, Alex Azar, will be more open to visionary reforms. If not, the president should appoint a health care reform czar to help him make his own mark, expanding the welfare state in a way that enhances conservative social goals while securing the political support of a broad coalition for another generation or two. It would give Trump the advantage of governing from a broad center instead of a razor-thin, fractious coalition on the right.