The Private Option

By Kevin Williamson

Tuesday, December 05, 2017

It’s the early 1990s, and a young man is sitting in a human-resources office at the Coca-Cola Company, which has just offered him a terrific job. But he is nervous. He begins asking his HR liaison a series of open-ended questions. That got the HR guy’s attention, inasmuch as young men being offered great jobs right out of school generally were not too fussy about the health benefits. “What is it we really need to talk about?” he asked.

The young man had just learned that he had HIV, which, in the 1990s, was still very often a death sentence. He worried that the disease would render him uninsurable, and might even prevent Coca-Cola from hiring him. HR responded with something like: “I’m very sorry to hear about your situation. It’s a terrible disease. But we’re the Coca-Cola Company. We have 100,000 employees, and hundreds of thousands more employed by our bottlers. Our sales are in the billions. Our market cap is larger than the GDP of a lot of countries — real countries, countries you’ve heard of, like New Zealand and Vietnam. We sell Coke. Do you know how many countries we do business in? It would be easier to list the ones we don’t do business in. Nobody is uninsurable for us. You think you’re the first HIV-positive employee we have?”

The new employee’s concerns were not unwarranted. At the time, people with HIV were finding it very difficult to get insurance, and the lengths to which insurers were going to identify applicants with a high risk of HIV were both ghastly and comical. As the New York Times reported in 1989: “The Great Republic Insurance Company of California issued an internal memorandum in 1985 citing concern about AIDS and requiring a special questionnaire for single men without dependents whose jobs entailed no physical exertion. The memorandum gave as examples florists, interior decorators, antique dealers, jewelers, fashion workers, hair dressers and restaurant employees.” If you want to know why some people hate capitalism, ask the Great Republic Insurance Company of California, your cable company, or those clowns at Equifax.

Coca-Cola, a business enterprise today worth $200 billion, has a long history with HIV, in fact. Around the turn of the century, the company was stung by criticism that it wasn’t doing enough to provide health care for HIV-positive employees in sub-Saharan Africa, where it is a major employer. Coca-Cola made expensive antiretroviral therapy available to its corporate staff but not to their dependents, while workers employed by its bottlers often were excluded. Coca-Cola responded not only by addressing its own immediate situation but by becoming a corporate leader on the issue of HIV and AIDS. It waives HIV exclusions in its insurance contracts at home and overseas, and, together with its foundation, helps ensure that medication and treatment are widely and easily available to its employees and their families.

(In addition to money, the company also lends its irreplaceable logistical support to HIV treatment and other health-care projects in the poorer corners of the world, helping to make sure that medicine can get to all the places that its products go — and Coke goes everywhere.)

Coca-Cola is able to provide excellent benefits to its employees because the sugar-water business is wildly profitable and because the company carefully manages its program. Coca-Cola is big enough to act as its own insurer through what’s known as a “captive,” a separate company that exists only to insure (or reinsure) the risks of the parent company. Coca-Cola uses its captive, Red Re, to handle its worldwide health-insurance benefits, life insurance, and, under an agreement with the Labor Department, its domestic accidental-death and -dismemberment policies. That allows the company to pay the “real cost of providing benefits,” as its director of global-benefits financing and asset management (now there’s a corporate job title!) put it in 2015, rather than funding a profit for a third-party insurer. Business smarts, managerial discipline, philanthropy — there’s a lot going on there, and each of those pieces matters.

Bernie Sanders may call himself a socialist, but there’s a slightly different shade of red that might be of some interest to him and to like-minded progressives, one that symbolizes the best that capitalism has to offer. Why not buy the American people a Coke?

Call it the “private option.”

***

My colleague Jonah Goldberg wrote a great book arguing that our modern progressives are the intellectual and political heirs of the Italian Fascists and like-minded 20th-century national-socialist movements, not because we expect to see Nancy Pelosi stomping up Pennsylvania Avenue in jodhpurs and jackboots (amusing as that would be) but because they adhere to the Fascists’ basic economic-political theory, which is corporatism. “Corporatism” is a generally misunderstood word, one that often is used by left-wing critics of free enterprise to mean something like the opposite of what it actually means.

