an alternative to Obamacare

Harvard economist Martin Feldstein dislikes the design of Obamacare, and fears that its failure “could lead to renewed political pressure from the left for a European-style single-payer health-care system”. To his credit, he acknowledges that the current system is also fatally flawed. It is very expensive, and leaves 15% of the population without public or private health insurance.

Feldstein has a better idea. He would like government to

eliminate the current enormously expensive tax subsidy for employer-financed insurance and use the revenue savings to subsidize everyone to buy comprehensive private insurance policies with income-related copayments. That restructuring of insurance would simultaneously protect individuals, increase labor mobility, and help to control health-care costs.

Martin Feldstein, “Obamacare‚Äôs Fatal Flaw“, Project Syndicate, 29 October 2013.

I agree with Prof Feldstein’s analysis of the flaws of Obamacare, but do not share his dislike of single payer systems such as Medicare (health insurance for the elderly). I agree, though, that mandated individual insurance is potentially better than Obamacare, and definitely better than the existing system of huge government susidies (tax breaks) for employer-provided insurance. The existing system leaves many uninsured, and workers lose their insurance when they lose their jobs.

What Feldstein recommends is a version of the Swiss system, which mandates purchase of individual health insurance policies, from private companies, with considerable regulation of the industry. Insurance can be purchased from any of 30 or more companies, depending on the canton. Prices charged vary from firm to firm, but each firm’s prices can vary only by gender and age group. All policies must cover pre-existing conditions: no applicant can be refused insurance. The Swiss government specifies what a basic policy must contain, and allows the insured to purchase optional extras such as dental care or private hospital rooms. Approximately a third of the population receives subsidies intended to keep the cost of premiums to a maximum of 8% to 10% of household income, depending on the canton. Co-pays of 10% are allowed, and are capped at a maximum of 700 Swiss francs per year. All policies are for individuals, not families. Even children have their own individual policies.

If the US decides to follow the example of Switzerland, numerous questions have to be answered. Will private companies insure families, or individuals? Will subsidies come from state and local governments, or from the federal government? Will subsidies vary from state to state (as in Swiss cantons), or will they be uniform throughout the country? Will there be a deductible and/or co-payments? If so, how much, what form, and will consumers have a choice of options for out-of-pocket payments? These are just some of the details that have to be resolved.

Professor Feldstein (born 1939) was chairman of the Council of Economic Advisers and chief economic advisor to President Ronald Reagan from 1982 to 1984.

Thanks to Greg Mankiw for the pointer.

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