When someone with a six-figure income doesnÂ’t have health insurance, itÂ’s probably because he would rather spend the money on something else. When a single mom who works as a store cashier does not have health insurance, weÂ’re more likely to say she canÂ’t afford it. Congress wants to require both to buy it in the name of universal health insurance.
That doesnÂ’t seem fair to the single mom. And that is why both House and Senate versions of health reform contain new subsidies to make health insurance affordable.
The congressional approach would take the burden of risk of rising health costs from family budgets and move it to the federal budget. Families that do not have employer-based insurance would get “affordability insurance” from the federal government. Affordability insurance guarantees that health-insurance costs never exceed some percentage of a household’s income.
Health-insurance costs are rising faster than family incomes; thus, time will make affordability insurance ever more expensive. Those who qualify for affordability insurance will never feel any additional pressure from rising health-care costs. Yes, their health insurance will cost more, but those higher costs will be the federal governmentÂ’s costs, not theirs.
Transferring costs to the federal government wonÂ’t make them go away. President Obama has told us that rising health-care costs are the primary challenge to solving the long-term problems facing the federal budget. Affordability insurance will only make the problem worse.
Affordability insurance is a promise that the government will be hard-pressed to keep. As fiscal pressure grows, the government’s choices will be to raise taxes, cut other spending to make way for more health spending, or use the tools that only government can use to control health-care costs. While private insurers have to negotiate with medical providers, government can impose prices. And government can turn to a range of options that get lumped together in the public discourse as “rationing.”
Instead, Congress should heed the lessons learned in the area where affordability entered the public-policy vocabulary — housing. The notion that something is a necessity and government should make it affordable has its origins in the living conditions of the urban poor. Urban reformers nearly 100 years ago studied household budgets and found that low-income families typically spent larger shares of their incomes on housing than better-off families did.
To fix this problem, housing advocates began by having the government build housing and charge families a percentage of their incomes as rent. It didnÂ’t work; housing projects with names like Pruitt-Igoe and Robert Taylor Homes came to symbolize well-intentioned government help that made lives worse.
Over time, it became apparent that we were unlikely to build our way out of the affordability problem. Governments moved from building affordable housing to helping people pay for housing that already existed. This encouraged families to decide for themselves how to make tradeoffs between location, size, and amenities. Some families prefer more space and accept a longer commute in return. Some landlords install granite counters; others offer old kitchens at a lower price.
An affordable approach to health-insurance subsidies would follow this housing-subsidy model: Congress should look to the choices people make to define the affordability gap in dollar terms, and leave the decisions about what to buy with those dollars to those who get the subsidies. Year by year, the budget process can decide how many subsidies, the government should give, and for what amounts.
The result will be sure to disappoint the most fervent supporters of health-affordability subsidies. Government would not guarantee a set of benefits, regardless of their cost, the way the current bills do. Instead, government would challenge those who get subsidies to get the best plans they can. These new participants in the health-insurance market, with incentives to be careful about cost, would create demand for new kinds of insurance products.
Housing is as much a necessity as health care, and we seem to have gotten by with our approach to housing affordability. Unless and until the discipline exerted by households trying to balance their budgets determines affordability, affordability insurance has no chance of being affordable.