The authors advocate a fundamental change in health care financing—national health insurance (NHI). NHI would reorient the way we pay for care, bringing the hundreds of billions now squandered on malignant bureaucracy back to the bedside. NHI could restore the physician-patient relationship, offer patients a free choice of physicians and hospitals, and free physicians from the hassles of insurance paperwork.
Almost all agree that our health care system is dysfunctional. Forty-seven million Americans have no health insurance, resulting in more than 18,000 unnecessary deaths annually according to the Institute of Medicine. Tens of millions more have inadequate coverage. Health care costs reached $7498 per capita this year, 50% higher than in any other nation, and continue to grow rapidly. Market pressures threaten medicine’s best traditions, and bureaucracy overwhelms doctors and patients. Opinion on solutions is more divided.
Discussion of health reform was muted in the 1990s after the defeat of President Clinton’s Byzantine scheme for universal coverage. Now, however, the accelerating collapse of employment-based coverage under the pressure of globalization is reopening debate. Firms like General Motors and Ford are crippled by the growing burden of health costs, which add $1500 to the price of a General Motors car versus $419 for a German Mercedes and $97 for a Japanese Toyota. Recently, the big three automakers have been pushing their liability for health costs onto their unions, replacing their previous guarantee of full employee and retiree health coverage with lump sum payments to establish (underfunded) union-run health care trust funds.
Meanwhile, low-wage employers like Wal-Mart gain competitive advantage by purchasing goods made overseas (where health benefit costs are low) and offering only the skimpiest of health coverage to their US workers. Governments face a double whammy: burgeoning benefit costs for their public employees (eg, teachers, firemen, police) and sharply escalating costs for public programs, such as Medicaid and Medicare.
As employers attempt to shed the costs of health care, working families increasingly find care and coverage unaffordable. In 2005, 18% of middle-income adults lacked health insurance for at least part of the year, up from 13% in 2001. Nearly a quarter of Americans report being unable to pay medical bills, and 13% had been contacted by a collection agency about a medical bill within the past year. Eighteen percent of those with coverage (and 43% of the uninsured) failed to fill a prescription last year because of cost, and millions forego routine preventive care, such as Papanicolaou smears, mammograms, and colon cancer screening, because of lack of coverage. More than half of American families in bankruptcy courts are there, at least in part, because of medical illness or medical bills, and three quarters of the medically bankrupt had health insurance at the onset of the illness that bankrupted them.
The authors advocate a fundamental change in health care financing—national health insurance (NHI)—because lesser measures, such as Medicaid expansions and government mandates that people buy private insurance, have been tried and failed. Moreover, the alternative to NHI advocated by the Bush administration—so-called consumer-directed health care (CDH)—would actually make matters worse. As discussed in detail elsewhere in this article, CDH would financially penalize older and sicker patients, deter millions from seeking needed care, shift additional medical resources to those who are already well served, further inflate bureaucracy, and do little or nothing to contain costs.
Failure of incremental reforms
Since the implementation of Medicare and Medicaid in the late 1960s, a welter of piecemeal reforms have aimed to reduce medical costs and expand coverage. Health maintenance organizations (HMOs) and diagnosis-related groups (DRGs) promised to moderate health spending and free up funds to expand coverage. Tens of billions have been allocated to expanding Medicaid and similar programs for children. Medicare and Medicaid have tried managed care. Tennessee promised nearly universal coverage under the TennCare program, and several states have implemented high-risk pools to insure high-cost individuals. For-profit firms, which allege that they bring business-like efficiency to health care, now own most HMOs, dialysis clinics, and nursing homes, in addition to many hospitals, and in accordance with the prescription of many economists, the health care marketplace has become increasingly competitive. Yet, none of these initiatives have put a brake on the relentless increases in the number of uninsured, the soaring costs of care, or the rising number and power of health care bureaucrats.
Mandate Model Reforms
The experience of three states with incremental reforms deserves particular attention, because each tried to achieve universal health care using a “mandate model” (sometimes called “mixed model”), now advocated by leading Democrats. Such reforms couple an expansion of Medicaid (or a similar public program) with a mandate that people (or their employers) purchase private insurance coverage. This model was first proposed by Richard Nixon in 1971 and was first enacted into law in 1988 by Massachusetts Governor Michael Dukakis on the eve of his presidential bid.
The Dukakis plan levied a fine on employers who failed to purchase private coverage for their employees and included an individual mandate requiring self-employed persons and adult students to purchase their own unsubsidized coverage. In 1989, Oregon passed a similar mandate-model reform (with expanded Medicaid eligibility and an employer mandate). The Oregon plan also included a highly publicized provision rationing expensive services, such as bone marrow transplants, for Medicaid recipients. Washington State followed, with the passage of another mandate model reform (which included an individual mandate similar to the one in the Dukakis plan) in 1993.
