A PROPOSAL RE HEALTH CARE.
The Following Commentary was Delivered by Professor Michael Meeropol over WAMC radio in March of 2006.
HOW DO WE DEAL WITH THE ISSUE OF HEALTH CARE?
Experts predict that by 2015 one dollar in every five spent in the United States will be spent on Health Care.[1] We know that other countries pay less of their GDP for their health expenditures and they get better health outcomes.[2] The important question is, why? Why do we in the US spend so much on health care.
One possible rather positive reason is that we voluntarily buy a much higher quality of care than the rest of the world.[3] However, in fact we as individuals do not really buy our own health care. Our insurance providers guide us to our consumption of health services by covering some treatments and not others. Our medical professionals determine what treatments are advisable for us.
Medical cost inflation is a fact of life in the US because the providers of medical services control the information about their products.[4] As lay consumers we cannot make ourselves expert about relative costs and effectiveness of medical procedures or medical professionals.
Those who believe in the cure-all capabilities of the market argue that the solution is to make more information available to patient-consumers and give them more direct control over how their money is spent. (This is the idea behind Health Savings Accounts). Today, when you go to the doctor or a hospital, your insurance company or the government pays. You only pay indirectly. According to free marketers, if you considered how much it was going to cost to see the doctor or go to the hospital you would become an intelligent consumer just as you are when buying a car, a house, or a vacation trip.
This approach is a recipe for disaster. If everyone were responsible for making their own health care decisions, what would happen when people make the wrong decisions and find themselves very sick with no way to pay for it? We would be back in the days of “charity hospitals” and doctors treating some percentage of their patients for free. Just as “charity” was not a viable solution for the unemployed during the Great Depression and for those forced to work past the age of 65 before the advent of Social Security, “charity” is not a good solution to the current Health Care mess. And charity is a necessary component when you pay for necessities by relying on the magic of the market to deliver. Market-based delivery depends on the ability of the patient-consumer to actually pay.
Is there an alternative? I believe there is. Health care would be best delivered as a form of social insurance. What is social insurance? It is a system where everyone insures everyone else against potentially serious costs associated with sustaining life. Social security already insures the entire working population against outliving their savings (that’s the pension) or becoming disabled or unemployed. It also insures retirees through Medicare. What it doesn’t do is extend that insurance to the entire population, which is why medical cost inflation is so much higher in the US than elsewhere. Though Medicare strives mightily to contain the costs of the procedures it subsidizes, hospitals, nursing homes and other medical facilities are able to raise prices charged to insurance companies who then of course raise premiums charged to employers.
If we were to re-organize our system in conformity with social insurance principles, then the system could be integrated institutionally (at either the federal or state level). It would be much easier to contain costs. The basic principle of social insurance is – we all pay to guarantee health care to everyone who gets sick. When a healthy person gets sick, he or she gets to dip into the revenue stream being contributed by fellow citizens. If you “lose” by never getting to spend any of that money because you never get cancer or need a heart transplant, you WIN by being healthy. Those who must have recourse to the insurance fund can rest easy knowing their needs will be met without bankrupting them and their families
MY SOLUTION: Extend Medicare to the entire population. Social insurance is the answer to our health care crisis.
[1] See Health Spending Projections Through 2015: Changes On The Horizon
Christine Borger 1*, Sheila Smith , Christopher Truffer , Sean Keehan , Andrea Sisko , John Poisal , M. Kent Clemens in HEALTH AFFAIRS, THE POLICY JOURNAL OF THE HEALTH SPHERE, 10.1377/hlthaff.25.w61 (Feb 22, 2006) available on the web at www.healthaffairs.org.
