Last week, Austin and I wrote a piece raising concerns about the one-size-fits-all approach to the benefits covered by employer-sponsored insurance. A few years ago, Kate Baicker, Mark Shepard, and Jonathan Skinner made a similar point about Medicare in Health Affairs:
[P]ublic insurance programs generally provide a uniform benefit to enrollees—a “one-size-fits-all” approach to coverage. These features are motivated by the egalitarian ideal that all people should have access to life-saving health care, regardless of income. But as the menu of health care innovations—and accompanying costs—has expanded, this relatively egalitarian structure has become increasingly expensive to sustain. …
This unrestricted or “gold-plated” insurance design may represent what an upper-income American would wish to purchase even if faced with its full cost. But it might not reflect what the majority of Americans would choose if they had to pay the full cost of such a package. … Would low-income Medicare recipients be better off with a program that covered proton beam therapy for prostate cancer—costing at least $25,000 more than conventional treatment but with little evidence of better outcomes—or with equivalent financial assistance to buy food or pay the mortgage?
Most significantly, the paper supplies a model that offers a fresh way of thinking about why health spending in the United States has outpaced spending growth in other countries. In brief, the model suggests that our relatively low baseline rate of taxation has reduced pressure to constrain escalating costs. Other countries with higher rates of taxation have had less headroom to work with before new taxes would crimp economic growth or require cuts to antipoverty programs.
As a result, they argue, Medicare has persisted with gold-plated coverage—proton beam therapy for everyone—even as other countries have imposed restrictions on what the government will finance. “The idea of providing or mandating basic insurance,” the authors write, “but allowing people to top up that coverage at their own expense is … common in European countries. The Netherlands, for example, mandates only basic coverage, but most citizens buy supplemental coverage.”
I’m not sure the Netherlands—or Europe as a whole—is the best example for them. Yes, most Dutch people do purchase supplemental coverage, but it’s not coverage for whiz-bang technologies. It’s coverage for “benefits such as dental care, alternative medicine, physiotherapy, spectacles and lenses, contraceptives, and the full cost of copayments for medicines … .” There are enormous technical obstacles to crafting a “basic” coverage package that excludes costly care of marginal value. I don’t think any country has managed it, although some (like the United Kingdom) have done more than we have.
What mainly keeps spending in check is not a two-tier health system, but rather a willingness to use government power to drive down prices. As Uwe Reinhardt and co-authors noted in It’s the Prices, Stupid, “the government-controlled health systems of Canada, Europe, and Japan allocate considerably more market power to the buy side” than we do in the United States.
That said, the model may still have some explanatory force. It’s possible, for example, that the relatively high tax burden in European countries has spurred them to allocate more power to the buy side. By the same token, the relatively light tax burden in the United States may partly explain our unwillingness to allow the government to throw its weight around in price negotiations.
