U.S. healthcare policy is now in limbo. The Affordable Care Act has withstood Congressional attempts to repeal it, but it has many flaws which need to be repaired. Primarily, the ACA expands access to healthcare in the U.S. (good) but does nothing to control burgeoning costs for both individuals and the federal budget (bad).
One option for both further expansion of access as well as cost control is Bernie Sanders’ single-payer “Medicare for All” plan. A different option is universal catastrophic care for all Americans not already covered by Medicare or Medicaid (including those receiving employer provided health insurance).
A different perspective is provided by an editorial in the New England Journal of Medicine. According to the authors, Eric Schneider and David Squires, the U.S. also faces (in addition to the challenge of much better cost control) several performance challenges such as:
Lack of access to affordable and comprehensive insurance coverage for too many people.
Relative underinvestment in primary care. Other developed countries have a higher percentage of their professional workforces dedicated to primary rather than specialty care and deliver a wider range of services at first contact.
Administrative inefficiency of the U.S. healthcare system. The solution here is to change our reimbursement systems to use global payments, fee schedules, formularies and defined benefits.
Disparities in the delivery of care. People with low incomes, low educational attainment, and other social and economic challenges face greater health risks and thus need even greater access to primary healthcare.
Conclusion. The U.S. compares poorly with other advanced countries in both the quality and cost efficiency of its healthcare system. Healthcare costs in the U.S, are a huge drain on the economy and will ultimately cause huge fiscal problems if not brought under much greater control.
It is frequently stated that the current Republican Congress is ineffective in getting anything done. That is not entirely true. A big issue was decided this past summer. The failure of Congress to repeal and/or replace the Affordable Care Act means that the goal of universal healthcare for all Americans is here to stay.
The question now is the best way to implement universal healthcare. Senator Bernie Sanders (D, VT) has just introduced a single payer universal plan, “Medicare for All.” Here are some of the problems associated with such a plan:
At least three states, Vermont, Colorado and California have recently rejected state-wide single-payer plans because of the huge costs involved.
The Urban Institute estimates that Medicare for All would increase federal spending by $32 trillion for the first ten years (compared to a very high current total national debt of $20 trillion).
Medicare is an inefficient hidebound system with over 140,000 procedure codes where private sector cost-saving measures, like competitive bidding for routine services, are rarely used.
There are now 155 million Americans who receive and like their employer provided health insurance and who will resist moving to a Medicare for All plan especially at the cost of a huge tax increase.
On the other hand the cost of healthcare in the U.S., public and private, now eats up 18% of GDP, almost twice as much as for any other developed country, and major changes need to be made to give individuals more direct responsibility for the cost of their own healthcare.
One attractive alternative is to limit the tax deduction for employer provided care to the cost of catastrophic coverage, at a cost of about $3000 per person per year. It could be made progressive by tying deductibles to income.
Conclusion. Healthcare spending in the U.S. is way too high and something major needs to be done. Universal catastrophic care for all Americans not already covered by Medicare and Medicaid is an attractive alternative to single-payer Medicare for All.
My last two posts, here and here, have discussed major intrinsic problems with the Affordable Care Act. It has been set up in an actuarially unsound manner and the cost of insurance coverage through the exchanges is growing very fast. The rapidly rising cost of American health care, public and private, is in fact one of our country’s biggest problems. It is an affordability issue for millions of American households. Furthermore the rapidly rising cost of the entitlement programs of Medicare and Medicaid is the fundamental driver of our exploding national debt problem.
As I see it there are two different routes we can take to solve this problem. One way is to move towards a true free-market approach where healthcare consumers (all of us!) have more “skin in the game” in the sense that we move away from third party payment for routine care. It is quite interesting that this is already starting to happen under Obamacare!
The other way of getting costs under control is to adopt a single-payer system, like much of the rest of the developed world. But this would necessarily involve stringent cost controls and severe rationing and would be a lot more difficult than just enrolling everyone in Medicare. For example:
American doctors and nurses are very well paid. The average family physician in the U.S. earns $207,000, double the rate for general practitioners in Great Britain, which has a single-payer system. Are we going to arbitrarily chop doctor salaries in half in order to control costs?
The State of Vermont recently backed away from implementing its own single-payer system because the needed tax increases would have more than doubled Vermont’s annual budget. Colorado will vote in November on a petition-supported single-payer proposal, ColoradoCare, which would be paid for by a $26 billion annual state tax increase, and is therefore unlikely to pass. For a state to implement its own single-payer system at least requires budget honesty, since all states are required to balance their budgets. There is no such requirement for our federal government and so a single-payer system would be financed just like Medicare, with deficit spending. Bad idea!
