Can such a thing as a universal, affordable, high-quality health-care system exist? Most “realists” say you can have any two of these attributes, but not all three at the same time. Such realists are actually optimists: Building a system that accomplishes more than one of these three goals might be impossible.
Most universal systems are turning out to be unaffordable in the long run to the economies that support them. All across Europe, governments are trying to hold down the rapidly rising cost of their universal health-care programs. The number of things that medical science can do keeps growing, and many of the new things are more expensive than doing nothing used to be. To save money, universal systems limit available drugs and treatments or force patients to wait for them. A slow, systemwide decline in quality is the natural result.
Most affordable systems aren’t universal: They don’t cover the most expensive illnesses or the cost of long-term care for the aged—or they scrimp on the quality or timeliness of the care, or both.
Quality is in the eye of the beholder: Health-care systems everywhere, whether private or governmental, fudge their self-imposed standards of quality to cover more people or to lower the cost to the government.
At a more basic level, each of these high-sounding values has a flip side: Universal also means compulsory; affordable also means price controls; high quality also means expensive.
In the United States, which has never had universal government health care, we have experienced all the problems associated with universal health care and few of the benefits.
American problems with health care include high spending, rapidly growing higher, and questionable quality of care, even though the system fails to provide for large numbers of uninsured and underinsured people. American politicians are advocating a range of fixes, including tax credits, savings incentives, government mandates to be insured, new programs to provide health insurance or health care to everyone, and extending existing programs. None of these strategies commands a majority across the interested groups, which include consumers, health-care providers, insurers, employers who pay for health insurance, employers who don’t pay for health insurance, and, most importantly, lawmakers. The status quo seems to be everyone’s second choice, so that’s what we get.
At $2.3 trillion in a $14 trillion economy, the per-capita cost of American health care is the highest in the world, but even that’s not high enough to do everything Americans want it to do. They want health care everyone can afford, and they want as much health care as everyone can consume—cradle to grave, with emphasis on putting off death as long as possible.
Refusing to recognize this, the authors of reform plans have promised that they won’t drive up the total cost of American health care—which means they must rearrange it. Rearranging costs and benefits means creating winners and losers—and uncertainty. Interested parties will not support a plan that does not obviously improve their own situations. To everyone, except the minority of people gambling with their lack of health insurance, the status quo is more comfortable than gambling on reform.
Assuming we want universal, affordable, high-quality health care, do we really want a compulsory, price-controlled, high-cost health-care system? Aren’t we already too close to that? Universal, affordable, high-quality health care is an obvious political winner in the abstract, and so the twentieth century saw seven major presidential efforts to enact an American plan:
Theodore Roosevelt and the American Medical Association tried to create universal health-insurance plans state by state during the first eight years of the 1900s.
Some of Franklin D. Roosevelt’s most ardent New Dealers sought to include national health insurance as part of Social Security in the 1930s.
Harry S. Truman renewed the struggle in the 1940s but could not get his national health plan through Congress.
Lyndon B. Johnson’s Great Society enactments of Medicare (universal health care for people over 65 years old) and Medicaid (universal health care for impoverished people) in 1965 were the only victories for the cause.
Richard M. Nixon proposed mandatory employer-paid insurance in 1971 to cover catastrophic health expenses. He also proposed extension of Medicaid to all those not employed.
Jimmy Carter reformulated Truman’s plan in 1978, but his proposal could not compete with an energy crisis for Congressional attention.
The 1993 “managed-competition” proposal of Bill Clinton’s administration combined Truman and Nixon, with some differences in the details. It fell to intense opposition from the health and insurance industries, which would have had to deal with the expense of its complex system of economic subsidies and penalties.
Underneath this lack of political progress, the private health-insurance industry was growing, and it now covers more than half of all Americans: About 150 million are covered by employer-sponsored health-care programs, and about 25 million more pay as individuals.