In all three cases, politicians and major media outlets, such as the New York Times, trumpeted the new laws as achieving universal coverage. In all cases, it soon became evident that the costs of the new coverage were unsustainable and the laws died quiet deaths. State legislators backed away from enforcing the mandates and eventually repealed them. Even when legislators found funds to expand Medicaid, gains in coverage were offset by the continued erosion of employer-sponsored insurance. None of the three states saw a drop in the numbers of uninsured residents, even in the short term.
The latest iteration of mandate model reform was passed in 2006 by Massachusetts Governor Mitt Romney and the Democratically controlled state legislature. As in the earlier reforms, Massachusetts’ 2006 law expanded Medicaid, offered subsidized Medicaid-like coverage for the near poor, and imposed a fine on employers failing to cover their workers, although the 2006 law’s employer fine is quite modest (at most, $295 per worker annually). The novel feature of the new law is its extensive and punitive “individual mandate”—a requirement that hundreds of thousands of middle-income uninsured persons buy their own coverage. For a 56-year-old single man earning $31,000 (ie, more than 300% of poverty), the cheapest available plan costs $4100 and comes with a $2000 deductible that must be met before his providers collect anything from insurance. When the full fines kick in at the end of 2008, he could be fined $982 annually if he refuses to buy the policy. Yet, such skimpy coverage might leave him worse off than no coverage at all; illness would still bring crippling out-of-pocket costs, but the $4100 annual premium would have emptied his bank account even before the bills start arriving. Little wonder that among those required to buy such unsubsidized coverage, only 4% had signed up as of November 1, 2007. Meanwhile, the state just announced a $147 million funding shortfall, threatening the subsidized coverage for the poor.
The 2006 Massachusetts reform, like all such patchwork reforms, is already foundering on a simple problem: expanding coverage must increase costs unless resources are diverted from elsewhere in the system. With US health costs nearly double those of any other nation and rising more rapidly and government budgets already stretched, large infusions of new money are unlikely to be sustainable.
Without new money, patchwork reforms can only expand coverage by siphoning resources from clinical care. Advocates of managed care and market competition once argued that their strategy could accomplish this by trimming clinical fat. Unfortunately, new layers of bureaucrats have invariably overseen the managed care “diet” prescribed for clinicians and patients. Such cost management bureaucracies have proved not only intrusive but expensive, devouring any clinical savings. For instance, HMOs in the Medicare program now cost the taxpayers at least 12% more per enrollee than the costs of caring for similar patients under traditional Medicare.
Resources seep inexorably from the bedside to administrative offices. The shortage of bedside nurses coincides with the growing number of registered nurse utilization reviewers. Productivity pressures mount for clinicians, whereas colleagues who have moved from the bedside to the executive suite rule our profession. Bureaucracy now consumes nearly a third of our health care budget.
Consumer-directed health care, another disappointment
A popular policy nostrum, CDH, is premised on the idea that Americans are too well insured, painting them as voracious medical consumers too insulated from the costs of their care. CDH proponents advocate sharply higher insurance deductibles (eg, $5000 for an individual or $10,000 for a family) as the stimulus needed to make Americans wiser medical consumers. In policy wonks’ dreams, these high-deductible policies are coupled with health savings accounts (HSAs), which are tax-free accounts that can be used to pay the deductible and medical services, such as cosmetic surgery, that are entirely excluded from coverage. In practice, however, most employees covered by CDH plans receive little or no employer contribution to their HSA, leaving many patients at risk for massive uncovered bills without savings with which to pay them.
CDH plans may benefit those who are young, healthy, and wealthy but threaten the old, sick, and poor. Under CDH, those with low medical expenses win; they get lower premiums, pay trivial out-of-pocket expenses, and perhaps accumulate some tax-advantaged savings in their HSA. Patients needing care lose, however. For instance, virtually anyone with diabetes or heart disease is sure to pay more under CDH plans. For them, the higher out-of-pocket costs required before coverage kicks in exceed any premium savings. Even those with only hypercholesterolemia or hypertension face higher costs unless they forego needed medications or other care.
CDH incentives selectively discourage low-cost primary and preventive care, although doing nothing to reduce the high-cost care that accounts for most health spending. High deductibles cause many to think twice before opting for a routine mammogram, prostate-specific antigen (PSA) screening, cholesterol check, or colonoscopy. In the Rand Health Insurance Experiment, the only randomized trial of such health insurance arrangements, high deductible policies caused a 17% decline in toddler immunizations, a 19% drop in Papanicolaou tests, and a 30% decrease in preventive care for men. Although high deductibles caused a 30% drop in visits for minor symptoms, they also resulted in a 20% decline in visits for serious symptoms, such as loss of consciousness or exercised-induced chest pain. Most patients have no way of knowing whether their chest discomfort signals indigestion or ischemia.