[2] According to the Organization for Economic Cooperation and Development (the OECD) which is comprised of all of the advanced countries in the world, the US spent 15% of its GDP on health care expenditures in 2003 (the journal Health Affairs puts that percentage at 16% for 2005). The countries that came closest to the US were Germany at 11.1% and Switzerland at 11.5%. Countries that have particularly generous government health care programs like Norway and Iceland were over 10% of GDP but the country we often are compared to, Canada, because they have a private system with government acting as a “single-payer” rather than a nationalized system like Great Britain, had a ratio of 9.9% of GDP and that ratio had been unchanged since 1993 (whereas the US percentage had grown from 13.2%). See Health Spending and Resources: OECD in Figures – 2005 Edition – ISBN 926401 3059. This is available on the web at www.oecd.org. Once at the home page click on statistics, once on that page, click on Health. At 79.9 in 2003, US life expectancy was lower than that of EVERY advanced European country and Canada, despite their lower rate of expenditure AND their lower total GDP as well. Our infant mortality rate at 7 per 1000 live births was higher than that of every advanced European country and Canada – in most cases two percentage points higher. Both statistics are also from the OECD.
[3] We are richer than the rest of the world and thus can choose how to spend that discretionary income. We choose to buy very high quality, quite expensive health care to, for example, prolong life with high quality treatments for cancer, emphysema, etc. We use the most advanced surgical techniques to save lives and prolong lives. We, in other words, are choosing to spend this money – we are voluntarily allocating a higher percentage of our national income to health care than do our not-so-rich fellow members of the OECD (France, United Kingdom, Canada, etc.).
[4] Medical Cost inflation is measured by the Bureau of Labor Statistics as one of the components of the Consumer Price Index. It is neatly collected in Table B-64 of the Economic Report of the President. From 1990-1993, medical cost inflation was twice the rate of inflation in the general consumer price index (CPI). In 1994 and 95, medical cost inflation was two percentage points higher than the inflation in the CPI. In 1996, in the wake of intense pressure from insurance companies to move more people into managed care plans, the rate of medical inflation was 3.5% while overall inflation was 3.3%. In the next two years as overall inflation fell below 2% medical cost inflation was a bit more than one percentage point higher. Since then, medical cost inflation has risen, reaching 4.7% in 2002. From 2001 through 2003, medical cost inflation was twice the rate of overall inflation and has remained over 4% (1.7 and 1.8% higher than overall inflation) for 2004 and 2005.
HOW DO WE DEAL WITH THE ISSUE OF HEALTH CARE?
Experts predict that by 2015 one dollar in every five spent in the United States will be spent on Health Care.[1] We know that other countries pay less of their GDP for their health expenditures and they get better health outcomes.[2] The important question is, why? Why do we in the US spend so much on health care.
One possible rather positive reason is that we voluntarily buy a much higher quality of care than the rest of the world.[3] However, in fact we as individuals do not really buy our own health care. Our insurance providers guide us to our consumption of health services by covering some treatments and not others. Our medical professionals determine what treatments are advisable for us.
Medical cost inflation is a fact of life in the US because the providers of medical services control the information about their products.[4] As lay consumers we cannot make ourselves expert about relative costs and effectiveness of medical procedures or medical professionals.
Those who believe in the cure-all capabilities of the market argue that the solution is to make more information available to patient-consumers and give them more direct control over how their money is spent. (This is the idea behind Health Savings Accounts). Today, when you go to the doctor or a hospital, your insurance company or the government pays. You only pay indirectly. According to free marketers, if you considered how much it was going to cost to see the doctor or go to the hospital you would become an intelligent consumer just as you are when buying a car, a house, or a vacation trip.
This approach is a recipe for disaster. If everyone were responsible for making their own health care decisions, what would happen when people make the wrong decisions and find themselves very sick with no way to pay for it? We would be back in the days of “charity hospitals” and doctors treating some percentage of their patients for free. Just as “charity” was not a viable solution for the unemployed during the Great Depression and for those forced to work past the age of 65 before the advent of Social Security, “charity” is not a good solution to the current Health Care mess. And charity is a necessary component when you pay for necessities by relying on the magic of the market to deliver. Market-based delivery depends on the ability of the patient-consumer to actually pay.
