HEALTHCARE CAGE MATCH….DAY 2….Our story so far: one of the features of Ezekiel Emanuel’s Universal Healthcare Voucher proposal is that while it is a universal healthcare plan, it preserves the role of insurance companies in the system. This is a problem. It turns out that my readers think the proper role of insurance companies is to be dismembered, their office towers reduced to rubble, and their executives fed to the wolves.

My first instinct was to chalk this up to irreconcilable differences and move on to another, hopefully more tractable subject. But no. Instead I want to drill into this in more depth, because it’s clearly a critical feature of his proposal. In fact, if I can simplify more than Zeke would probably like, the rest of his proposal is fairly ordinary national healthcare, much like France’s or Canada’s. It’s the role of insurance companies that really sets it apart.

I’ll confess that my initial instinct was pretty much with my readers on this: I’m skeptical that insurance companies provide any added value in the healthcare industry. But there’s a thread of an argument running through Zeke’s posts that I’d like to tease out, because the more I think about it, the more interesting it gets. Let me take a shot at it.

To begin with, the default version of national healthcare is a simple single-payer system: when you get sick, you go see a doctor and the doctor sends the bill to the government. If you need a specialist, you get a referral and the specialist sends her bill to the government. A government panel of some kind decides what procedures are covered and how much doctors are reimbursed for them.

The problem with this system is that there’s no competition. Everyone offers the exact same services based on whatever’s allowed by the government panel. Everyone gets paid the same amount. If your service is so bad that you have no patients, then you’ll go out of business, but that’s about it.

Instead, what if we had, say, ten or twenty healthcare providers, all offering different plans? They’re still tightly regulated, and there are minimums that all of them have to offer, but they’re paid enough that they can afford to offer more than just the minimum.

This means that beyond the required minimum, they can innovate. Plan A networks its doctors together HMO style. All your services are available in a single building all at once! Plan B offers incentives for preventive care and covers acupuncture. Plan C specializes in low income workers and offers free taxi service to take you to your appointments. Plan D has high doctor-patient ratios but also offers more services, while Plan E is just the opposite. They all have an incentive to cut costs because their government reimbursement is a set amount, but they also have an incentive to offer state-of-the-art services in order to attract more customers than their competitors.

The downside of all this is that insurance companies are for-profit enterprises. If they ring up profits of 5%, that’s 5% of total spending that could have gone to healthcare instead of insurance company stockholders.

On the other hand, competition and innovation should more than make up for that. It does in other industries, after all. The end result is that consumers end up with more choice and better quality because there are dozens of companies competing for their business.

So here’s my question to Zeke: do I have this right? Is this the argument you’re making? Or are insurance companies just a necessary evil because you think Americans will never support a European-style single payer plan?