“Corporatism” does not describe a system of exploitation by ruthless, profit-seeking business corporations. The corporazioni that give it its name were what we would in English call guilds, such as the Arti di Firenze and other corporazioni delle arti e mestieri. The Fascists believed that medieval Italian cities had risen to glory in part by using the state to coordinate economic activity across critical sectors in the public interest, with everyone getting a seat at the table: something for the bankers and the traders, sure, but also something for the laborers, the craftsmen, the shippers, and, of course, the prince.

The idea survives in the modern nomenclature of such sacred progressive cows as the Corporation for Public Broadcasting, the Legal Services Corporation, and the much-lamented Reconstruction Finance Corporation, all of which behave (or are supposed to behave) in a way roughly opposite of what left-wing critics of capitalism would expect from a regular business corporation, i.e., as selfless servants of the public interest.

The Italian corporazioni were intended to be (see if this sounds familiar) above ideology and politics, guided by dispassionate experts and committed pragmatically only to doing what works. There’s a strange romanticism in that pragmatism, then as now: “I take it Rossoni gets more done than all the rest of us economists because he does not allow himself to be too far distracted from the particular and material realities of his grain, his wool, his ersatz wool made out of cow’s milk,” wrote the American poet and Fascist propagandist Ezra Pound. “The superiority of these Corporate State fellows over the Gesellites and Dougites is that they are not the least afraid to discuss other ideas. . . . The economic sectaries are all drying up on the stalk from ortodossia praecox.” The allure of this method to Pound, and to progressives, is that it either eliminates the profit motive or yokes the profit motive to the public good, leaving “the state able to use these materials as it needs them,” as Pound put it.

Bigness was big in the 1930s, when Pound was writing the above. Government was bigger than it ever had been (the absolute monarchs of old, for all their pretenses, never had anything like the Internal Revenue Service or the Bundesbank), and the largest business corporations had become truly multinational. What often is overlooked is that the progressives of the era had conflicted views about big business, especially the biggest kind of business: the monopoly. Teddy Roosevelt and others made a priority of trust-busting, but the idea of using heavily regulated corporate monopolies to provide goods and services in the public interest was in many progressive circles considered not only desirable but self-evidently enlightened.

Progressives had a terrible fear of something they called “destructive competition,” and that shaped hallmark Progressive-era legislation such as the Federal Communications Act of 1934, whose authors spoke warily of “destructive competition which may be recognized and curbed by the Federal Communications Commission.” The elimination of competition was seen as rational, an enlightened and necessary public service. Henry Carter Adams, an eminent economist at the University of Michigan, argued in the late 19th century that “the cost of movement is in direct inverse ratio to the amount moved. The cheapest possible transportation [comes from] directing the largest possible volume of movement through the fewest possible channels.” Therefore, “competition and the cheapest possible transportation are wholly incompatible.” The best way to run a railroad, this line of thinking goes, is as a heavily regulated monopoly serving the public interest intentionally rather than the Adam Smith model in which competing firms serve the public interest unintentionally by seeking their own interest. Adam Smith was not in good odor in the Progressive era. For progressives of that period, there were too many companies investing too much in the way of both money and physical resources in trying to outdo one another in building a slightly shinier object at a slightly lower price. One gets a whiff of the same thing today in Senator Sanders’s complaints about the number of brands of deodorant for sale. You also hear it in progressives’ praise for the purported efficiency of Medicare, which doesn’t have to spend much money on things like advertising and marketing, which many progressives see as essentially wasteful and irrational.

We think a little differently about monopolies now: We want to have lots of choices in most things, and regulation, at the FCC and elsewhere, is directed at encouraging competition and preventing the emergence of monopolies and near-monopolies. Bigness, we know, isn’t always desirable.