Despite tallying only one victory among the attempts of seven administrations, the government side of the health-care system grew anyway. The federal government subsidizes employer-sponsored programs with a tax deduction (but there is no deduction for individual premium payments). More directly, using a payroll tax and general revenues, it pays most Medicare expenses for 40 million elderly and disabled people. Another 40 million very poor people are on Medicaid, whose costs are shared by states and the federal government.
More than 47 million Americans have no insurance, so when they seek care they go to hospital emergency rooms and public health clinics. Those institutions pass on what they can to Medicare and Medicaid if the patients are eligible, and then they build the cost of uncompensated care into the service charges they bill to all payers.
As complex as this description of our health-care system may sound, it is actually much more complicated. To sort out what is public and what is private in the health-care system is to invite a never-ending argument. More than half of Americans are in private health-care plans, but more than half the money spent on health care is tax money.
Americans spend about 15.3 percent of the gross domestic product (GDP) on health care—more than any other country. And more than 90 percent of health care delivered to American patients is paid for by somebody else—an insurer, an employer, or the government. Most patients incur only small cash charges compared to the price of their care. They do pay, but indirectly through payroll taxes, lower wages, higher income and sales taxes, higher prices for goods and services, and higher interest rates.
The national slogan for the existing American health-care system should be “This Is Not a Bill,” which is imprinted on so many statements from health-care providers. The confused recipients are invited to believe they’re getting something for nothing.
Can’t we imagine another system—a system in which we pay directly for what we get and know what we are getting?
One popular health care reform proposal might seem to qualify, but it doesn’t: A single-payer system of national health insurance pays all charges. Even simpler, a national health service can own all health-care institutions and employ all health-care providers. In these systems, citizens pay the government to make all health-care decisions for them. To a growing number of major employers, the prospective benefits of a national health-insurance system are starting to outweigh the costs. Ford and General Motors are joining the United Auto Workers union in support of the idea. They have noticed how much less of a direct health-care burden their Canadian employees and retirees are than their U.S. employees and pensioners. Perhaps they haven’t noticed that taxes are higher in Canada, in part because of the cost of Canadian provincial health-care systems.
In 2006, the Maryland state legislature passed a law forcing employers with more than 10,000 employees in the state to spend at least 8 percent of wage costs on employee health benefits or make a “contribution” of the same size to the state’s Medicaid plan for the poor. Wal-Mart was the only employer in the state affected by the law. Wal-Mart is unpopular among some politicians because it is resolutely antiunion and among some business circles because its low prices are hard to compete against. The state legislators who sponsored the law played on both resentments, but they did not say why they had singled out Wal-Mart on the basis of size, when smaller companies with better profit margins don’t pay 8 percent for employee health insurance.
This gave Wal-Mart a reason to look at national health insurance, which may have been part of the Maryland legislature’s point. Other states are considering similar action, and if it becomes a trend, all employers with less-than-generous health-care benefits will see that they could be next.
This is a new way of looking at the health-care issue—not as a crusade to extend a new right to all Americans, but as redistributing a huge burden that makes U.S. industries less competitive. As such, national health insurance is also gaining new adherents in small businesses, where health care’s share of labor cost often retards the creation of new and productive jobs.
Massachusetts took a different tack. In 2006, the state passed a law to make health insurance mandatory but also to make it affordable. The basic idea was to permit insurance companies to offer cheap policies with limited coverage and high deductibles. They cover hospitalization and other expensive treatments, relieving hospitals and private insurance of the bulk of their bad debts and relieving Medicaid of some of its expenses. The new plan also needed new money, and here the state applied the Maryland example: It levied a $295-per-employee “pay-or-play” tax on employers that don’t offer health insurance as a fringe benefit. It didn’t focus on Wal-Mart, but it did exempt businesses with 10 or fewer employees.
The Massachusetts plan was flawed because many people on the bare minimum policies weren’t able to afford routine care and preventive care. Penalizing businesses that decide not to provide health insurance was not a step in the direction of individual responsibility. The employee limit to favor small businesses also created a large penalty for adding an eleventh employee—penalizing business success. The requirement for all persons to have at least the minimum health insurance lacked teeth. The penalty for being caught disobeying was only half the projected cost of the minimum insurance.
