Universal Health Insurance - The Private Option

by Jeffry R. Fisher

In the argument over universal health care (or health insurance), the key word is "universal". It means only that everyone gets some. It does not mean "uniform", nor does it necessitate centralized (government) administration, nor even a single-payer bureaucracy.

America has the resources to deliver basic care to every resident, so achieving universal health care is just a matter of finding the will and the way. I think that America currently has a majority will; most arguments have been about (or against) proposed ways.

Commentators both pro and con focus on too narrow a range of bureaucratic plans that all suffer from many well publicized drawbacks. If those authoritarian plans were the only options, then universal health coverage might be theoretically possible but completely impractical or undesirable.

Fortunately, I can envision other, more elegant policies. By outlining one such alternative solution, I will demonstrate that universal health care is not just feasible but practical. As a bonus, I may also demonstrate that a government-administered "public option" is unnecessary. I hope that readers who came to the pro side of this debate expecting a public option will forgive me for that. Please try to see the value in an alternative that deftly avoids many complaints.

The desirability and constitutionality of my plan are beyond the scope of the question posed, so I do not address those issues here.


My aim is to solve these crucial health care and health insurance problems with minimum government involvement:

Empower all legal residents of the US to access and afford health insurance (demonstrate practical universal health insurance).

Six Element Outline:

1.Offer sufficient tax credits that tax-payers will buy their own coverage and/or contribute to charity buying coverage for those who couldn't otherwise afford it.
2.Require each insurer to use one rate schedule for all subscribers, regardless of prior condition. Insurers could still set whatever rates they wanted by age, region etc.
3.Let each insurer attach a lump-sum entrance fee to each prior condition it cares about. An insurer could set its fees at whatever level it thought fair.
4.Require insurers to accept anyone who applies and pays.
5.When a person leaves an insurer, the insurer pays for all conditions existing at that time, and the insurer must use the same amount or formula it charges people to enter.
6.Create a transfer mediation clearing-house.

Element #1, Tax Credits:

Using a tax credit instead of a tax-and-spend mechanism gains several advantages. First, the flow of money is kept away from bureaucrats and legislators where spending decisions can become politicized or corrupted. Those who actually earn the money retain more influence over how and where their money is spent.

Second, having multiple payers saves us from a monopolistic element with its information bottle-necks, lack of innovation, poor variety, etc.

Elements #2 & #3, Pricing Existing Conditions:

Alone, the rule to ignore existing conditions in rate pricing would cause problems. People would wait uninsured until they were sick, and then they'd grab "insurance" only when they needed it. Insurance rates would spiral upward toward a virtual "pay as you go" price (as is already happening in Washington state).

However, lump-sum pricing of existing conditions (rule #3) replaces what rule #2 forbids, just in a different form. Insurers would still have freedom to set whatever prices they wanted, but their actuaries and accountants would convert "existing condition" pricing into lump-sums. This lump-sum form will be useful below. When one signs up for insurance, one would need to pay one's calculated lump sums.

The specter of facing large lump-sum fees for various conditions later in life should motivate people to get insurance early, while still healthy and inexpensive. Even better: Parents could enroll children, the earlier the better. Coverage could then be kept (with possible transfers) for life.

The tax credits, and charity made available thereby, should make early (even prenatal) and continuous coverage affordable. Therefore, health coverage shouldn't need to be mandatory, but consider mandatory coverage a legislative option if you think it necessary.

Insuring more (or all) healthy, low-risk people would dilute risk pools, putting downward pressure on pricing if the insurance market is competitive. Therefore, motivating the young and healthy to get and maintain insurance serves two listed goals at once.

Element #4, No refusal:

This should be self-explanatory. It may also turn out to be unnecessary, given that insurers retain freedom in pricing (even if existing conditions must be priced as lump-sums).

Element #5, Indemnification:

Isn't the purpose of insurance to pool risk and indemnify injury or loss? Insurers should not be able to escape from their obligations by ejecting sick subscribers. One of the worst aspects of our current system of employer-provided health insurance is that when illness or injury costs workers their jobs, they lose their health insurance just when they need it most. By forcing insurers to pay on exit, those dismissed receive money with which to buy in elsewhere (see 'transferability' below).

Crucially, the amount that an insurer attaches to each condition must be the same (or use the same formula) on exit as on entry. This creates a balancing act for the insurer: Set amounts too low, and the insurer will be flooded by cases that are expensive to treat. Set amounts too high, and customers who entered healthy (without paying an entry fee) will cash out when they get sick, draining the insurer's reserves even more than treatment would. Insurers will be driven toward sums that are fair.

As a bonus, assigning lump-sums to known conditions means that they can be carried on an insurer's books as liabilities, revealing an insurer's financial health.

Element #6, Transferability:

With lump-sum pricing of existing conditions on both entry and exit, we have a handle on true transferability. We just need to create a mediator for disagreements between future and former insurers (one wanting to collect for conditions the other may not yet recognize), I expect that the industry can be induced to set up a clearing house for itself.

Add in mundane escrow services as in real estate, and we have complete, seamless health-insurance transferability. Indeed, for complex cases, transferring coverage would be much like a real estate transaction, with possibly hundreds of thousands of dollars moving, and with seamlessness being critical.

One added bonus of transferability would be to remove a source of friction from the economy because more people would be able to change jobs and move across country.

Transferability also enhances competition. Insurers/HMOs who provide slow or inadequate care will find themselves paying exit fees to people seeking better treatment across the street or across town. This would put both downward pressure on prices and upward pressure on quality of service.

Regional Variation:

The cost of living is not the same everywhere in the US, so we should expect various conditions' lump-sums to vary from place to place. As when changing houses, transferring health coverage from one region to another may entail an expense or windfall. For some conditions, the gap may be prohibitive or irresistible.

I see this as a feature, since it reflects the actual costs of providing treatment. People with unfortunately expensive conditions would be rewarded for moving from high-cost areas to low-cost areas, relieving treatment facilities where they're most scarce. That's a good thing.

Loose End:

What do we do about current uninsured who would face steep entry fees? Perhaps the tax credits should go into effect before the lump-sum pricing so that the poor can get on board. If that doesn't work, then the government might provide credit to those needing to pay entry fees. At least the credit offer should only be temporary, since nobody would have an excuse for being uninsured after that.


Answering the title question, universal coverage is enabled by tax credits. Private insurers set their own prices, though preexisting conditions become lump-sums. Lump-sum entry motivates everyone to enroll. Lump-sum exit plus mediation enables transferability, facilitating coverage continuity. Transferability also enhances price and service competition. Risk-pool dilution plus competition puts downward pressure on insurance prices.

All goals met, how do I put this idea under the eyes of policy makers?

Copyright 2009 by Jeffry R. Fisher: Permission is granted to reproduce this article in whole, but only in combination with attribution, the original title, the original URL, and this copyright notice.

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