Another month, another bank rescue. Seven weeks after the government rescued the depositors of Silicon Valley Bank, it swept in to keep First Republic Bank from freefall early on the morning of May 1, brokering a sale to JPMorgan Chase while absorbing most of its losses. It’s what we expect the government to do: step in to reassure the public that the nation’s political and economic might are there to prevent outsized risk from turning into wider catastrophe. When the magnitude and systemic character of the risk are more than private institutions can reasonably bear, the government takes over—even, in the case of Silicon Valley Bank, protecting depositors who held more than the Federal Deposit Insurance Corporation insurance limit.
Yet when the cost of medical catastrophes is more than ordinary Americans’ insurance coverage can sustain, the United States fails to reinsure their health plans. The runaway costs of outlier health events famously drive up insurance premiums and lead insurers to deny benefits covering the most desperately needed and expensive treatments. Rather than absorbing and spreading these costs, this country leaves families and employers exposed to denials, even bankruptcy, and allows these individual catastrophes to destabilize systemwide access to private health coverage.
I have worked on or written about U.S. health policy for a quarter of a century now, and whenever I point out that Americans should enjoy the right to state-guaranteed absorption of ruinous medical costs, I can count on some version of the following response: “Indeed we should, but it is just not politically realistic to expect the government to guarantee a claim to economic resources, when the U.S. has only ever viewed rights as freedom from the heavy hand of the state.” But the events surrounding the recent bank runs, and the long American tradition of government reinsurance in which they are embedded, reveal otherwise.
In domain after domain, we in the U.S. rely on government to provide robust material guarantees against catastrophic risk—if not to the individual beneficiary, then to the primary private insurer or financier who provides access to those goods or services. When mortgage crises lead to a housing crunch, when drought jeopardizes farming and the food supply, or when pension funds run short of promises to retirees, the federal government routinely stabilizes the public’s access to these vital benefits. These commitments suggest not a reluctance to intervene but instead a well-established American belief in the concept of “the government as reinsurer of last resort.” Whatever we may call them—state loan guarantees, mortgage insurance, state-sponsored secondary markets, risk-corridors, price supports—these devices all function as government “reinsurance” in the sense that high-loss, catastrophic cases are offloaded onto government to stabilize the underlying private risk market.
Why does this commitment stop at the hospital door? In the light of these other guarantees, the nation’s failure to provide robust, explicit, and permanent state-sponsored reinsurance for health care is an unwarranted withdrawal of the state’s power and obligation to absorb high-magnitude losses, smoothing out and shoring up the underlying private risk market. Health reinsurance was proposed by Dwight Eisenhower, showcased by John Kerry as the centerpiece of his presidential campaign platform, and included as one of the main stabilization devices in the Affordable Care Act—though those provisions ultimately sunset much too soon. According to both experts and insurers alike, the price of ACA exchange plans would have soared without transitional reinsurance to anchor the program’s launch. The idea of a health reinsurance stability fund has even enjoyed broad state-based and Republican support. It is high time we furnish it as a guarantee to all Americans.
Government backstops in nonhealth domains reach back even further in our history. The FDIC, as we have been reminded recently, dates back to the Great Depression. But the idea of the FDIC draws from a deeper and broader reservoir of expectation that the government will stand behind our institutions to guarantee baseline stability from catastrophic disaster loss. As the legal historian Michele Landis Dauber details in her book The Sympthetic State, there is a long history of congressional appropriations based on the principle of disaster relief for “blameless victims of Providence,” predating even the New Deal—for causes as diverse as the New Madrid earthquake of 1811, the Great Chicago Fire of 1871, or the cotton-price failures of 1914. Indeed, the perceived unfairness of government backing for so many others and but not yet extended to depositors at that time was precisely what led to the creation of the FDIC, as Rep. Robert Luce of Massachusetts explained in the legislative debate at that time:
I have seen insurance extended in every direction … and I fail to understand why the depositors in a bank, persons who have no opportunity to know, who have in fact no knowledge about the interior affairs of the bank … should not be insured against mischance that they cannot guard against and prevent.
Once the FDIC was established, other interests pressed to extend the model further. The United Auto Workers, in their bid to insulate their promised pensions from employer underfunding, proposed “establishing something like the Federal Deposit Insurance Corporation to backstop private pension plans.”
This logical progression evinces an understanding that government aid in the event of loss beyond a certain threshold is a matter of principle, or, in other words, a right—something we owe someone out of fairness, because the last person in like circumstances received the same thing. And, as I argue in my just-released book, this cross-sector extension should be applied to health coverage.
We should ditch the tired bromide that a right to health is impossible in the U.S. There was no right to bank insurance, either, until banks and depositors not only conceived of but also redeemed on their expectations of affirmative government assistance, based on the evidence of government backstopping for other catastrophic risks. Surely medical coverage, which addresses the most intimate and fundamental of all risks, is another area where we must urgently press the claim. Funding for past reinsurance has been creative and multifarious, lodged sometimes in Federal Reserve powers, sometimes in program authority to recoup through future premiums, or borrowing authority from the U.S. Treasury. Reinsurance programs may also draw from emergency appropriations, entitlement spending, or even the Court of Claims Judgment Fund.
Suffice it to say that when catastrophe strikes, government has stepped in to shore up these critical nonhealth institutions without getting too bogged down in technical funding niceties. Health security is at a grave disadvantage if we fail to furnish the same advantage. Given all the sectors in which government reinsurance is already a fact of life, health-care risks should at least be on equal footing.