Medicare for All

HENDRIK VAN DEN BERG 
UNL PROFESSOR OF ECONOMICS

The discussion over healthcare has gone off track. While the media obsess over ridiculous people shouting about death panels and an impending socialist takeover of our government, the private healthcare/insurance industry is quietly ushering through Congress legislation that raises their profits — and our medical costs — even further. So let’s put the discussion back on track with a few important facts and a realistic policy option that actually improves Americans’ health.

We’re last among developed countries

In August, it was reported that the projected life expectancy of newborn Americans now surpasses 78 years. However, reading past the reassuring headline reveals that 78 years only puts us in 30th place among developed countries. A newborn Japanese can expect to live five years longer than a newborn American. American infants die at a rate twice that of Sweden’s, and Americans in every age group die at higher rates than their counterparts in other developed economies.

Ellen Nolte and C. Martin McKee of the London School of Hygiene and Tropical Medicine categorize all recorded deaths in 19 of the world’s highest-income countries according to whether or not these deaths could have been avoided “in the presence of timely and effective health care” (Health Affairs, Vol. 27, No. 1, 2008). The incidence of such avoidable deaths constitutes a clear measure of success for a country’s medical system. Nolte and McKee find that among the 19 countries in 2002-2003, the U.S. had the highest failure rate. Specifically, if the U.S. medical system had been as good at avoiding avoidable deaths as the three best performers — France, Japan and Australia — then 101,000 fewer Americans would have died per year. Worse yet, while the other 18 countries reduced avoidable deaths by an average of 17 percent between 1997-98 and 2002-03, the U.S. could muster only a 4 percent improvement. We are not only behind, but we are falling further behind.

So much for the claim that our high drug prices and medical payments are necessary stimulants for rapid innovation. Other countries with lower government-negotiated prices seem to be innovating at a more rapid pace.

But we spend much more

Incredibly, the U.S. spends twice as much per person on health as other developed countries. In the U.S., we spend over 16 percent of our national income on drugs, doctors, hospitals, physical therapy, out-patient procedures and band-aids, while countries like France, Britain, Japan, Canada and New Zealand spend between 8 and 10 percent of their slightly lower per capita incomes. How is it that we spend so much, but we are last in our league?

Where have we gone wrong?

The U.S. healthcare system provides very uneven coverage. The lagging U.S. outcomes are due to our healthcare system’s very uneven performance. Currently, about 50 million Americans do not have health insurance. This means that when they get sick or responsibly seek routine preventive medical care, they are charged rates much higher than those charged to the insured and those covered under Medicare, Medicaid or the Veterans program. The uninsured are mostly people employed at very low wages, the unemployed, the chronically ill and disabled who have no access to private insurance plans, or the newly unemployed who lost their health insurance along with their job. The combination of higher out-of-pocket costs and lower income obviously translates into less medical care, especially preventive and the standard types of elective care that make life more comfortable.

There are also at least 25 million ‘underinsured’ Americans whose insurance plans have high deductibles and co-payments and payment caps that kick in well below the cost of any serious illnesses or accident. And, of course, insurance companies routinely, and cruelly, find ways to drop customers who develop chronic illnesses. The underinsurance problem is reflected in the fact that about 70 percent of people facing private bankruptcy from medical payments, or 35 percent of all personal bankruptcies in the U.S., have some form of health insurance.

The major reason for the failure of the U.S. healthcare system is its lack of universal coverage and preventive care. Every other developed country has a ‘universal’ healthcare system that provides healthcare to everyone; the United States is the only developed country that does not guarantee health care for every resident.

Our healthcare is provided through a mixture of public programs, employment-based insurance, individual private insurance plans, and pay-as-needed individual expenditures. Public programs include Medicare (for all Americans over 65), Medicaid (for low-income Americans), and the Veterans System (for former members of the military). The latter is a full provider of healthcare that owns hospitals and directly employs doctors; the former two are ‘single-payer’ programs under which the government pays individuals’ medical bills according to rates the government negotiates with private healthcare providers. Note also that in the U.S. employment-based health plans enjoy an implicit subsidy in the form of a tax exemption that effectively comes off the top of workers’ incomes.

This gets us to the second reason for the failure of U.S. healthcare: the system’s high costs. The bloated costs are the result of its confusing mixture of profit-maximizing private healthcare providers, monopolistic private insurers, tax-funded public programs and assorted public subsidies, which interact under regulations designed, and often written by, lobbyists for the private sectors of the industry. Employers negotiate healthcare plans with private insurance companies, which their employees can then take or leave. In tough economic times, these employer plans tend to reduce coverage, increase deductibles, require larger employee contributions or get abandoned altogether. Private insurance companies have every incentive to avoid high-risk customers, such as those with pre-existing conditions or older people. Employer-based health insurance gives employers substantial power over their employees, even as they have been ratcheting down such health benefits.

