Nihilism and the HSA Problem

Reihan Salam has a smart, but ultimately misguided, take on the Finance Committee's healthcare bill:

Among Democrats and liberals, there is a belief that Republican opposition to the various Democratic proposals represents a kind of "nihilism," and that because Baucuscare resembles proposals offered by liberal and moderate Republicans in the 1990s, today's opposition is obviously unprincipled if not insane. My sense is that we've learned a great deal about health reform over the intervening period, and that, as Christensen, Grossman, and Hwang have argued, it is disruptive competition that promises substantial improvement in the cost and quality of medical services over time. I'm increasingly convinced that the only way to move in this direction is to create a system of universal catastrophic coverage and universal health savings accounts, as proposed by Martin Feldstein and a number of others. The emerging consensus among congressional Democrats moves us in a very different direction, towards a highly centralized, highly regulated system that will give entrepreneurs very little room to dramatically improve care. With that in mind, I don't think opposition is "nihlistic"; rather, I think it's responsible.

Health Savings Accounts are an interesting approach to the healthcare problem - certainly they would eliminate many of the distortions that currently plague the healthcare market, and removing insurance companies from the process of paying for regular healthcare expenses would drive consumers to make more careful decisions while encouraging competition among doctors and hospitals. Having a third party foot the bill dramatically increases costs. As David Goldhill wrote a few months ago: "Want further evidence of moral hazard? The average insured American and the average uninsured American spend very similar amounts of their own money on health care each year - $654 and $583, respectively. But they spend wildly different amounts of other people's money - $3,809 and $1,103, respectively [...] If it's true that the insurance system leads us to focus on only our direct share of costs - rather than the total cost to society - it's not surprising that insured families and uninsured ones would make similar decisions as to how much of their own money to spend on care, but very different decisions on the total amount to consume."

It's an intriguing idea - but I think it inadequately addresses the problems faced by Americans who are uninsured because of poverty, and who, in an HSA system, wouldn't have enough income to put aside in their accounts to cover expenses short of the universal "catastrophic" coverage proposed by HSA advocates. For them, insurance is key - it lowers costs by pooling risk, so a subsidy to buy insurance would be more useful than a subsidy to directly purchase care. And subsidies - of one kind or another - do seem to be the only answer to the problem: HSA advocates like Goldhill admit that the government would have to provide subsidies to poor Americans so they could meet the minimum contribution requirements for their HSA. But is it realistic to think that the government could provide satisfactory subsidies to a more medically-vulnerable demographic without spending massive amounts of money? Keep in mind, all this would be taking place in a marketplace without the cost-reducing pooling benefits of insurance - and that, in turn, is based on the assumption that it's even possible to remove the insurance middleman from short-of-catastrophic transactions. As Malcolm Gladwell wrote in The New Yorker in 2005:

If you are preoccupied with moral hazard, then you want people to pay for care with their own money, and, when you do that, the sick inevitably end up paying more than the healthy [...] "The main effect of putting more of it on the consumer is to reduce the social redistributive element of insurance," the Stanford economist Victor Fuchs says. Health Savings Accounts are not a variant of universal health care. In their governing assumptions, they are the antithesis of universal health care.

If you're like me, and you think universal coverage is the most important component of healthcare reform, this is a big problem. And I don't think that, as far as public policy goes, we are forced to make a choice between universal coverage and a sensible healthcare market that encourages competition and consumer choice (in fact, that's one major reason why I support a public option). That's why Salam is ultimately wrong not only about how "centralized" a post-reform system will be, but about whether or not Republican opposition to this bill is nihilistic.

Salam is right to note that if you think an idea will be bad policy, it is responsible to oppose it. But think of the nature of Republican opposition and its likely consequences. Leading Democrats from President Obama down have all repeatedly stated that they want a bipartisan bill, but at the end of the day they'll pass healthcare reform with or without Republican input. There have been minor substantive ideas from Republicans (namely, tort reform), but overall, the Republican "contribution" to this debate has been scaremongering and demagoguery led by the likes of Sarah Palin and Betsy McCaughey - with their ridiculous lies about death panels, euthanasia, abortion, socialism, etc. Republicans had their chance to make real contributions to healthcare reform. They had the opportunity to ensure that the final bill, even if they found it objectionable, would at least be mitigated by some conservative provisions. But they never took that opportunity. For the most part, they've been content to sit on the sidelines and throw spitballs. Since the passage of healthcare is nearly guaranteed, they are being profoundly irresponsible, and yes, nihilistic, if they refuse to try and positively change something that they believe will be disastrous.