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Everyone In The Pool

Feb
23
2006

Apart from being two right-wingers favorite straw men, school choice (in Milwaukee) and socialized medicine (in Maine) have a lot in common. They are both good illustrations why Americans can’t create an incomplete solution to a system-wide problem. And yet we do that time after time.

Up in Wisconsin, Milwaukee has school choice program which allows some generally poor (and often black) kids to go to the better private school down the road. This drives the National Education Association (the teacher’s union) insane, because they see all they’ve gained in becoming public employees being destroyed if the system is privatized. Of course they can’t and don’t say that, so they say instead that school choice is depriving the public schools of funds and sending them to private schools instead. And they are being beaten with a 2-by-4 by John Tierney in the NYT about that.

Meanwhile, in Maine – not exacly the hotbed of social experimentation that Wisconsin has been – the new attempt to expand state-funded health insurance to the uninsured is being slammed by that rational oracle of capitalism the WSJ Opinion page as socialized medicine. What’s their main complaint?

Through the first nine months only 1,600 previously uninsured individuals enrolled in Dirigo Health’s insurance product, called DirigoChoice. The other 6,000 who enrolled simply traded their private health insurance for taxpayer-subsidized DirigoChoice. The program continues to spend millions subsidizing insurance for those already insured.

This is what right-wing economists call public coverage “crowding out” private insurance. And they’re right. Over the past 15 years public coverage (mostly via Medicaid) has expanded and private insurance (from employers) has been evaporating. Now which way the cause and effect goes is something economists can argue about, and it hasn’t massively changed the number of uninsured, but the micro-economics are clear. The taxpayer is paying more and relatively employers are paying less.


The school choice issue is the same thing in reverse. Leave aside the issue that parents who send their kids to private school are paying taxes for public schools as well as fees for private school, at the moment all school kids are in a big “insurance” pool from which the money goes to a publicly-run school “service”. When some of the funds are taken out of that pool and sent to private schools outside the system, then there’s less money in the public school “service” to educate the kids left behind there. As the marginal cost of educating one kid is less than the average cost,  the simple math means that the taxpayer is going to pay more overall.

What’s the solution? In both cases it’s to put everyone in the same pool and to pool all the money. So for health care that would be employer-paid premiums plus taxes, while for education it would be taxes plus privately-paid school fees. Then you could attach a voucher to a student/potential patient, and have the “service providers” — who need no longer be public institutions— compete to provide population-based schooling or care. Obviously there’d have to be some adjustment, in that to encourage better schools in poorer areas you’d want vouchers for kids living there to be worth more, and you’d have to be very careful how you’d regulate the tonier schools that would insist on parents “topping up” their vouchers to exclude poorer kids. But you could create a feasible national choice system, if you were prepared to take on the NEA on their first complaint, rather than their publicly stated (and currently valid) second one.

The adjustment for health care is even more complex, as while it takes roughly the same amount to educate a kid, it costs greatly varying amounts to take care of people.  But so long as there was regulation to correct for “cream-skimming” better risks, you could theoretically create a voucher based pool so long as no medical underwriting was allowed, all benefits were comparable, and any risk-differentials in populations between service providers were adjusted for afterwards.

Then theoretically the schools could compete on who provided the best education for the money, and the care providers could compete on who provided the best care to a population. (The care providers in this systems would almost certainly end up looking like big  single insurer-provider systems like Kaiser Permanente). This is the theory behind managed competition, promulgated by Alain Enthoven, and it’s similar to the more recent proposals for voucher based insurance from Fuchs and Ezekiel.

But of course in the real world it appears to be impossible to sensibly create these big “pools” that include everyone and all the money allocated for health care or education. Hence we attempt incremental reforms like choice for 15% of kids in Milwaukee, or futile attempts to plug the uninsurance gap in Maine. And then we’re surprised when the effect on the overall system isn’t positive. Pooling for health care and education — and I mean everyone and every dollar allocated for that activity in the pool — is the answer. But politics means instead that incrementalism upon incrementalism is what we get. And the results show that it doesn’t help.

And in health care (and probably in education too) we keep approaching the ultimate catastrophe

Share  Posted by Matt Holt at 5:23 PM | Permalink

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