But the lesson of Coca-Cola — and a thousand other big corporations, along with government-employee benefit plans and similar entities — is that bigness is very desirable in insurance. The woefully misnamed Affordable Care Act was intended in part to help create large insurance pools that would help spread out the cost of caring for the most expensive patients; many conservative proposals, such as allowing for the sale of insurance across state lines and encouraging association plans, are intended to achieve the same thing: big pools. Insurance needs big pools for two reasons: First, because you need large numbers of people to make accurate actuarial forecasts; second, because insurance works financially only if the overwhelming majority of people in the pool are healthy. The idea is that everybody pitches in even though they are healthy 95 percent of the time, because everybody ends up in the other 5 percent eventually. We all get old and sick, but we’re not all old and all sick at the same time. If you’re Coca-Cola, or if you’re the public-school employees of California, you have plenty of healthy premium-payers to support your sick members, even when they get something truly bad like HIV or cancer.

Coca-Cola’s solution, with its “captive” insurance company, is in some ways consistent with that old 1930s progressive view: Rather than go into the marketplace, Coca-Cola in effect created its own heavily regulated monopoly, and a corporation is thereby freed from the drive for profit and liberated from marketing budgets — two of the virtues of Medicare that appeal most to progressive health-care reformers. Those virtues, along with the absence of big executive-compensation packages and other expenditures, allow Medicare to operate with far lower administrative costs than private insurers. (That it actually does so is a matter of some debate.) There is no “destructive competition” in Medicare, because Medicare has no competitors. It is something like Professor Adams’s natural railroad monopoly: The higher the volume, the lower the cost per unit. The idea behind the “Medicare for All” version of health-care reform is to make Medicare into a kind of Coca-Cola employee-benefit program for the American people as a whole, and one can understand the attraction of such a model: Coca-Cola employees have excellent benefits, and most Medicare patients like Medicare pretty well.

Progressives would like to see the federal government create a kind of national mutual-insurance corporation, owned by policyholders and reinvesting any profits into better services or reduced premiums.

That’s the best case for the “public option,” progressives’ favored post-ACA health-care plan: It’s universal, so it creates a big and potentially efficient insurance pool; it takes profit and many business costs out of the equation; it takes care of the pre-existing-conditions problem and simplifies the individual mandate with a much more forthright tax; it offers the possibility of consolidating many different health-care and disability benefits into a single entity with the market power to command lower prices. And advocates for the program will say that there is some appeal for conservatives: It involves the government in the financing of health care but leaves the delivery of actual services to the private sector, unlike in the United Kingdom’s National Health Service and other state-run monopolies; while the program would no doubt prove difficult for private-sector firms to compete with, it does leave open room for competition from independent insurers, for supplementary policies, and for other health-finance products, all of which would benefit from the expected lowering of medical prices and the presumptive movement of the sickest and most expensive patients onto the public plan; it would reduce health-insurance burdens on business and remove a source of financial and regulatory uncertainty for investors and business managers; it would mitigate a financial anxiety for American families that seems out of place in our prosperous and peaceful society.

Obamacare has been unraveling in a way that is the reverse of how one falls in love or goes bankrupt: all at once, and then slowly. It was an ineptly constructed mess from the first day, shunted through Congress on party-line votes lubricated by procedural and accounting gimmickry that ensured enduring opposition. That opposition is not only partisan: As people began losing their health-insurance plans and seeing their premiums soar, and as Barack Obama’s promises (“If you like your plan, you can keep your plan!”) quickly were exposed as cynical lies, disenchantment with the program spread well beyond partisan Republicans and conservative ideologues. There was the fiasco of the initial rollout and the pure kulturkampf attempts to extort religious people and organizations into funding abortion and contraception. Bits of the program were found to be in conflict with prior laws and the Constitution, and parts of it were repealed or indefinitely delayed. One of the ACA’s core provisions, the individual mandate, will be repealed in the Republican tax-reform bill.

Republicans won election after election running against Obamacare, and then . . . nothing. Or nothing much. Disharmony within the party and a lack of coherent policy leadership from the White House (to put it gently) found Republicans unable to agree on an alternative. But with the ACA regime disintegrating, progressives, including elected Democrats such as Senator Brian Schatz of Hawaii, are coming back for another bite at the apple, and it is likely that they will press for the public option.