Conclusion. American healthcare needs radical reform but adopting a single-payer system is not the best way to do it.
My last two posts, here and here, argue that the high costs of American healthcare, almost double what other developed countries pay per-capita, has two fundamental causes which must be addressed:
Very low out-of-pocket costs as a result of the tax exclusion for employer provided care.
The very expensive, and rapidly growing, government entitlement programs of Medicare and Medicaid.
It is often suggested that the best way to get these high costs under control is for the U.S. to adopt a single-payer, government run, healthcare system, like many other developed nations have done. Writing in yesterday’s Wall Street Journal, the policy analyst, Nathan Nascimento, makes a persuasive, and well referenced, counter argument to this suggestion:
The State of Vermont recently backed away from implementing a single payer system because of the very high tax increase which would have been required, more than doubling Vermont’s annual budget.
The State of Colorado will vote a year from now on a petition-supported single payer proposal, ColoradoCare, which would be paid for by a $26 billion annual state tax increase and is therefore unlikely to pass.
In Canada, which has a single payer system, the average wait between a general practitioner’s referral and delivery of treatment was more than four months in 2013.
Our own Veterans Affairs hospital system, a single payer system on an annual budget, is failing thousands of veterans who often die while waiting for treatment.
Medicare, an open ended single payer entitlement system, now costing almost $600 billion per year, is one of the main causes of our burgeoning, out of control, national debt.
Conclusion: For the U.S. to move to a national single payer system would be very risky and very costly. It is far better to wait and see if Colorado or some other state is willing to take such a leap of faith and then see how it works out in that context.
My last post, “Why Is American Healthcare So Expensive?” suggests that we don’t have enough “skin in the game” because most costs are paid for by third party insurance companies. One way to alleviate this problem is to subsidize insurance coverage only for catastrophic care with a high deductible and to encourage health savings accounts to pay for routine healthcare expenses. But the University of Chicago’s John Cochrane points out in “After the ACA: Freeing the market for health care” that getting to a true free market in healthcare “will be a long hard road” because “both supply and demand must be freed.”
Health care supply. Cost reduction only comes from new entrants into a business, not reform of old businesses. But in 36 states, for example, every new hospital or even major purchase requires a Certificate of Need issued by Hospital Equalization Boards which have explicit mandates to defend the profitability of existing hospitals.
Health care demand. True “need” is simply not a well-defined concept when a third party is paying the bills. The consumer must pay a lot closer to the full marginal cost of healthcare, or perhaps receiving the full financial benefits of any economies which he is willing to accept.
What are the objections to establishing a free market system?
The homeless and mentally ill, etc. Charity will always be needed for those who fall through the cracks. This doesn’t require a nanny state for the rest of us.
Adverse selection. In a free market sick people are more likely to buy insurance and healthy people to forgo it. Sick people would pay more but “health status” insurance and guaranteed renewability will mitigate this problem.
Shopping paternalism, i.e. people faced with serious illnesses are incapable of making cost-based decisions. These people and their families will simply have to learn to shop around. In a competitive market, a hospital which routinely overcharges cash customers will be “creamed by Yelp reviews.”
Conclusion. There are only two ways to get health care spending under control. A single payer system with rigid regulations and severe rationing or else a deregulated free market system where individuals have primary responsibility for their own care. Americans are likely to prefer the second option if given a clear choice.
As I discussed in my last post, it is critical and urgent for the U.S. to sharply reduce the cost of healthcare, both public and private. There are basically two different ways to do this: with either a “single payer” system like most of the rest of the developed world has, or with a more nearly free market system than we have at the present time. Both Switzerland and Singapore have largely free market systems with universal coverage and they operate at far less public cost, as shown above, than for other developed countries including the U.S. The Singapore model features Catastrophic Care insurance, coupled with Health Savings Accounts, for all citizens, with subsidies for those with low-income. The Swiss model employs exchanges, similar to our own Affordable Care Act, to subsidize, on a sliding scale, health insurance for the low income. In Switzerland only 20% of the people receive an insurance subsidy compared to 85% in the U.S.
The Manhattan Institute’s Avik Roy has proposed a true free market system for the U.S., “Transcending Obamacare: a patient-centered plan for near-universal coverage and permanent fiscal solvency,” which is modeled on the Swiss system. Mr. Roy’s plan sets up universal exchanges to offer insurance, subsidized if necessary, to everyone who does not receive it from their employer.
