June 12, 2023

Reconceptualizing the path to universal health insurance

Mark Shepard discusses the limitations of a “market failures” approach to achieving universal health insurance coverage in the United States.

Source: dashkindobrui

For decades US policymakers have tried to achieve the universal health insurance coverage that many other developed countries enjoy. But despite incremental reforms, based on tweaking health insurance markets, America's uninsured population has remained stubbornly high.

In a paper in the Journal of Economic Perspective, authors Katherine Baicker, Amitabh Chandra, and Mark Shepard argue that economists should move away from the paradigm that has inspired these past reforms and toward an approach that encourages wholesale change. They say that proposals should start from a basic, mandatory health insurance package, which can then be supplemented in markets for health insurance. 

Shepard recently spoke with Tyler Smith about the success of health care systems using this framework in other developed countries and why economists need to rethink their approach to health insurance reform in the United States.

The edited highlights of that conversation are below, and the full interview can be heard using the podcast player.



Tyler Smith: What prompted you to think that we needed to reconceptualize our approach to achieving universal health insurance in the United States? 

Mark Shepard: I think there were two big motivating factors. The first was this long-standing goal in the United States of universal health insurance coverage. It's a goal that goes back many decades, to presidents as early as Harry Truman. But there's about 10 percent of people who lack basic health insurance in the United States, and we think that's both a policy challenge and an economic puzzle, because basic economics says that people should value the risk protection benefits that insurance provides.

The second motivating factor that got us interested in this question is that when you look around the world, most other high-income countries have achieved universal coverage, meaning over 99 percent of the population having some form of basic health insurance. And yet, we understood that there was a bit of a misconception in what that coverage was. There was a sense that universal coverage was always government-run health care—single-payer, run by the government. And that's just not true. Universal coverage operates in a lot of different ways around the world with different roles for private markets and for governments. We wanted to understand and teach other people more about that variation and how to think about it as we went about trying to make policy better in the United States.

Smith: What is the traditional approach to explaining this uninsured group and what kind of policy solutions has that translated into?

Shepard: We looked at what the economics literature had put out as a standard framework for understanding the lack of universal coverage in the United States. We saw a framework that was really organized around trying to understand the market failures that prevented people from getting basic health insurance coverage—what we call the market failures approach. The starting point is assuming that health insurance is a good that people purchase and that it provides risk protection as well as access to needed health care. And [market failures] prevent buyers and sellers from making these trades that would be welfare improving. 

But what we felt that was missing was that the policy solutions that economists would often propose to these market failures were incremental approaches. They were incremental policies that would try to fix each market failure one by one. We see that leading to the very complex health insurance system that we have in the United States that tries to, on a one-by-one basis, fix each individual market failure without stepping back and asking how this entire system should be designed in a way that provides access to basic health care.

Smith: Obviously, you want to change this old paradigm of looking at things through the lens of market failure. So how do you think we should be looking at this issue?

Shepard: We came to the understanding that it was more helpful instead to start from the idea that there was a basic need for health insurance coverage that everyone had. There was both a moral imperative to provide a basic level of health care to everyone—what we would call a social floor approach. It makes sense to think about health insurance systems in two tiers. First of all, a basic coverage tier, a basic level of access to health insurance and health care that everyone should have just by virtue of existing in the society, just by virtue of being part of our country. This would be basic coverage, and it can be delivered in a variety of ways.

Then you should start thinking about what levels of top-up coverage we should allow individuals to buy. There are a variety of trade-offs involved with thinking about setting up that top-up system. But the top-up system for buying more health insurance only works well if you have the basic system set up that makes sure that everyone has access to a basic level of health care and insurance protection against medical costs.

Smith: Can you elaborate a little bit more on why you think that top-up coverage would be important to any major reforms?

Shepard: It's important because in practice there's always a role for markets in health care. There's heterogeneous preferences. There's heterogeneous means to pay for extra health care. Doctors have different skills. There's different needs in different areas of the country. So markets are always going to play a role. And as a result, the question is what's the proper role for markets in a health care system that makes sure that everyone has access to a basic level of care. That's our moral imperative. But that also allows some flexibility for people to buy more if they want it, but also not to buy more if they don't. There's a variety of trade-offs here that economists should be thinking more about and do more research into.

If you want to get universal coverage, there has to be some form of health insurance coverage that is universally accessible, automatic, and mandatory that everyone has it.

Mark Shepard

Smith: Are you hopeful that these more radical changes to achieving universal coverage are feasible?

Shepard: I think that there is hope here for more fundamental reform, keeping in mind that the key barrier has been the fear of disruption. People don't like the health insurance system and the health care system that we have today. But there's a fear that if reforms take effect, that it could make it worse, that it might not move it in the right direction. How can you sort of balance alleviating ordinary people's fears with the prospect that we really do need reform of the system? It would likely take the form of some form of universal health insurance coverage that everyone has access to, but doesn't eliminate existing coverage via employer-provided coverage or via the Medicare program; it would be an add-on type of coverage that everyone would have as a baseline. And then, employer coverage could be preserved as a way to buy extra access to health insurance on top of that. You would automatically have the universal plan that would be based on a government-subsidized health insurance program, but then you could choose to opt out of that and get employer-provided coverage instead.

But importantly, if you want to get universal coverage, there has to be some form of health insurance coverage that is universally accessible, automatic, and mandatory that everyone has it. When you set up a system where people have to voluntarily enroll and pay significant premiums and do paperwork to get health insurance coverage, you end up with a ceiling on how many people you can get covered. I think we're close to that ceiling today. In that case, it's unlikely that we'll get all the way to the 100 percent coverage that other high-income nations around the world have been able to achieve over the past decades.

Achieving Universal Health Insurance Coverage in the United States: Addressing Market Failures or Providing a Social Floor?” appears in the Spring 2023 issue of the Journal of Economic Perspectives. Music in the audio is by Podington Bear.