Although CDH discourages many patients from seeking routine low-cost care, those with severe acute illnesses have no choice. Even 1 day in the hospital pushes most patients past CDH plans’ high-deductible thresholds, leaving the patient with a large bill for the first day of care but with no further incentive to be a prudent purchaser. Hence, CDH incentives inflict financial pain on the severely ill, who account for 80% of all health costs, but have little impact on the overall costs of their care.
Moreover, the risk-selection incentives inherent in CDH threaten to raise the cost of other insurance options. As younger and healthier (ie, lower cost) patients shift to CDH plans, premiums for the sick who remain in non-CDH coverage are going to skyrocket. Already in the Federal Employee Health Benefits Program, CDH plans are segregating young men from the costlier female and older workers. According to a leaked memo, Wal-Mart’s board of directors considered offering CDH plans to its employees as an explicit strategy to push sicker high-cost workers to quit.
CDH also seems unfair on other accounts. The tax breaks for HSAs selectively reward the wealthiest Americans. A single father who makes $16,000 annually would save $19.60 in income taxes by putting $2000 into an HSA. A similar father earning $450,000 would save $720 in taxes.
If making Americans pay more out of their pockets for care could constrain health care costs, it would already have done so; the United States already has the world’s highest out-of-pocket costs for care and the highest health costs. Copayments in Switzerland, a nation near the top of the charts in health spending, have not reduced total health expenditures. In Canada, charging copayments had little impact on costs; doctors less frequently saw the poor (and often sick) patients who could not pay but filled their appointment slots with more affluent patients who could. Higher copayments for medications in Quebec resulted in increased emergency department (ED) visits, hospitalizations, and deaths for the poor and elderly. Similarly, capping drug coverage for Medicare beneficiaries in the Kaiser HMO caused a sharp drop in adherence to drug therapy (in addition to an increase in lipids, blood pressure, and blood glucose) but no change in overall health costs.
Moreover, CDH and HSAs add new layers of expensive health care bureaucracy. Already, insurers and investment firms are vying for the estimated $1 billion annually in fees for managing HSAs. CDH would force physicians to collect fees directly from patients (many of them unable to pay), a task that is even costlier than billing insurers, while still making us play by insurers’ utilization review and documentation rules; failure to do so disqualifies bills from counting toward the patient’s deductible.
Although CDH proponents paint a rosy picture of consumer responsiveness and personal responsibility, CDH would punish the sick and middle aged while rewarding the healthy and young. Employees would bear more of the burden, and employers would bear less. Working families would be forced to skimp on vital care, whereas the rich would enjoy tax-free tummy tucks. In addition, as in every health reform in memory, bureaucrats and insurance firms would walk off with an ever larger share of health dollars.
The Case for National Health Insurance
In contrast to CDH, a properly structured NHI program could expand coverage without increasing costs by reducing the huge health administrative apparatus that now consumes 31% of total health spending. Health care’s enormous bureaucratic burden is a peculiarly American phenomenon. No nation with NHI spends even half as much administering care or tolerates the bureaucratic intrusions in clinical care that have become routine in the United States. Indeed, administrative overhead in Canada’s health system, which resembles that of the United States in its emphasis on private fee-for-service–based practice, is approximately half of the US level.
Our biggest HMOs keep 20%, even 25%, of premiums for their overhead and profit; Canada’s NHI has 1% overhead, and even US Medicare takes less than 4%. In addition, HMOs inflict mountains of paperwork on doctors and hospitals. The average US hospital spends one quarter of its budget on billing and administration, nearly twice the average in Canada. American physicians spend nearly 8 hours per week on paperwork, and employ 1.66 clerical workers per doctor, far more than in Canada.
Reducing our bureaucratic apparatus to Canadian levels would save approximately 15% of current health spending, $340 billion annually, enough to cover the uninsured fully and to upgrade coverage for those who are now underinsured. Proponents of NHI, disinterested civil servants, and even skeptics all agree on this point.
Unfortunately, neither piecemeal tinkering nor wholesale computerization can achieve significant bureaucratic savings. The key to administrative simplicity in Canada (and other nations) is single-source payment. Canadian hospitals (mostly private nonprofit institutions) are paid a global annual budget to cover all costs, much as a fire department is funded in the United States, obviating the need for administratively complex per-patient billing. Canadian physicians (most of whom are in private practice) bill by checking a box on a simple insurance form. Fee schedules are negotiated annually between provincial medical associations and governments. All patients have the same coverage.
