Hillary Clinton, who has a very strong chance of becoming our next President, recently rolled out her new health care proposal. Clinton, as we all know, proposed a widely-unpopular health care reform package back in 1993, when her husband was President. The gist of that package was “all employers must insure their employees via HMO” – along with restrictions on which HMOs were allowed, based on benefits provided. This was poorly-received in all quarters: businesses hated it because it forced them to spend, and didn’t allow them to spend cheaply. HMOs hated it because it privileged some HMOs over others. And everyone else hated it because it didn’t actually solve the problem of managed care in general; it just forced everyone into its arms.
The modern plan is pretty much identical to the one passed by Mitt Romney in Massachusetts: that is, we will reduce the numbers of the 50 million uninsured by requiring individuals to purchase healthcare if they are not covered, or else face penalties. A key difference between Romney’s scheme and Clinton’s is that the latter deals with affordability via tax cuts, whereas the former has a subsidized state-run health program.
No one seems to be advocating single-payer healthcare, which seems like the obvious solution. First, despite wild fears of “socialism” and “bureaucracy”, it’s well-demonstrated that government-run health care is more efficient than private health care, in terms of cost. An article in the New England Journal of Medicine comparing the systems of the United States and Canada says:
In 1999, health administration costs totaled at least $294.3 billion in the United States, or $1,059 per capita, as compared with $307 per capita in Canada. After exclusions, administration accounted for 31.0 percent of health care expenditures in the United States and 16.7 percent of health care expenditures in Canada. Canada’s national health insurance program had overhead of 1.3 percent; the overhead among Canada’s private insurers was higher than that in the United States (13.2 percent vs. 11.7 percent). Providers’ administrative costs were far lower in Canada.
In addition to efficiency, there is the added issue of keeping down costs. These are related, of course; before 1950, many people didn’t even have private insurance, and medical costs could be paid out of pocket. But health care costs, as a percentage of GNP, have been rising steadily since then. Costs in the US are the highest in the industrial world. There’s considerable debate over why this is, and a number of competing explanations have been advanced. A series of reviews in the Annals of Internal Medicine summarizes seven possibilities:
1. High and rising costs are not such a serious problem.
2. High and rising costs are a problem, but they are created by factors external to the health care system.
3. High and rising costs are caused by the absence of a free market; the remedy is to give patients more responsibility for costs of care and to encourage competition among health insurers and providers.
4. High and rising costs result from medical technologies creating innovation in the diagnosis and treatment of illness.
5. High and rising costs are in part the result of excessive costs of administering the health care system.
6. High and rising costs are explained by the absence of strong cost-containment measures.
7. High and rising costs are the result of the market power of health care providers.
The gist (if I can so blithely summarize a summary of such a complex topic) is that rising costs (and the disparity between the US and the rest of the industrial world) are related mostly to the spread of new medical technology; the relatively greater power of health care providers (e.g. hospitals, pharma companies, etc.) in the market; the fact that doctors are grossly overpaid* and, in the US, overspecialized, with a lower fraction of general practitioners (and thus, presumably, primary care); and, lastly, a more complicated administrative scheme. This more or less illustrates that cost-containment and coverage are essentially separate problems.
Some attention should be given to the idea of cost containment by removal of third-party payment mechanisms entirely (that is, all medical expenses are paid out-of-pocket, the solution advocated by, e.g., the Cato Institute). A free market in health care seems, at first glance, to be a pretty barbaric solution to any problem, since pricing people out of the market is generally not considered fair for conditions that are often the result of happenstance. Compare:
Ralph: I can’t afford this yacht. I guess I’ll swim at the Y this summer.
Stanley: I can’t afford to have this pituitary adenoma removed. I guess I’ll just live with my gigantism. [ Dunks. ] Swish!
Medical cost is very unevenly distributed; 70% of costs are attributed to only 10% of patients. For the very sick, we must imagine that costs are an unbearable burden, the reverse lottery: I pay you $100,000, and at the end I get to stay exactly the same as I was before (sans hair).
However, other forms of free-market competition can successfully lower costs. Insurance companies were successful in forcing hospitals to lower prices in the 80s and 90s by offering selective contracts on the basis of prices. Private hospitals responded by consolidating into agglomerated networks, effectively forcing insurance companies to play ball and allowing them to raise costs (i.e. make more money). In theory, competition between insurance providers for purchasers could also help lower premiums.
The latter would be unavailable in a single-payer system, meaning that cost containment would have to result from pro-active measures on the part of government. But inter-HMO competition has arguably been rendered ineffective by consolidation amongst hospitals (not to mention consolidation amongst insurance companies). Cost-containment still demands dealing with provider power, and there’s certainly no reason not to remove one layer of enormous complexity, which still leaves the patient as the agent enforcing competition by seeking the best available care.
Keeping down administrative costs is also not to be sneered at. Compare the US and Canada: “After exclusions, administration accounted for 31.0 percent of health care expenditures in the United States and 16.7 percent of health care expenditures in Canada.” This means a 14% reduction in costs merely by removing the administrative overhead associated with a private insurance system. This doesn’t suffice to close the yawning gap between the US and other industrialized nations in terms of health care costs, but it helps.
Single-payer systems, however, are radically different from the current wild-haired and thoroughly American mess. They inevitably mean that the government must take more of an interest in actively managing cost-containment by controlling things like the proportion of specialists in the population, information infrastructure, hospital administration, and ultimately, prices and renumeration of physicians, etc. They also mean that the government must be proactive about the supply-side of the equation, by encouraging the population to be healthier in the first place (certainly a laudable form of health care cost-containment). Though there is ample evidence that these measures are effective at reducing per-capita health care outlays, I suspect that they’re just too fucking socialist for the American political class.
* “The ratio of average physician income to average employee compensation is 5.5 in the United States compared to 1.5 in the United Kingdom and Sweden.”