Even admirers of the Massachusetts plan have been disappointed since its enactment. The penalty for ignoring the mandate was watered down to a vague threat to take away tax refunds. Without enforcing a mandate to pay, the parallel state mandate to write insurance for all must collapse in a heap of adverse selection—some don’t buy insurance until they need it, which raises the price for those who do buy it. A year after enactment, more than half the uninsured people of the state had not bought their health insurance. The state also confronted much higher costs than expected in its original projections.
Insured Americans never have cared much about the uninsured—that’s why six out of seven political health-care movements in the twentieth century never took hold. But every troubled company starts its restructuring by raising health-insurance charges and cutting retiree health care, so Americans do care about themselves and about not joining the ranks of the uninsured. Saving ourselves by saving employers through creation of a national health-care system could become an unstoppable movement whenever such worries become dominant.
It is possible that the U.S. could afford a British- or Canadian-style system without drawbacks. At least it should be possible. According to the Organisation for Economic Co-operation and Development (OECD), the U.S. spends twice as much per person on health care as any of the developed countries in Europe. The U.S. also spends a greater percentage of its GDP on health care.
Among the larger industrial countries in 2005, Canada spent 9.8 percent of GDP on health care; the U.K. 8.3 percent; France 11.1 percent; Germany 10.7 percent; and Japan 8 percent. The U.S. spent 15.2%. The differences are even more striking when spending per capita is compared: The U.S. spent $6,401 per person, and 45 percent of the money spent was government funds; Canada spent $3,326 per person, and 70 percent was government funds; the U.K. spent $2,724 per person, and 87 percent was government funds; France spent $3,374 per person, and 80 percent was government funds; Germany spent $3,287 per person, and 76 percent was government funds; and Japan spent $2,358 per person, and 81 percent was government funds.
Putting together the spending and the government share reveals an interesting fact, rarely noted in the American debate on health-care policy: Government health-care spending is similar among all the countries. Governments in the U.S. spent $2,880 per person on health care in 2005. In Canada, the government spent $2,328; in Britain, $2,369; in France, $2,699; in Germany, $2498; in Japan, $1,909.
The extra spending that pushes the U.S. into the top rank of total per-capita spending is private spending, as might be expected for a country that relies so heavily on employer-sponsored health insurance. All this spending, however, does not produce better results. U.S. life expectancy at birth is a year or two less than Japan, Canada, and the countries of Western Europe. The other countries also report somewhat better life expectancies for persons age 65, though the difference isn’t as great.
What are the chances of enacting a U.S. health-insurance system that divides the amount the government spends among more people—in effect reducing the government-financed health-care benefits for people who have health insurance? About zero. Or the alternative: What are the chances of enacting a national health-insurance system that raises the tax burden by $3,520 for every person in the country, a total of about $1 trillion? Not much better than zero.
This explains why American advocates of national health insurance or national health care have had so little success: The large majority of people who already have insurance or government benefits would lose either some coverage or pay more money for the same coverage.
The amount of money that American taxpayers spend on health care is due to rise substantially in the next few decades with no change in law. Medicare pays for health care for the elderly and disabled, and its health care costs have been rising at a far faster rate than its covered population—which is rising rapidly anyway with the graying of the baby-boomer generation. Beneficiaries pay some of the cost of Medicare hospitalization insurance, physicians’ services coverage, and prescription-drug coverage, but the federal government pays most of it, and about half comes from general revenue and borrowing, not from the Medicare payroll tax. Official estimates say Medicare’s hospital-insurance cost will rise from the current level of 1.4 percent of GDP to 5 percent in 2081. Physicians’ services outlays were 1.3 percent of GDP in 2006 and are projected to grow to about 4 percent by 2081. (This could easily be 5 percent of GDP; the 4 percent figure reflects unrealistic reductions in physician payments required under current law.) Prescription-drug outlays are estimated to rise from 0.4 percent of GDP in 2006 to about 2.4 percent by 2081.