Where we find ourselves is in a more radical version of 2009. The Republicans have a mad president, and the Democrats have been driven mad by him. The hysteria surrounding the Republican tax plan (which is not very good, but is not the Cambodian genocide, either) probably offers only a taste of what the coming health-care debate — and it is coming — will be like.

Perhaps there are some answers to be had from Coca-Cola.

***

Conservatives should not, and will not, support a public option, a “Medicare for All” initiative. There are good reasons not to, chief among them the actual cost of Medicare today as opposed to its projected costs and the sobering unfunded liabilities of the program that result from our habitual refusal to pay for it. Social Security, too, was sold as a kind of mutual-insurance program, rather than the straight-up welfare-transfer program it is.

But conservatives, especially Republican elected officials, should not repeat the mistakes of 2009.

In 2009, Republicans went into a battle of ideas practically unarmed. There are a dozen conservative and libertarian health-care programs sitting on various shelves in and around Washington, but Republicans could not be bothered to phone up the Cato Institute or the American Enterprise Institute or whomever to discover what they were. (Democrats still howl endlessly that the Affordable Care Act was a conservative plan, a product of the Heritage Foundation, which is not entirely accurate.) Instead, the Republicans offered up a parade of elderly white guys in dark suits and solid ties all repeating the same mantra: “We have the best health-care system in the world!” Politically, that was malpractice: The American people had just selected as their president a nobody ward-heeler from Chicago in part because he promised to make substantial changes to the American health-care system, which inflicted and inflicts upon the American public a great deal of uncertainty about costs and coverage and which, by linking health insurance with employment, makes losing one’s job a double catastrophe. President Obama’s case against the status quo ante is that it burdened Americans with expenses and anxiety that were very hard for many ordinary people to bear and unbearable for the least and most vulnerable among us. Republicans, normally so attuned to middle-class anxieties — and what is today’s Republican party if not the party of a certain very particular shade of anxiety? — simply ceded the field to the Democrats, who set about incompetently trying to adapt the Swiss system of mandates and subsidies to American political realities, one of which is that the United States is not full of Swiss people but is instead full of Americans, who have pretty mixed feelings about mandates. As the ACA fails, conservatives and progressives both are returning to square one on health care. Progressives know what they want.

Do conservatives?

In fact, we want many of the same things. Which is to say, conservatives want to achieve with their policies many of the same outcomes that progressives would hope to achieve with a public option: less anxiety, more security, better outcomes, lower costs, a more predictable and stable environment for families and businesses both, more intelligent management of risk. There are some progressives, maybe a third of them, who have other priorities that we do not share, e.g., those who simply are scandalized by profit-seeking in health care per se, who feel that big executive paychecks are more or less criminal in and of themselves irrespective of other factors, and who habitually seek to expand the size of the public sector and to subject private enterprise to it. (They don’t really want a public option, either: They want the National Health Service, if not the Semashko system.) We’ll never bring them around, because they think conservative ideas are not wrong but evil. They’re jihadists, and there’s no reasoning with them. But assuming good-faith interlocutors on both sides — and assuming our nation can for a moment get over the tantrum that currently passes for politics in this great republic — there is an opportunity to build a reasonable, enduring settlement on health care.

Progressives are of two minds when it comes to relations between employers and employees. On the one hand, they like burdening employers with mandates to provide social services, which allows them to implement an off-the-books welfare state. (What did you think the minimum wage was all about? Labor costs?) On the other hand, they dislike empowering businesses in a way that gives them a whip hand over their workers — our modern progressives are corporatists who loathe corporations. (Except for CPB and the other corporazioni.) Conservatives here are mostly more resolute, at least on the matter of health insurance: We desire to liberate the employee from his employer, to make health insurance portable. But that spooks progressives a little bit, because it puts them in mind of an individual lost and bewildered in a vast marketplace with no paternalistic agency (the state, the employer acting at the state’s direction) to look out for him. They want bigness in health insurance. We could try explaining to them that the employer’s economic interests in designing a health-insurance program are bound to be something other than identical to the employee’s interests, and that a large number of firms competing in a robust marketplace would — that old Smithian magic! — serve the individual’s interest by trying to secure their own interests. They won’t buy that, even though it’s true. But the desire for bigness could be met in part by a radical expansion of “association plans,” something far beyond that contemplated by President Trump’s executive order on the subject.

