We’ve Got You Covered: Rebooting American Health Care, by Liran Einav and Amy Finkelstein (Portfolio, 304 pp., $29)

MIT’s Amy Finkelstein and Stanford’s Liran Einav, two of America’s best and most influential health-care economists, have written a book taking aim at the American system for financing health care. Finkelstein and Einav are hardly uncritical apologists for big government; they have long found fault with Medicare, Medicaid, and the Affordable Care Act. Nevertheless, their book argues that America’s primary reliance on private insurance to finance health care might be irredeemably flawed.

In previous research, Finkelstein found that, while the introduction of Medicare substantially reduced health-care costs borne by seniors, it not only failed to reduce significantly mortality among the elderly but also was responsible for an enormous increase in hospital costs. Her assessment of a lottery expanding Medicaid to low-income adults was similarly sobering: while enrollment served to reduce out-of-pocket costs and increased the use of medical services, it yielded no significant improvement in measurable physical health outcomes. She estimated that every dollar spent on the program was worth only 50 cents to beneficiaries, and that 60 percent of expenditures merely served to compensate hospitals and physicians for medical care that they had already been providing.

In coauthored studies, Finkelstein and Einav found that the Affordable Care Act did little to reduce Americans’ risk of losing health insurance, while its Medicare payment reforms served mostly to “generate inefficient transfers to hospitals.” Assessing the response of low-income households to ACA-style subsidies, they concluded that half of them would not purchase insurance even if taxpayers picked up 75 percent of the cost.

Yet Einav and Finkelstein are also fierce critics of competitive insurance markets. Because the cost of health insurance depends on enrollees’ risk of making claims, insurers can be overwhelmed by surging expenses if coverage proves disproportionately attractive to sicker enrollees. The ACA proposed to remedy this shortcoming by forcing low-risk individuals to purchase coverage. But Einav and Finkelstein believe such problems to be more intractable, and presciently warned that mandates “may be harder in practice than simple theory may suggest.”

In We’ve Got You Covered, Einav and Finkelstein largely throw in the towel on private health insurance. They point to a familiar list of complaints with American health care: high costs pushing insurance out of reach, the risk that families will lose coverage when they most need it, gaps in protection for those who think they are covered, aggressive debt-collection efforts, and a vast mountain of paperwork that adds expense and confusion.

The authors are aware that a slight majority of U.S. expenditure on health care (more than $2 trillion in 2021) comes from public spending. Yet they deem Medicare, Medicaid, CHIP, COBRA, Obamacare subsidies, disease-specific programs, and aid for hospitals to provide charity care a “piecemeal jumble” and “patchwork,” which “inevitably leaves gaps at the seams.”

Their recommendation: “tear down the current ‘system’ and rebuild it from the ground up.’” Specifically, they advocate full public financing of “basic” medical services (without premiums or out-of-pocket charges for patients), with health-care providers allocated a fixed aggregate quantity of resources to treat all patients.

Such a vision has much in common with the single-payer scheme proposed by Bernie Sanders. But Einav and Finkelstein admit that this would mean “longer wait times, less patient choice over their doctor and their medical care and much less comfortable hospital accommodations.” They therefore differ from Sanders in wishing to allow Americans to purchase supplemental private insurance for better access to care.

As the authors concede, this could lead to the rich just buying their way to the front of the line, which would allow them to claim a larger share of the capped hospital budgets that must serve all patients. They suggest that other nations have been able to mitigate such problems with regulation, but they tend to skip from country to country when confronted with the downsides of any particular arrangement.

Despite advocating a policy revolution to establish universal public coverage, Einav and Finkelstein play down the importance of insurance on health disparities between rich and poor, observing that differences are mostly due to living conditions and lifestyles, and that the degree of health inequality in the United States is similar to that in single-payer countries like Norway or Sweden. Furthermore, they note that America’s uninsured currently “receive about four fifths of the medical care they would get if they were insured,” but “pay for only about twenty cents on the dollar for that medical care.”

In fact, Einav and Finkelstein’s proposal would surely leave the poor worse off. America’s patchwork of public health-care programs results from an attempt to target aid at those unable to afford their own insurance: the poor, the disabled, and the elderly. Picking up all routine health-care costs for affluent Americans who are currently privately insured would pull public funds away from those needy groups. It would likely push up their taxes, too.

The “gaps at the seams” of America’s health-insurance patchwork are undoubtedly a problem. But private insurance need not be so patchy.

The Trump administration rightly sought to expand individual control over health insurance by letting employers provide pre-tax funds for workers to purchase their own coverage—enabling them to maintain the same insurance coverage from job to job or to self-employment, without risk of denials due to preexisting conditions. By allowing enrollees to receive lower premiums if they sign up early in life and subsequently maintain continuous coverage, it should be possible to address the root of the insurance market failure that justifiably concerns Einav and Finkelstein—without making taxpayers buy up the largest sector of the economy.

Photo: utah778/iStock


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