Health and Prosperity

In 2006, the Economist—hardly a leftwing publication—had this to say about the U.S. healthcare system:

“America’s health care system is unlike any other. The United States spends 16% of its GDP on health, around twice the rich country average, equivalent to $6,280 for every American each year. Yet it is the only rich country that does not guarantee universal health coverage. Thanks to an accident of history, most Americans receive health insurance through their employer, with the government picking up the bill for the poor (through Medicaid) and the elderly (through Medicare).


In the longer term, America, like this adamantly pro-market newspaper, may have no choice other than to accept a more overtly European-style system.” 


We have all heard the litany: Forty-six million Americans are uninsured. America spends more per person than any other country, but ranks 37th in overall quality of service. If our infant mortality rate was as good as Cuba’s—Cuba’s!—we would save the lives of an additional 2,212 babies every year. Duplicative paperwork wastes billions each year. People with pre-existing conditions are chained to jobs they don’t like. The list goes on, and I don’t intend to stand here and repeat it, or add to it. Most of you are already all too aware of the problems.


Instead, I want to make an economic development/American competitiveness argument for single-payer national health insurance—something along the lines of what United Senior Action has called, if I am not mistaken, “Medicare for all.”


As I analyze the situation, if the United States adopted a “single payer” health insurance system funded through tax revenues and administered through a single insurer, we could expect a number of positive economic results, in addition to better health and reduced social anxiety.


First of all, we would see an increase in economic development/job creation. The business sector currently spends an amount in excess of its net profits to provide  health insurance for employees, and the cost of health insurance is the single largest “drag” on new job creation. The difference between what it costs an employer to create a new position and the amount that employee actually receives is sometimes called the employment “wedge.” As health costs and insurance premiums escalate, the wedge grows larger, and inhibits hiring additional workers. In good economic times, that is troubling; in times like these, it can be catastrophic.


For the shrinking number of companies that can afford to offer health insurance, negotiating and administering medical benefits, and complying with the government regulations attendant to them, consumes untold hours of HR time. This is a drag on productivity—a generator of overhead costs that reduce profits and divert effort away from the core business operations.  Single-payer would remove those costs and that burden. If you don’t think that would be economically significant, let me share an example. In the case of our struggling auto industry, amounts paid for employee health adds somewhere between 1800 and 2000 of the price of each new car. No wonder American automakers find it difficult to remain competitive! It should be noted that in a single payer system, doctors’ overhead would similarly decline: currently, medical offices spend considerable sums on personnel whose only job is dealing with insurers—confirming coverage, complying with insurer regulations, submitting claims on multiple different forms and collecting amounts due. The US could save millions of dollars each year JUST by standardizing insurance forms!


Smaller companies—the engines of economic growth and job creation—are increasingly unable to offer benefits, and that puts them at a competitive disadvantage when they try to hire good employees. If health coverage were de-coupled from employment, the United States would become a much more attractive location for new businesses, and incentives to outsource production to overseas workers would be reduced. (Tell Toyota/Canada story.)


We should also note that, if the burden of providing health care coverage were removed from employers, they could increase wages by some percentage of the amount currently being paid for insurance.


There are two predictable, immediate responses to suggestions that we provide national health insurance. The first is that we can’t afford it; the second that quality of care would be compromised.


Let’s dispose of  the question of costs first, because there is enormous public ignorance of the costs we already incur. It may surprise many of you to know that any additional tax revenues needed in order to accomplish universal basic coverage would be minimal, for the following reasons:

·         government at all levels already expends huge amounts for health, through Medicaid, Medicare and other federally required programs (Mothers and Children, AIDS, etc.), through health care research grants,  through insurance for public employees (Universities, police, public school teachers, state and municipal workers, etc.), and through support for public hospitals like Wishard. By some estimates, American government at all levels already pays for over 60% of American health care now. We just do it in the least efficient, most wasteful way imaginable. In single-payer countries, governments pay an average of 70% of all health costs.

·         Furthermore, the economies of scale available in a national system would allow us to effect significant savings. We could save money not just by standardizing paperwork, but also by lowering the  costs of administration. It is estimated that between 25-30% of private U.S. healthcare expenditures are eaten up by administrative overhead. Medicare, on the other hand, keeps its overhead costs between 2 and 3%. It’s not just big salaries for the insurance executives—although that’s part of it. The biggest chunk is marketing, including the costs involved in “cherry-picking” (explain). We could save a very large percentage of these overhead costs by administering insurance through government, or even by doing as some European countries do—by contracting with a few insurers to administer the program on government’s behalf, on condition that the premium structure eliminate the marketing costs that are now included.

·         An often-ignored benefit of a national system is that it would provide an incentive for more effective public health and prevention services—incentives our current, patchwork system lacks. Total costs decline when people are able to access routine medical care soon after the onset of symptoms, rather than visiting far more expensive emergency rooms when they can no longer ignore the problem.