Unfortunately, during the 1990s, Canada’s program was starved of funds by a federal government that faced budget deficits, reflecting the pressure from the wealthy to avoid paying taxes to cross-subsidize care (and other services) for the sick and poor. Whereas Canadian and US health spending was once comparable, today, Canada spends barely half (per capita) what we do. Shortages of a few types of expensive high-technology care have resulted.
Nevertheless, Canada’s health outcomes remain better than ours (eg, life expectancy is 2 years longer), and most quality comparisons indicate that Canadians enjoy care at least equivalent to that for insured Americans. Moreover, the extent of shortages and waiting lists has been greatly exaggerated.
In British Columbia, the provincial Ministry of Health posts current surgical waiting times, making it is possible to follow surgical waiting lists in real time. Information on waits for urologic surgery is available. As of the middle of October 2007, at the highest volume urologic surgery center (Greater Victoria Hospital), 1 of the 7 urologists had no wait for a “priority 1” surgical patient. Three other surgeons listed expected waits of 1 or 2 weeks. The surgeons’ wait times for lower priority cases range from 0 to 10 weeks. At the second most active urologic center, none of the 10 urologists report a wait for priority 1 patients. Lower priority patients can expect a median wait of 4 weeks, but actual waits vary depending on their choice of surgeon. It seems unlikely that waits of this magnitude constitute an important health hazard. A system structured like Canada’s but with nearly double the funding (ie, the current level of health funding available in the United States) could deliver high-quality care without the modest waits or shortages that Canadians have experienced.
The NHI that the authors and many colleagues have proposed would create a single tax-funded comprehensive insurer in each state, federally mandated but locally controlled. Everyone would be fully insured for all medically necessary services, and private insurance duplicating the NHI coverage would be proscribed (as is currently the case with Medicare). The current Byzantine insurance bureaucracy with its tangle of regulations and duplicative paperwork would be dismantled. Instead, the NHI trust fund would dispense all payments, and central administrative costs would be limited by law to less than 3% of total health spending.
The NHI would negotiate an annual global budget with each hospital based on past expenditures, projected changes in costs and use, and proposed new and innovative programs. Many hospital administrative tasks would disappear. Hospitals would have no bills to keep track of, no eligibility determination, and no need to attribute costs and charges to individual patients.
Group practices and clinics could elect to be paid fees for service or receive global budgets similar to hospitals. Although HMOs that merely contract with outside providers for care would be eliminated, those that actually employ physicians and own clinical facilities could receive global budgets, fees for service, or capitation payments (with the proviso that capitation payments could not be diverted to profits or exorbitant executive compensation). As in Canada, physicians could elect to be paid on a fee-for-service basis or could receive salaries from hospitals, clinics, or HMOs.
A sound NHI program would not raise costs; administrative savings would pay for the expanded coverage. Although NHI would require new taxes, these would be fully offset by a decrease in insurance premiums and out-of-pocket costs. Moreover, the additional tax burden would be smaller than is usually appreciated, because nearly 60% of health spending is already tax supported (versus roughly 70% in Canada). In addition to Medicare, Medicaid, and other explicit public programs, our governments fund tax subsidies for private insurance, costing the federal government alone more than $188 billion annually. In addition, local, state, and federal agencies that purchase private coverage for government workers account for 24.2% of total employer health insurance spending, dollars that should properly be viewed as a public rather than a private health expenditure.
The NHI that the authors propose faces important political obstacles. Private insurance firms and HMOs staunchly oppose NHI, which would eliminate them along with the 8-, 9-, and even 10-figure incomes of their executives. Similarly, investor-owned hospitals and drug firms fear that NHI would curtail their profits. The pharmaceutical industry rightly fears that an NHI system would bargain for lower drug prices, as has occurred in other nations.
Practical problems in implementing NHI also loom. The financial viability of the system that the authors propose depends on achieving and maintaining administrative simplicity. The single-payer macromanagement approach to cost control (which relies on readily enforceable overall budgetary limits) is inherently less administratively complex than our current micromanagement approach, with its case-by-case scrutiny of billions of individual expenditures and encounters. Even under NHI, however, vigilance (and statutory limits) would be needed to curb the tendency of bureaucracy to reproduce and amplify itself.
NHI would reorient the way we pay for care, bringing the hundreds of billions now squandered on malignant bureaucracy back to the bedside. NHI could restore the physician-patient relationship, offer patients a free choice of physicians and hospitals, and free physicians from the hassles of insurance paperwork.
Patchwork reforms cannot simultaneously address the twin problems of cost and access. CDH is a thinly veiled program to cut back on already threadbare insurance coverage and offers no real hope of cost containment. NHI offers the only viable option for health care reform. The authors invite colleagues to join with the 14,000 members of Physicians for a National Health Program in advocating for such reform.
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