Is there an alternative? I believe there is. Health care would be best delivered as a form of social insurance. What is social insurance? It is a system where everyone insures everyone else against potentially serious costs associated with sustaining life. Social security already insures the entire working population against outliving their savings (that’s the pension) or becoming disabled or unemployed. It also insures retirees through Medicare. What it doesn’t do is extend that insurance to the entire population, which is why medical cost inflation is so much higher in the US than elsewhere. Though Medicare strives mightily to contain the costs of the procedures it subsidizes, hospitals, nursing homes and other medical facilities are able to raise prices charged to insurance companies who then of course raise premiums charged to employers.
If we were to re-organize our system in conformity with social insurance principles, then the system could be integrated institutionally (at either the federal or state level). It would be much easier to contain costs. The basic principle of social insurance is – we all pay to guarantee health care to everyone who gets sick. When a healthy person gets sick, he or she gets to dip into the revenue stream being contributed by fellow citizens. If you “lose” by never getting to spend any of that money because you never get cancer or need a heart transplant, you WIN by being healthy. Those who must have recourse to the insurance fund can rest easy knowing their needs will be met without bankrupting them and their families
MY SOLUTION: Extend Medicare to the entire population. Social insurance is the answer to our health care crisis.
[1] See Health Spending Projections Through 2015: Changes On The Horizon
Christine Borger 1*, Sheila Smith , Christopher Truffer , Sean Keehan , Andrea Sisko , John Poisal , M. Kent Clemens in HEALTH AFFAIRS, THE POLICY JOURNAL OF THE HEALTH SPHERE, 10.1377/hlthaff.25.w61 (Feb 22, 2006) available on the web at www.healthaffairs.org.
[2] According to the Organization for Economic Cooperation and Development (the OECD) which is comprised of all of the advanced countries in the world, the US spent 15% of its GDP on health care expenditures in 2003 (the journal Health Affairs puts that percentage at 16% for 2005). The countries that came closest to the US were Germany at 11.1% and Switzerland at 11.5%. Countries that have particularly generous government health care programs like Norway and Iceland were over 10% of GDP but the country we often are compared to, Canada, because they have a private system with government acting as a “single-payer” rather than a nationalized system like Great Britain, had a ratio of 9.9% of GDP and that ratio had been unchanged since 1993 (whereas the US percentage had grown from 13.2%). See Health Spending and Resources: OECD in Figures – 2005 Edition – ISBN 926401 3059. This is available on the web at www.oecd.org. Once at the home page click on statistics, once on that page, click on Health. At 79.9 in 2003, US life expectancy was lower than that of EVERY advanced European country and Canada, despite their lower rate of expenditure AND their lower total GDP as well. Our infant mortality rate at 7 per 1000 live births was higher than that of every advanced European country and Canada – in most cases two percentage points higher. Both statistics are also from the OECD.
[3] We are richer than the rest of the world and thus can choose how to spend that discretionary income. We choose to buy very high quality, quite expensive health care to, for example, prolong life with high quality treatments for cancer, emphysema, etc. We use the most advanced surgical techniques to save lives and prolong lives. We, in other words, are choosing to spend this money – we are voluntarily allocating a higher percentage of our national income to health care than do our not-so-rich fellow members of the OECD (France, United Kingdom, Canada, etc.).
[4] Medical Cost inflation is measured by the Bureau of Labor Statistics as one of the components of the Consumer Price Index. It is neatly collected in Table B-64 of the Economic Report of the President. From 1990-1993, medical cost inflation was twice the rate of inflation in the general consumer price index (CPI). In 1994 and 95, medical cost inflation was two percentage points higher than the inflation in the CPI. In 1996, in the wake of intense pressure from insurance companies to move more people into managed care plans, the rate of medical inflation was 3.5% while overall inflation was 3.3%. In the next two years as overall inflation fell below 2% medical cost inflation was a bit more than one percentage point higher. Since then, medical cost inflation has risen, reaching 4.7% in 2002. From 2001 through 2003, medical cost inflation was twice the rate of overall inflation and has remained over 4% (1.7 and 1.8% higher than overall inflation) for 2004 and 2005.
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