Association plans are a bit like employer plans, but they are organized by groups of employers rather than by individual firms. Usually, those groups are industry associations that pool several small businesses into one larger insurance plan. For instance, some state bar associations offer group plans for law firms and their employees. These plans have many critics, and not without some reason: They are more lightly regulated than other kinds of insurance plans, which has made them a tempting avenue of fraud and other mischief. But that is an addressable regulatory failure, not a deep structural problem. The deep structural problem is continuing to rely on employers. The National Association of Realtors, which has far more members than Coca-Cola has employees, has tried and failed to organize a group insurance plan for its constituents. The problem is that the average NAR member is 54 years old, and, as the organization reports, “NAR has not found an insurer willing to offer an insurance program at a price that the membership would be willing or able to pay. . . . The structure of an association plan is also, by definition, very different than an employer provided plan. These differences have made insurers reluctant to offer a true group plan (guaranteed issue, uniform premiums, no health underwriting, etc.) to associations of independent individuals.”

NAR’s experience is worth considering at length:

Employees enrolled in plans at work (a) pay only a small portion of the premium, (b) have the premium withdrawn by their employer from their paycheck, and (c) cannot enter and exit the plan freely. The sizable subsidy encourages very high rates of participation by young and healthy employees who enroll and stay enrolled.

Insurers argue that actuarial data demonstrates that independent individuals who personally pay the full premiums tend to move in and out of the insurance market based on their personal financial circumstances and, most importantly, their health status and/or perceived need for health services. This is especially true when a plan is a guaranteed issue policy, i.e. you can’t be turned down. As a result, those most likely to enroll in a voluntary, unsubsidized group plan tend to be those individuals who are unhealthy (and most need coverage) and/or those who know that they need or want an elective procedure i.e. knee replacement, pregnancy, etc. Consequently, enrollees in this type of plan make claims at a much higher rate than is the case in an employer pool of a similar size. And as a result, insurers shy away from creating such plans.

Adverse selection: That’s the problem the Affordable Care Act tried to solve with the individual mandate. The Swiss system solves it with an individual mandate, too, with the key difference being that the Swiss enforce their mandate, with a compliance rate above 99 percent. They enforce it by telling you to sign up for an insurance plan and then signing you up for one without your consent if you fail to comply — and then suing you for the premiums you would have paid in the interim. (The Swiss also insist that the minimally compliant insurance plans, which are offered by private companies, be offered on a nonprofit basis; insurers make their money on the extras.) If you don’t want to have a tightly enforced individual mandate, then you either have to accept the exclusion of pre-existing conditions (so that people don’t game the system and forgo insurance until they’re actually sick) or come up with some other way to stop people going in and out of the insurance market opportunistically. The most obvious compromise there is to have an individual mandate with premiums withheld from paychecks and distributed directly to the sponsoring associations, with generous subsidies for poor people and children.

But here’s a needful thing: We should expand the range of eligible sponsors for association plans beyond employers to include nonprofits, churches, and other groups. The average NAR member may be 54 years old, but he also is many other things in addition to being a member of the National Association of Realtors. Perhaps he is a member of the Boy Scouts of America, which has 2.7 million youth members and nearly 1 million adult members and could probably offer a really good association plan. Maybe he’s a Republican: There are 55 million registered Republicans, median age . . . younger than the NAR’s, anyway, though not by much. If he’s a Hindu Republican Boy Scout, he’s in luck: There are 2.3 million American Hindus, and the median age of an American Hindu is 33 years. The median age of an American Catholic is 49, and the median age of an American atheist is 34 — insurance, like politics, may make for some strange bedfellows.