·         A national system could—and should—save money by negotiating with drug manufacturers and other medical vendors for lower prices. Every other industrialized country does this, and to be honest, I was outraged when the Bush Administration prohibited such negotiations in the bill that expanded Medicare’s prescription drug coverage. That bill was a cynical give-away to drug and insurance companies. I used to believe the drug company argument that research and development would suffer if they couldn’t price new drugs at high levels. But that was before I understood how much medical and pharmaceutical research is underwritten by taxpayers through grants from institutions like the NIH. Frankly, we would all be better off if drug companies diverted some of the five billion dollars they spend each year on television ads for Viagra and the “purple pill” to research and development. 

·         Cost controls would also be enormously enhanced by eliminating the practice of cost-shifting by hospitals. Those practices are increasingly irrational; as you all know, those of us who are hospitalized and who have insurance pay prices that have been inflated in order to cover the costs that cannot be recovered from those without. On the other hand, because insurance companies exercise considerable pressure on hospitals, those same providers will often charge uninsured but solvent patients more for the same procedures. There is no uniformity to these practices, and they make rational cost accounting difficult, if not impossible. (Dan Hodgkins story)


These savings are often identified by proponents of national health care. What is far less frequently recognized is that even if taxes did go up, individuals would save money as well.

·         Automobile and homeowners insurance premiums would decline significantly, because the underwriting would no longer need to take the costs of medical care into account.

·         The considerable percentage of citizens who are currently uninsured would not incur significant out-of-pocket costs attributable to illness or accident.

·          And of course, those who are currently paying for their own insurance would have that considerable expense lifted. I had a student a year or so ago who did not have employer-paid coverage. She worked for a nonprofit CDC, and she and her husband were paying over 12,000/year for their family of two adults and two children. That is without co-pays and other out-of-pocket costs.


Those are just a few of the quantifiable, cash savings we could realize under a single-payer system. But there are also significant social costs associated with our current haphazard approach to healthcare. If all citizens had basic health coverage, America would arguably see a decline in the social costs associated with the current dysfunctional system. Let me just give you a few examples of what I mean:

·         Over 50% of personal bankruptcies are attributable to medical bills; those bankruptcies cost local businesses millions of dollars, and are a drag on the economy.

·         Employees with pre-existing conditions would no longer be chained to jobs they dislike.

·         Absenteeism could be expected to decline.

·         Immunizations would increase, and infant mortality decline.

·         Studies also suggest that violent crime rates decline and social trust climbs as social safety nets increase.

Even a small drop in crime yields huge savings and increases the quality of life.

While not quantifiable, these consequences are far from insignificant.


So much for costs. What about the argument that “socialized medicine” will cause a decline in the quality of American health care? That markets are most efficient way to allocate services/costs?


I am a great believer in markets. But functioning markets require a willing buyer and seller, both of whom have access to adequate relevant information. They do not work in areas where there is unequal access to information and widely unequal bargaining power. Both of those situations characterize the sale and purchase of medical care.


Even if markets in medical services did work, however, we don’t have a market now, if we ever did. We already have socialized medicine, but we have the very worst possible system—we have socialized medical care through the private insurance companies. The result is that we have the worst of both systems. A recent study by the Commonwealth Fund found that 82% of Americans are dissatisfied with our current patchwork approach to health care, and believe the system should be fundamentally changed.


One in three adults reported their doctors had ordered a test that had already been done, or had recommended unnecessary treatment or care within the past two years.  Forty-seven percent had experienced poorly coordinated care—meaning they hadn’t been informed of test results, or had to call repeatedly to get them, or that important medical information had not been shared between doctors and nurses, or between primary care physicians and specialists.


We hear a lot about waiting times in nationalized systems, but wait times are a significant problem in the US right now. Nearly 3 out of 4 Americans reported difficulty getting timely doctor’s appointments, telephone advice, or after-hour’s care, and that included people with health insurance. There is a reason that America consistently ranks 37th or 38th in quality of health care, despite the fact that we spend over twice as much per person as the next most expensive system.


I do not pretend to have expertise in how we should proceed to overhaul our system, but I do know we are not limited to Canada and Great Britain as models. (Which is not to say those systems aren’t working; despite the criticisms we hear, I have friends in Canada and a granddaughter in Great Britain, and they are very happy with their care.) But France and New Zealand have widely praised systems, just to name two others. My son lived in France for three years (explain).


 We have the luxury of learning from the history and performance of multiple other systems. All that stops us is ideology and a stubborn refusal to believe that other countries might have lessons to teach.    


The one bright hope is that the bankrupt nature of our current system has become apparent to anyone who cares to look. Large employers like GM, who have historically been opponents of national health care, are now favorably inclined. Even the AMA has offered a plan—although it is a pretty flawed one. Doctors have largely come to recognize that their interests would be better served by a single-payer system, and groups like Physicians for National Health Care are working hard to make that happen. There are rumors that Senator Kennedy is working feverishly on a plan, because he wants health care to be his legacy. And with the election of a President who actually understands the economics of our current situation, I am cautiously optimistic that the time for change may FINALLY have come.


It can’t happen a moment too soon!




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