Health insurance has emerged as a central issue in the Democratic presidential primary contest. The major candidates are divided between those who favor a national health-insurance system — commonly referred to as Medicare for All — and those who favor letting the government compete with private insurers, sometimes known as the public option. Either way, Democrats seem certain to make a big push for some sort of expansion of health insurance.
The typical justification given for national health insurance is that it would make coverage universal. Though Obamacare reduced the uninsured population significantly, about one out of 10 non-elderly Americans still lack coverage. Another oft-cited advantage is that national health insurance would require lower out-of-pocket payments — deductibles and co-pays — than most private plans, reducing hassle and anxiety. A third selling point is that national health insurance would be funded largely through taxation, meaning that there would lots of redistribution, with the wealthy and the upper-middle class paying for the health care of lower-income Americans.
National health insurance thus seems designed to appeal to socialists and other skeptics of the market economy. But it also might appeal to capitalists, because taking health insurance out of the private market could boost entrepreneurship and make the labor market more flexible.
The U.S. private sector has grown less dynamic in recent decades, marked by a decline in new business formation.
Entrepreneurship is the soul of capitalism; it holds the potential to make normal people rich. Without that promise, capitalism loses much of its appeal.
Health care might have something to do with this decline. A majority of non-elderly Americans now get health insurance through their employers:
The employer-based insurance system tilts the playing field against entrepreneurs in two ways. First, someone starting a new business will have to search for and select a plan filled with arcane and technical language that can be almost impossible for an untrained person to grasp. But even more importantly, the employer-based system absorbs many of the costs and risks of coverage, which then tend to shift to the entrepreneur who strikes out on their own.
Starting a business is a risky proposition, and half fail within five years. There’s also a huge commitment of time, and usually a major commitment of personal wealth. If a business fails, an entrepreneur will suddenly be without an income, and most or all of the capital invested will vanish. No income and no employer means no health insurance.
Adding the risk of losing health insurance to the inherent risk of starting a business makes entrepreneurship all the more daunting. For someone who’s on the fence about staying in at a corporate job or leaving to start a business, the comfort of the employer-sponsored health plan can tip the scales in favor of the low-risk path.
There is a growing body of evidence to support the idea that national health insurance would boost entrepreneurship. Researchers at the Kauffman-RAND Institute for Entrepreneurship Public Policy found that people who get health coverage through their spouses are much more likely to strike out on their own, as are people who qualify for Medicare. Meanwhile, a reform in New Jersey that made it easier to purchase insurance independently has boosted self-employment. A nationwide program to provide insurance to low-income families with children also appears to have increased entrepreneurship.
National health insurance would act like these programs, but on a grand scale. Aspiring entrepreneurs would no longer have to worry about getting their health insurance from their spouse, or buying a costly plan on their own in the private market; it would just be there, in the background, providing a safety net that makes the prospect of starting a business less frightening.
Similarly, national health insurance would also make it easier to switch jobs. Quitting your job to look for a better one can mean losing your health insurance — a scary prospect, particularly for those with chronic medical conditions. Economists have found evidence that the employer-based health system locks people into their jobs. This not only gives employers more power to hold down wages, but it contributes to the nationwide trend of declining job mobility. Worker who are reluctant to move to the best jobs make the economy less productive.
Our current health insurance system is holding back capitalism. That system could be eliminated simply by ending policies that subsidize employer-based insurance, of course. But without a good replacement, the health insurance market will be plagued by the old problems of overpricing, market breakdown and inequality. Entrepreneurship and job-switching would still be out of reach for many without personal wealth or family support.
Instead, national health insurance — of the kind that has been successful in many other developed countries — would remove health risk from the decision to start a business or switch jobs. It would free Americans to pursue their capitalistic dreams. A dose of national health insurance might therefore be just what the free market needs.