He proposes that over time Medicare and Medicaid recipients as well as Veterans would migrate into the exchange system. This means that eventually the 30% of Americans (elderly, poor and veterans) who now receive direct government (single payer) support would become part of the exchange system. Mr. Roy’s Universal Exchange Plan is projected to reduce deficit spending by $8 trillion over the 30 year period which it will take to fully phase in the exchanges. This will go a long way towards solving our serious fiscal problems.
Conclusion: both Singapore and Switzerland have high quality, cost efficient free market health care systems which proves that a free market approach is possible. Mr. Roy adapts and expands the Swiss model for the much larger and more complex American market. It isn’t necessarily the last word in healthcare reform but it takes a big step in the right direction.
With a total national debt of $17.8 trillion, of which close to $13 trillion is public debt (on which we pay interest), it is easily understood that the U.S. has a very serious fiscal problem. At the present time the public debt is 74% of GDP and this already high percentage is predicted by the Congressional Budget Office to keep growing indefinitely.
The biggest driver of spending growth going forward is the cost of healthcare. For example just the three programs, Medicare ($492 billion), Medicaid ($280 billion) and Veterans Healthcare ($54 billion), cost a total of $826 billion per year in federal dollars. And these costs are all increasing rapidly. Of course, private healthcare spending, currently about $2 trillion per year, is also growing rapidly. Overall, the U.S. spends 17.3% of GDP on healthcare spending, public and private, almost twice as much as any other developed country.
How are we going to address this enormous cost issue going forward? The Affordable Care Act (aka Obamacare) doesn’t do it. What it does do is to provide healthcare to more people under our current model of employer provided health insurance with Medicare for the elderly and Medicaid for the poor. It is this model which is broken and must be reformed. Basically we have two choices for how to do this. Either we switch over to a “single payer” system like most of the other developed countries have or we establish a far more efficient free market system. As the above chart shows, right now we have a composite system and it is just not cost-effective. There are plenty of experts who claim that a free market cannot work in healthcare. For example, the tax lawyer, Edward Kleinbard, in a new book, “We Are Better than This: how government should spend our money” argues that what a free market gives us is: unavoidable controversy for excluded pre-existing conditions, moral hazard for risky behavior, uncertain premiums for permanent insurance, fragmented healthcare markets, monopoly provider organizations leading to price opacity, very high administrative costs, etc. The Manhattan Institute’s Avik Roy has a different point of view. In his proposal, “Transforming Obamacare,” (http://www.manhattan-institute.org/pdf/mpr_17.pdf) he points out that there are two countries, Switzerland and Singapore, which operate highly regarded free-market healthcare systems at very low public cost. Stay tuned for further discussion!
Yesterday’s New York Times has an excellent article, “The $2.7 Trillion Medical Bill”, which uses a detailed analysis of the cost of colonoscopies to show why American healthcare is so expensive. In the U.S. an insurance company pays about $3500 – $4000 for a colonoscopy compared with the cost for the procedure in Europe of between $400 – $800. Also the price can vary enormously, from as little as $665 (in Utah) to as much as $8577 (in New York City). There are all sorts of reasons for this huge variation in cost, for example, whether or not an anesthesiologist is used as well as a gastroenterologist, and whether the procedure is performed in a surgical center rather than in a doctor’s office.
The basic problem, of course, is that in the U.S. nobody is sufficiently responsible for the bottom line. The patient isn’t responsible because the bill is paid by the insurance company. The insurance company negotiates with healthcare providers but the insurance premium is paid by the patient’s employer. If the insurance company has to pay too much in claims one year, then it just raises insurance premiums for the following year.
The problem is getting so serious that it will soon have to be dealt with in a comprehensive way. There are essentially two different ways to proceed. One is to have a single payer system like most of Europe and Canada. Healthcare would be tightly controlled by the federal government which would set prices and ration care. The cost of healthcare would be controlled but we’d be giving up a great deal of personal freedom in return. Basically it would amount to expanding Medicare into a rigidly prescribed national healthcare system.
The alternative is to adopt a new payment system which makes each of us directly responsible for the cost of our own healthcare. The best way to accomplish this is to remove the tax exemption from employer provided health insurance. Health insurance could still be provided by an employer but it would be considered a part of total salary and be taxed as such. Then the employee, as well as any self-employed person, would have a direct personal stake in setting up an efficient health insurance plan to keep the cost of healthcare under control.
Americans put great emphasis on personal freedom and responsibility and I believe that most of us would prefer this latter free market approach to healthcare rather than a single payer system like what most of the rest of the world has!