Health Insurance Market Not Ready for Vouchers
If Obama’s efforts to create a viable regulatory framework in which individuals can buy private health insurance (a) pass Congress, and (b) turn out to work well and be popular, then you can imagine a version of Ryan’s plan being put into place. But in the absence of that kind of reform, I just don’t see how you can do this, which is presumably why the implementation is delayed all the way to 2021 which helps Ryan avoid needing to think about implementation details." -- Matt Yglesias, writing about Rep. Paul Ryan's alternative budget
I think Yglesias actually makes a pretty strong point here. While I'm overall fairly sympathetic to Ryan's budget - he does, after all, balance it (at least according to the CBO report [pdf]), something virtually no other politician is willing to even propose - I think there is a fundamental flaw with implementing a healthcare voucher program without first fixing the broken, dysfunctional health insurance market. The exchanges created in Obamacare would be one way to do this.
What Yglesias does not point out, however, is that Ryan's budget proposal also puts an end to the tax exemption for employee benefits. Simply coupling this tax reform with the ability to purchase insurance across state lines creates an entirely new health insurance market. Suddenly people on the individual market are given the same tax preference as people who receive their insurance from an employer. Health insurance drifts away from employers and becomes personal and portable. People wouldn't lose coverage when they left their jobs. Meanwhile, insurers would lose their long-held local and state monopolies and be forced to compete nationally, driving down costs both through added competitive pressures and by the better bargaining powers that these large, national firms would have, with their much larger, national cost-sharing pools.
Of course, the hard questions in healthcare will center around two inextricably linked concepts - pre-existing conditions clauses, and individual mandates. Almost all modern democracies have some form of universal coverage, and the only way that it has been achieved with any semblance of a free market has been by doing away with pre-existing conditions clauses and implementing some sort of individual mandate. If the former is done without the latter, nobody would buy insurance until they were sick - defeating the purpose (and the viability) of insurance to begin with.
Other alternatives exist, of course. My personal preference is a model along the lines of Singapore's healthcare system, which mandates health savings accounts and then picks up the tab on any costs above a certain flat percentage of income. This puts healthcare directly in the hands of the consumer (cutting out insurance companies altogether) and provides them with catastrophic coverage if something should go wrong. Furthermore, by placing costs and transactions directly in the consumer’s hands, it keeps costs from skyrocketing. The mandated savings would be flat, but the catastrophic coverage functions progressively, covering less and less as income rises.
Either way, before any privatization of Medicare and Medicaid can occur, the private insurance market must be transformed. Paul Ryan has shown true grit in crafting a budget that is actually balanced, but the possibility of backlash to cuts in entitlements is very real if the systemic problems in our healthcare system aren't taken care of first. Both Yglesias and Ezra Klein see this budget as a sort of draconian rationing of benefits for seniors and poorer Americans. If the insurance market could actually be fixed, however, then the system of vouchers which Ryan proposes would be adequate and possibly even better alternatives to the status quo.