While President Bush devoted all of about 45 seconds to health care in last night's speech, the White House followed up with a more detailed explication of Bush's points in a news release last night. Over at the Washington Monthly, Kevin Drum argues that these proposals don't sound so bad, aside from the fact that they are just too small and incremental when compared with the size of the problems we face. That the Bush Administration is proposing something so little for a problem so big is something that has been discussed a good bit in recent days, and it is an important point. But there is more to the story. What the Bush Administration knows is that in health insurance, incentives matter. Bush's proposals would tweak incentives towards a particular vision of the American health system that, if played out in full, could make health care access even less equitable than it already is.

The conservative vision of health care is of an invigorated individual market, where people are free to purchase the health insurance policy that best suits their individual needs. In particular, expanding health savings accounts, changing the tax incentives for health insurance, and allowing people to purchase insurance across state lines are policies aimed at inching us closer towards that goal. This vision may, at first blush, conceptually appeal to the American ideals of individuality and choice, but in practice, it could completely alter the purpose and effectiveness of insurance.

Group health insurance (such as employer-based coverage) spreads risk among people of varying age groups and health statuses. Employer-based coverage is certainly less common than it used to be, and there is much evidence that it will continue to erode in the coming years, leaving more workers uninsured. This is a serious problem, and ultimately de-linking health insurance from employment is not a bad idea. But Bush would set the incentives in such a way, despite the rhetoric about allowing employers to contribute more on behalf of employees with chronic diseases (employers would like to spend less, not more on health care) and his proposal for Association Health Plans (employers are actually free to band together now if they want; what his AHP proposal would do is exempt them from state benefit mandates, but that's a story better left for another post) that has the potential to make things difficult for people with high health needs. The labor market has changed dramatically since employer-based coverage became the norm in the 1950s, and what we need is an alternative mechanism to group people of varying ages and risks for insurance purposes. The ill-fated Clinton plan featured such a mechanism, and most comprehensive health reform proposals do.

What the Bush vision would do, however, is hasten the demise of the employer-based system and replace it not with another grouping mechanism, but with strong incentives for people to enter the individual insurance market. Yes, what he proposed yesterday was a small step, but it was also a nod in that direction. Let's take, for example, Bush's proposal to offer a refundable tax credit of up to $3,000 to purchase an HSA-compatible policy. While I tend to think this proposal probably falls into the same category as Bush's call to renew the assault weapons ban (he knows it will never pass a Republican Congress, so why not get compassion points for suggesting it), let's give him the benefit of the doubt. If this tax credit could be used for any type of insurance, including group insurance, it would actually be a fairly good idea and one on which progressives should absolutely hold his feet to the fire on delivering.

But it can't--it is to be used only for an HSA-compatible policy. If this were in place, some employers (probably smaller employers) may simply stop offering coverage, pay their workers a little more, and send them off to the individual market armed with their new tax credit. For, say, a 23-year old male who expects his contact with the health system in the coming year to be limited to two dental cleanings, fine. But what about a 57-year old woman with a chronic disease? In some states, she could be turned down outright for insurance on the individual market. In others, she would just be charged a lot, possibly more than she could reasonably afford even with a tax credit. And now let's say these two individuals worked for a company that decided to keep offering insurance. Turning down that insurance and taking a tax credit to the individual market may turn out to be a better deal for our 23-year old male, but it definitely would not be for our 57-year old woman. Which brings us to the name of the game in insurance: adverse selection. If all the young and healthy people leave group insurance for the individual market, that could send group insurance into a death spiral.

In a sense, all roads lead towards adverse selection in the conservative vision of health policy. It's as if it is part of the goal. Of course, Bush's proposals are only a first step towards that goal, and I know this all sounds very doomsday. But if carried out over time with more and more incremental incentives, these policies will indeed make health insurance accessible and cheap for those who have low health needs and at least some money to spend. But what about those who don't? What sort of social contract is that?