The third reason for the poor U.S. health outcomes is the lack of preventive care. Private healthcare providers have little or no incentive to provide preventive care. After all, people often switch jobs and insurance companies, lose their health coverage altogether, or get older and get covered under Medicare. The insurance companies, therefore, do not benefit from paying for preventive care when it merely serves to lower future payments by another insurance company or Medicare. The other private players in the healthcare industry also do not gain from preventive care; the profits of drug companies and hospitals are directly related to the amount of drugs used and operations performed.

Fortunately, the solution is staring us in the face

The solution to the incomplete and inequitable healthcare coverage is straightforward: establish a ‘universal’ healthcare program that makes preventive, emergency and standard elective medical care equally available to everyone. This is what all other developed countries have done.

The solution to the cost problem is also surprisingly straightforward: move towards universal coverage by extending Medicare program to everyone. Our government’s Medicare program is well established and well run. Its costs are substantially lower than private insurance plans. Medicare pays out about 97 percent of its expenses for actual healthcare, but only about 70 percent of private insurance company expenditures pay for their customers’ actual healthcare. Many other developed countries have Medicare-type programs to provide universal healthcare to their populations, and recall that as a percentage of national income, these countries spend about 60 percent as much on healthcare as the U.S. does.

With everyone covered by a single program run by our government, there are strong incentives to provide preventive care. Long-run savings accrue to the same program that pays the costs of preventive healthcare. Our government also has the means to nudge more Americans towards preventive care. And, because they would cost little or nothing in direct payments, Americans would not be as discouraged from seeking preventive care as they now are because of co-payments, deductibles and other out-of-pocket payments.

Overall, we will spend less for better healthcare

The persistent opposition to a universal single-payer system in the U.S. seems to revolve around the fear that it will cost too much. This fear is completely unfounded. Rather, it is our lack of a universal single-payer system that makes our healthcare so expensive.

To grasp the error of the cost argument against universal healthcare, note first that the U.S. government already pays about 45 percent of all U.S. healthcare expenditures through Medicare, Medicaid, the VA, and other public programs. Then if we add the implicit cost of exempting medical insurance premiums from income tax, it becomes apparent that the government effectively pays for nearly 60 percent of all U.S. health care. Overseas experience with single-payer universal healthcare systems, which cost on average less 60 percent of what we pay for our inefficient system, suggests that we, the taxpayers, already pay enough to fund a healthcare system that covers everyone.

Thus, for the same amount that our government already directly pays for healthcare or implicitly subsidizes through tax exemptions, we would get true first-world healthcare system. Everyone would be covered, we would get fully ‘portable’ coverage, workers would have greater freedom to change jobs and locations, we could retire with healthcare before the age of 65 if we so wanted, and medical catastrophes would no longer be compounded by personal bankruptcy. The real kicker, of course, is that Americans would be richer by eliminating the 40 percent of total health expenditures now eaten up by insurance company profits, misleading advertising, over-priced prescription drugs, and the excessive resort to emergency care because of irregular preventive medical care.

There is this myth that a government healthcare program will inevitably cost more than competitive private programs. Evidence from healthcare experiences around the thoroughly refutes that myth. Here in the U.S., healthcare markets are not at all competitive. After all, there are but one or two hospitals in each town or city, we have virtually no choice over which insurance company we use when it comes to employer-based healthcare, and consumers of healthcare do not have sufficient information or understanding of the products to make good choices, especially in the case of emergencies. In the case of drugs, a small number of drug companies, who financially influence doctors to prescribe their products and pay millions to run misleading and uninformative advertisement, find it easy to extort high prices from 300 million uninformed individual consumers. Only a single-payer government-run program can stand up to the drug companies and other private suppliers of healthcare services and demand reasonable prices. And, while each American does have a vote to influence the government, let’s not forget that the average person has no influence on the small number of large corporations that now dominate the healthcare industry. These corporations act only in the interest of their stockholders and managers, and it takes more money than 99 percent of Americans have to become one of those privileged few. Perhaps with our government providing our healthcare, we will even take an interest in politics again.

What kind of a country are we?

Since the continuation or extension of the status quo will eventually bankrupt our government, the practical need for healthcare reform is obvious. But we also face a clear moral issue: the current dysfunctional private/public system created by years of special interest politics allows 101,000 people to die from preventable causes each year. How can we possibly justify maintaining, or even expanding, the current inefficient system when a less deadly system is staring us in the face? The smart thing to do, and, more important, the right thing to do, is to expand Medicare to everyone.

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