Add it up, and we see Medicare costs rising from 3.1 percent of GDP ($408 billion) to 6.6 percent of GDP in 2030 and 11.3 percent of GDP in 2081.
A drastic reform of health-care financing in the U.S. probably requires a drastic reform of health-care practice. The U.S. has fewer physicians per capita than most other developed countries—2.4 physicians per 1,000 people in the U.S. versus the OECD average of 3 physicians. The U.S. also has fewer nurses, fewer hospital beds, shorter patient stays in hospitals, and more outpatient surgeries.
Some public-health measures are working in the U.S. Through high taxes, advertising bans, and relentless public-information campaigns, the U.S. has cut the rate of smoking to the second lowest among OECD countries.
Others measures are not working: The U.S. has the highest obesity rate in the OECD.
Think of universal health care as the Emerald City Health-Care Plan, in which we must never look behind the curtain to see what makes it work.
Most ideas for national health insurance in America include some form of price controls on drugs, just as they do in countries that already have a national health-care system. Thinking that price controls could improve health is dangerous. Price controls, as we ought to know, constrict supply and choke off innovation. When we are sick in 2030, we will not want to be limited to the pharmacology of 2007.
In the days of L. Frank Baum, author of The Wizard of Oz, Americans had a different image of physicians than today’s reality. General practitioners visited their patients at home. They set broken bones or let fevers run their course. Nineteenth-century doctors had plenty of time for house calls because they hardly could cure anything, as their patients knew by sad experience.
As recently as 1920, more than a half-million Americans died from diphtheria, whooping cough, measles, syphilis, intestinal infections, kidney infections, tuberculosis, influenza, and pneumonia. Since the discovery of antibiotics, Americans almost never die of the first four diseases, annual deaths from the next three conditions are down more than 95 percent, and deaths from influenza and pneumonia are down more than 60 percent. Allowing for today’s larger population, 1.2 million Americans a year would be dying of these diseases if doctors were still using the pharmacology of 1920.
A recent graduate of a community-college nursing program, an adeptly programmed personal computer, and a pharmacy clerk can do more for more patients today than the helpless physician of the past. And all the prescriptions written by all the doctors in the land consume only 7 percent of American expenditures on health care, and they generally work well.
But politicians in many countries seem to despise the drug industry. Some control prices by law; others set their single-payer health-care systems to drive hard bargains with the producers.
A natural result is that companies based in countries with rigorous price controls, such as France, Italy, and Japan, tend to concentrate on manufacturing local copies of internationally successful drugs. Breakthrough drugs disproportionately originate in countries that do not regulate prices of new drugs, such as the U.S., Germany, Britain, and the Netherlands. The profit motive drives research and innovation. Protecting inventors’ monopolies on new drugs might actually be more effective in delivering new drugs at reasonable prices. Some of the high price for new drugs is reasonably related to the high cost of developing drugs and seeing them through the testing and approval systems of the U.S., Europe, and Japan. Some of the high price is reasonably related to the low probability of successfully passing through the system to bring a new drug to market. For every new drug approved, pharmaceutical companies research thousands of compounds and test hundreds. The failures cost money also, and the failures are paid for on the backs of a few successes. But some of the high price of new drugs is unreasonably related to the relatively short term of patent monopoly and the rather high probability that successful drugs will be exposed to “me-too” competitors that are slightly different chemically but nearly the same medically. Even in the U.S., laws respecting generic competition—drugs that are exactly the same chemically—are deliberately filled with potential loopholes enabling generic drug companies to bring their products to market without expensive testing. This legalized counterfeiting has made generic drugs in the U.S. into an industry worth hundreds of billions of dollars, born and raised by members of congress intent on driving down the price of new drugs for consumers. They talk about the capitalist benefits of competition, but capitalism needs property rights just as much as competition. Lengthening the patent term for newly discovered drugs might even bring down the price because companies that invent drugs would not need to recoup their investments in the short run.
