post by Paul Kelleher
Friend-of-the-blog Don Taylor recently released his e-book Balancing the Budget is a Progressive Priority on Amazon. Five of the book's twelve chapters are extremely rich discussions of health reform which alone justify paying the book's $4.50 pricetag.
Taylor begins the first chapter on health reform thus:
When teaching my introductory health policy class at Duke University, I begin the first day by describing two "laws" that I believe govern all health care systems:
Before that, the healthy subsidize the sick
The first point is a fact. The second implies a choice (or many choices). The essence of health policy is working out how the healthy will subsidize the sick.
I am interested in the moral and conceptual issues connected to Taylor's Second Law and its corollary that health policy is fundamentally about how the healthy will subsidize the sick.
Since he's a social scientist, one natural interpretation of Taylor's Second Law is that it is merely an account of what in fact happens in rich nations. But Taylor seems to mean more. In giving the historical example of healthy hunter/gatherers bringing food back to the sick, Taylor likens this to "Modern health policy financing" which "is just another example, a modern extension of this basic principle of being human." This suggests to me that Taylor's Second Law is in part a normative proposition--it describes how things should be, not just how they are or have been in societies bygone: people should take care of other people, and in particular, healthy people should take care of sick people. Anything less would be inhumane (if not inhuman).
However, if we are now in the realm of normative health policy, then I believe the Second Law is too slender a reed to be of much use. Actually, a better metaphor is that it is too thin a thread to be of much use. For Taylor argues that his Second Law
is not unique to health care, and in one sense it is just the practical definition of insurance...There have to be those who pay premiums and who do not make claims for the insurance market to remain solvent and continue to operate.
I have already explained in a previous post why moral lessons for social insurance policies cannot be teased out of the features of free market insurance contracts. While Taylor is right that individual insurance policies involve cross-subsidization from the healthy to the sick, the reasons for entering into them are purely self-interested. Those reasons cannot, on their own, support the kind and degree of cross-subsidization found in Britain's NHS or in what Fuchs and Enthoven refer to as the "quasi-social insurance" that most Americans enjoy in the form of community rated plans available through their employer. And yet Taylor claims that the common thread running through the NHS, U.S. employer-based insurance schemes, and individual insurance contracts is his Second Law. Unfortunately, there is simply no cogent interpretation of that thread that could transform it into a principle that vindicates the social insurance state.
So Taylor's Second Law needs to be supplemented by other normative principles that could justify forcing some to pay for the care of others. Here's one that Taylor doesn't formulate explicitly: the rich should subsidize the poor and/or sick. I won't defend that proposition here, except to observe that if we discoved Bill Gates had a serious chronic disease, we would not conclude that he should no longer have to pay taxes to support Medicaid. But then this would be a case of the sick subsidizing the sick, a departure from the Second Law.
If we had an argument that the rich should subsidize the poor and/or sick, then this could do a great deal of work in normative health policy. For example, instead of being an argumentatively inert common thread running through real world examples, the principle that the rich should subsidize the poor/sick could actually provide a basis for critiquing certain familiar health policies. Here is Mark Pauly doing just that with respect to the quasi-social character of employer-based insurance:
Formally, community rating can be thought of as financing a subsidy to insurance for higher risks (there being potential social value to the subsidy) through an excise tax on insurance sold to lower risks. The economics just reviewed tells us to avoid specific excise taxes in favor of more general taxes. The alternative subsidy/financing model outlined above does just that; there is no reason to think that higher income taxes would appreciably affect the insurance purchasing plans of anyone, regardless of risk level. From the viewpoint of economic efficiency, subsidizing high risks is often desirable, but paying for that subsidy by taxing low risks never is. Nor is there an obvious equity reason why low risks should pay. The reason for the political appeal of this policy is that the tax on low risks is not counted as a tax, does not show up on any budget, and is opaque for all, even to low risks who are likely to blame the insurers, not the regulators, for their high premiums. (pdf, p. 26)
Even if one disagrees with Pauly's preference for less government involvement than the Affordable Care Act will exert, his rationale for critiquing employer-based insurance could be embraced by proponents of single-payer. For many single-payer advocates would like to see it financed by progressive taxation, just as much of Medicare is. But that would amount to the rich(er) subsidizing the poor(er). Since Taylor in fact endorses progressive financing of many policies he favors, perhaps this is reason enough for us to speak of Taylor's Third Law of Health Policy?
Finally and most importantly: read the book.