Safety Net Health Care as Low-Quality Universal Coverage: Can it be Optimal?
- Presenter:
Chair: Catherine McLaughlin; Discussant: Stephen Zuckerman Tue June 6, 2006 8:00-9:30 Room 226
Despite decades of national debate about creating a system of universal health coverage, a substantial segment of the US population remains without formal health insurance. The persistence of this situation suggests that in some sense universal coverage is too costly to be provided in political equilibrium. Yet the uninsured have some access to health care beyond what they can pay for, through social safety net institutions, largely publicly funded (Hadley and Holahan, Health Affairs, 2003). The health care safety net can in fact be viewed as providing some level of health insurance for all, albeit at a low quality level, arguably lower than many of the uninsured would choose for themselves if the safety net did not exist.
This paper explores, using theory and numerical simulations, the conditions under which a low quality safety net can be part of an optimal income redistribution scheme. Safety net health care is modeled as a publicly-provided good which consumers may accept or opt out of, but may not supplement (that is, those who acquire their own insurance do not have access to the safety net). In a model of optimal nonlinear income taxation, with two types of individuals distinguished by ability, public provision of a private good without supplementation can only enhance social welfare when demand for the good has certain characteristics that do not seem to apply to health insurance. However, if available policy tools are more limited (for example, if only an optimal linear income tax is available), public provision of a good at a level that those of low ability will accept but those of high ability will not can be social-welfare enhancing under broader conditions. Nonetheless, depending on various parameters, it may not be possible to improve upon what can be accomplished with tax and cash transfer policy alone, or optimal public provision may be at a higher quality than consumers of low ability would choose for themselves. I explore the sensitivity of (a) whether such public provision of a safety net can be welfare-enhancing and (b) the optimal quality of the safety net, to several factors, including: the distribution of abilities in the population, the income elasticity of demand for health insurance and its substitutability with leisure, the wage elasticity of labor supply, and the degree of aversion to inequality in the social welfare function. The implications for optimal public coverage of an inability to commit not to provide some minimum quality safety net (because of a Samaritan’s dilemma (Coate AER, 1995)) are also explored. I comment on the relevance of the findings to the current US health care financing system.
