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YOU DECIDE: What drives health care plans?

November 16, 2007

MEDIA CONTACT: Dr. Mike Walden, 919.515.4671 or michael_walden@ncsu.edu

Dr. Mike Walden
Media representatives: For a black-and-white or color copy of this photo, call 919.513.3127 or e-mail dave_caldwell@ncsu.edu.

With the presidential primary campaigns in full gear, health care again is front and center as a main issue. Each major candidate has a plan for addressing the cost, coverage and quality of modern medical care in America.

All the plans have many technical differences in provisions, funding and coverage. However, here I want to look at the big picture, at fundamental philosophies that drive all proposals.

I argue there are two such philosophies: a top-down centralized approach and a bottom-up, decentralized strategy. Knowing the pluses and minuses of these competing ideas will enable you to better judge any specific plan.

The top-down philosophy is best illustrated by plans that embrace a single-payer health care system. Here, the government would pay all health care expenditures in the country. Funding would come from some form of taxation, most likely a new payroll tax shared by businesses and workers. Everyone would be included, so the issue of uninsured individuals is immediately eliminated. Also, affordability would not be an issue because the government would pay all medical costs.

Supporters of the single payer plan see several advantages.

Besides full coverage for all, they see a streamlined system that eliminates many administrative costs and in which profits don't have to be paid to providers. People would no longer worry about losing health insurance when changing jobs, and care quality could be better equalized across the county.

However, critics of the top-down philosophy point to three potential pitfalls.

One is the lack of competition, which, they say, is required in any market to motivate producers to focus on consumers' needs and wants. The removal of the profit motive, the critics argue, is actually a disadvantage of the single-payer plans because the pursuit of profits is what causes businesses to eliminate waste and be cost-effective.

But the biggest concern with the single-payer system is the imbalance it may create between the quantity of health care consumers want and the amount the government will fund. Even though consumers pay for the plan through taxes, there is no direct tie between taxes paid and health care used. Therefore, any trip to the doctor or hospital is free in the eyes of the consumer. So government would have to limit health care usage with rules about what and when care is authorized.

The alternative path to changing health care is the bottom-up approach.

This philosophy says that, given enough information as well as the financial means, individuals can best make their own health care choices. And by putting consumers of health care in charge, competition between providers will result in the highest quality and most cost-effective health care possible.

Implementing this consumer-driven path would require changes from both consumers and providers. Universal coverage would be guaranteed by requiring everyone to purchase health insurance. Health insurance policies would be linked to individuals, not to jobs, by giving the same tax advantages to individual purchases of policies that company purchases now enjoy. For persons without the financial resources to buy health care policies, the government would provide subsidies in the form of vouchers.

The bottom-up philosophy also would require changes in the provision of health care. In particular, health care and health care insurance would be opened up to many more types of companies and insurance policies. The idea would be to make the health care industry more competitive, and consequently, more price-friendly.

Skeptics of the consumer-driven approach say it would result in an unregulated health care free-for-all with the consumer on the losing end. They question whether consumers have the knowledge to make the competitive system work in their interests and worry that profits, not people, will drive providers' choices.

In some sense, the debate between the top-down and bottom-up approaches to health care is symbolic of a wider, centuries-old clash over what kind of economic system best serves consumers.

Since health care accounts for almost one-fifth of our economy, you can help decide this question with your support of one of the two philosophies.


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Dr. Mike Walden is a William Neal Reynolds Professor and North Carolina Cooperative Extension economist in the Department of Agricultural and Resource Economics of N.C. State University's College of Agriculture and Life Sciences. He teaches and writes on personal finance, economic outlook and public policy. The Department of Communication Services provides his You Decide column every two weeks. Earlier You Decide columns are at http://www.cals.ncsu.edu/agcomm/writing/walden/decide.htm

Related audio files are at http://www.ces.ncsu.edu/depts/agcomm/writing/walden/index.html

Posted by Dave at November 16, 2007 08:55 AM