With a little help from the beneficiaries and some help from payroll taxes on workers and employers, the federal government pays for Medicare, a health-insurance program for people over 65 and disabled people of any age—which is to say that income taxpayers and business taxpayers are paying for it, as they do all other general functions of the federal government. About 40 million people are covered under Medicare. Many consider it the most successful government program in American history, but this is a short-sighted view. In the longer term, the Medicare program is on track to consume all the revenues of all the current federal taxes, leaving nothing for any other government function. Or, what is somewhat more likely, taxes will double over the next 30 years to pay for Medicare. Or, most likely, taxes will go up substantially and Medicare will not pay for as many things. Medicare will refuse to pay the full cost of medical services, and the beneficiaries who can afford to pay more will be charged more.
Out of 250 million Americans who are not yet eligible for Medicare, more than 150 million have varying levels of coverage from medical insurance plans sponsored by their employers. About 13 million pay for their medical insurance themselves. About 41 million people with very low incomes and few assets are covered by Medicaid and a variety of small state and federal programs.
More than 47 million Americans are without health insurance. One reason is that the federal government has seen to it that everyone has two lines of defense against health-care emergencies. First, hospital emergency rooms are required to treat everyone who shows up, whether or not they have means to pay. Second, if a person receives care without paying for it, the Medicaid program is supposed to pay the health-care expenses of those Americans who are without other means. Usually, however, Medicaid pays only part of the real cost. Providers have to raise their fees to everyone else to offset their losses on Medicaid patients. If a person is caught with too many assets to qualify for Medicaid but too few resources to pay a hospital bill, the hospital pursues the patient, but eventually writes off the debt and raises future charges to those patients who do pay. Another reason so many are without insurance is that state and federal mandates have distorted the market for health insurance, adding so many coverage mandates as to make sensible, affordable policies unavailable.
A national consensus in favor of health-care reform seems to be growing—as long as it provides more health care for more people at lower costs. Unfortunately, the free lunch table is closed, and the magic wands are on back order.
Health-care reform is harder and more treacherous than most people imagine—especially advocates who would put on employers’ backs a heavy play-or-pay tax system requiring businesses to provide health insurance or pay premiums for a government insurance plan. Play or pay isn’t health insurance; it’s a payroll tax. This is not what Wal-Mart and the car companies had in mind when they created a coalition to lobby for universal health insurance. They were trying to get health care off their budgets and on to someone else’s.
A better alternative to national health insurance would be national competition in health insurance, in which insurance companies, health maintenance organizations (HMOs), hospitals, doctor groups, and any other organizations compete to offer health-care plans. These would include affordable plans insuring against health catastrophes with low premiums and high deductibles, expensive first-dollar-coverage plans, or any combination of premiums and services that might appeal to consumers. Government welfare agencies would buy insurance to cover their charity cases.
An efficient market in health insurance would redistribute the money that Americans spend on health care. Everyone should select his own health-insurance program, and health insurers should be free to compete for business by offering a range of plans and prices. People must confront real, unsubsidized prices to make appropriate choices.
Imagine hundreds of companies competing for business on the basis of price and service, as if they were selling homeowners’ insurance or investments. To keep costs low, they could work with groups assembled by churches, social clubs, neighborhood organizations, credit unions, banks, professional group assemblers, and, yes, even employers.
Can everybody afford such a system? At least as well as they can now—and probably far better. For those who cannot afford it, government welfare departments could subsidize premiums directly or put cash in the hands of those capable of making their own choices.
The most useful example of this idea already works for millions of federal workers. The Federal Employee Health Benefits Program is a multiple-choice system in which the government, as employer, lets workers choose which plan they like and then pays for three-quarters of the cost. An open season on health plans occurs each fall. A couple hundred insurance plans and HMOs market their services to federal workers.
That the government operates one of the nation’s most efficient and competitive health-insurance systems yet cannot extend the system to citizens who want and need coverage is a testament to the scale and complexity of the federal government. That politicians cannot reform health care by adopting the good system they themselves use is a testament to the block-headedness of politicians.