***

No matter how large or how young and healthy the pool is, trying to give Americans access to a Coca-Cola benefit plan without making them all Coca-Cola employees is not going to be cheap. Coca-Cola can do a lot for its people because it has $420,000 in annual revenue per employee and $65,000 in net profit per employee. The Boy Scouts and the National Model Railroad Association do not. But Medicare isn’t cheap, either: We spend between $11,000 and $12,000 per beneficiary per year. The country at large spends more than $10,000 per person per year on health care. Not everybody works for a wildly profitable company and takes a big chunk of his compensation in the form of health-care benefits. There isn’t going to be any getting around big subsidies for low-earning people, and there isn’t going to be any getting around fairly intrusive regulation, either. Again, the Swiss example is illustrative here: It is very much market-based — the 8.4 million people of Switzerland can choose from more than 100 privately issued health-insurance plans — but that market operates under very tight regulation, and not just the requirement that basic policies be offered on a nonprofit basis. There are community-rating rules (i.e., the rule that says you can’t charge old people a lot more for insurance), a pre-existing-conditions mandate, good old-fashioned price controls, and much more.

It will be expensive and difficult to design. It will require ongoing regulation. But a radically expanded model of association-plan insurance does give us the chance to offer something better than the public option: public options — lots of them. We need not concede that “public” is a synonym for “government.”

Where our progressive friends go wrong is that they’ve taken their 19th-century notions about the utility of heavily regulated monopolies into the 21st century, ignoring the experience of the time in between, a period of undreamt-of economic growth and opportunity which should have taught us, among other things, that there isn’t a single solution for complex matters such as health care and health insurance, because people have different needs and desires. American society has real diversity, not the shallow diversity of the corporate cultural-sensitivity seminar. But there is no reason that conservatives cannot address progressives’ concerns about health care, from their risk-aversion to their genuine concern about health-care access for the poor, since those also are fairly broad and deep concerns of the general public—and rightly ought to be ours, too. We do not have very many good examples in Washington just now, but we can treat the other side’s concerns with the seriousness they deserve and develop policies that address them, especially where they coincide substantially with our own. It isn’t only a question of letting markets work — though we really should let markets work! — but of also liberating all of the relevant Burkean little platoons to work on improving health care the same way we worked out how to build better cars and develop the Internet: with lots of individuals and institutions, public and private, each working intensely on a little piece, and then working on it again, and then working on it again, rather than trying to pass one big law or create one big program that solves it all at once for all time, or at least for a generation or two. Nothing really works that way.

It’s worth getting right, and not only for political and economic reasons.

I think of that young man, suffering from a terrible disease, and probably feeling that his life was beginning and ending at the same time, sitting in that HR office and worried that he’d be told, “There’s nothing we can do for you,” or, even worse, “There’s no place for you here.” Imagine what that felt like. (Now imagine being in the same position without the top-shelf job offer or even the remote prospect of one.) Amazing all the good those heartless, soulless corporations do. If a big business seeking to maximize its profits in the ruthlessly competitive soft-drink/Bulgarian-mineral-water racket can figure it out for its own people, including the ones with incurable terrifying deadly diseases, then surely we — and I do not here mean government exclusively — can figure something out, too, given that most of us aren’t even sick at any given moment. Yes, Coca-Cola is a blue-chip company. We’re a blue-chip country, and we should start acting like it again.

On health care, that means creating the conditions under which experimentation can happen and new solutions can emerge. That’ll be a lot easier to do, and our reforms will prove more enduring, if we can address the other side’s fundamental concerns, which begins with understanding what they really are — which begins with taking them seriously. Who knows? Maybe some of them will even repay the favor. But even if they don’t, somebody has to be the adult in the room and take responsibility. There isn’t really another choice — it’s not like there’s a policy vacuum for health care. Either conservatives will show some real leadership in the service of good policies, or we’ll have to resign ourselves to enduring bad ones, far worse probably than those created by the Affordable Care Act. “We have the best health-care system in the world!” wasn’t an answer in 2009, and “I still hate Obamacare” isn’t going to be an answer in 2018. We have examples of better approaches all around us. We’ll see if Washington has the inclination to learn from them and synthesize something we can all live with, and maybe even be proud of.