A rambunctious market drives the Federal Employee Health Benefits Program. Each year in November is open season, when all beneficiaries—roughly 10 million of them—can switch from one health-insurance program to another. It’s a measure of their satisfaction that only about 5 percent actually change plans.
At least a dozen choices are available in every locality where the federal government has operatives, and nearly two dozen in the center of officialdom inside the Capital Beltway. On average, the government pays 75 percent of the cost of most plans, up to a limit of $3,800 for individuals and $8,600 for families. What the workers pay beyond that is their choice.
Price differences among the plans reflect different coverage. All plans include the level of hospital and medical insurance that Americans who work for big companies take for granted. They vary freely and charge widely different amounts on coverage of routine visits, pharmaceuticals, mental illness care, dental care, hospice and skilled nursing care, rehabilitative therapy, and medical equipment.
The insurance companies and HMOs campaign hard to win business. They advertise, hold rallies, and collaborate with unions and other institutions to win the trust of their prospective customers. Independent advisers offer federal workers detailed analyses of plans. Plans that charge too much lose members every open season, and some have actually gone out of business.
As for cost to the employer, the price for the Federal Employee Health Benefits Program as a whole has been rising at less than half the rate seen by private employers.
This federal plan is not universal. One of the low-cost family plans costs about $2,400 a year, and even that is burdensome to a federal office worker making $50,000 a year or less. About 100,000 eligible federal workers have declined coverage. To help them, the U.S. should shift responsibility for health-insurance premiums from employers to employees and give all people the same tax break now available only for employer-paid plans. Under the current system, wages paid in the guise of health-insurance premiums are tax-exempt to the employee and tax-deductible to the employer. From the worker’s point of view, a health premium dollar can be up to twice as valuable as a wage dollar. (The same is usually true of other employee benefits, such as pensions and life insurance.) This buying power of the tax-exempt health dollar is one reason that health-care inflation outstrips other inflation in the economy.
Because only the employer can use pretax dollars to buy health insurance, coverage goes with the job in our current system. The result, of course, is the insecurity that reformers call a crisis. The driving force for health-care reform today isn’t a generous impulse to help 47 million uninsured Americans; it’s the fear that one may join them. If employees can choose between employer-provided health insurance and pretax cash to pay premiums to the health-insurance plan of their choice, or if people caught up in poverty receive a voucher with which to purchase health insurance, they will acquire real economic power. Even better, health-insurance companies will have to work for the beneficiary, not the beneficiary’s boss.
The U.S. health-care problem has been created by the absence of competition and consumer choice. That’s why the Federal Employee Health Benefits Program should become the model for the nation.
Still out on the fringes of health-care politics is another good idea, the medical savings account. This raises individual choice to a higher power and provides a capitalist solution relying on savings and investment. Although it’s the single best idea in health-care policy since Blue Cross introduced group insurance, medical savings accounts became a dividing line between Democrats and loyal Republicans.
The idea is to cut the cost of health insurance for most people by letting them buy their insurance with a high annual deductible—$3,000 is commonly suggested. Then the insured people, their employers, or the government places $3,000 in a tax-sheltered medical savings account that becomes the property of each insured person. The account owners can pay medical expenses with a debit card linked to the Medical Savings account and the back-up insurance. At the end of the year, the account owner gets to keep anything left in the account. They can accumulate it in the Medical Savings account or pay taxes on it if they choose to spend it on other things.
This puts all the incentives in the right place, on the right people. Employees get to use the employer’s money for health care, but they acquire a reason not to waste it by running to the doctor for every sniffle and sprain. Employees do for themselves what HMOs are supposed to do with regulations, gatekeepers, and restraints on physicians.
If we must have a policy and system for health care, rather than a market, medical savings accounts and high-deductible private health insurance should replace any other form of insurance that covers the first dollar of expense. The government systems of Medicare for the elderly and Medicaid for the poor also would work far better under such a system.