The most fundamental point that I can make regarding healthcare and healthcare systems is that they require significant state oversight to maintain their functions. One can talk about “red tape” and the costs of regulations, as the CATO institute has, but it misses the overall point: the push to rid the U.S. healthcare system of government involvement creates perverse incentives, makes it less efficient and pushes a higher cost burden onto the consumer. Some industries shouldn’t be utilized through the private sector, historically this references the Commons and natural monopolies.
For the next 4-8 years, the U.S. is going to be subject to an administration that seems to reduce healthcare policy discussion to rhetorical buzz phrases: “Government takeover of healthcare”, “sell across state lines” and “promoting competition” are a few that are chaotically thrown around.
To be fair, Trump does have actual policy proposals for reform, but it’s a very truncated view and has been estimated by the Commonwealth Fund to increase out-of-pocket spending by $2,500 on average. Regardless, the political hoopla over keeping or reforming/replacing the Affordable Care Act (ACA) doesn’t take enough into consideration; a pro vs. con list isn’t going to get the U.S. system very far.
Instead, a comparative policy analysis that factors in as many variables as possible is what seems to be missing in the political landscape. This is where T.R. Reid’s book ‘The Healing of America: A Global Quest for Better, Cheaper, and Fairer Healthcare’ comes in. Mr. Reid’s book combines statistical information with personal experience because he actually went and visited hospitals in Germany, Japan, England, Canada, France and India to inquiry about his shoulder which was so severely damaged that it required a total shoulder arthroplasty; a procedure with an average cost of around $10,000.
A Few Problems With U.S. Healthcare
It’s important to identify a few essential problems with the healthcare system that’s currently in place so the realization for a change is understood:
- Between 1995-2007, the uninsured rate (non-elderly) was around 16% (KFF)
- 45,000 people die every year from lack of access to health insurance (Harvard, 2009).
- Compared to 19 other industrialized nations, the U.S. comes in last when it comes to Preventable Mortality–deaths that might have been prevented with effective and timely care (Commonwealth Fund, 2008).
- Despite being less efficient, the U.S. still spends 17.1% of their GDP on healthcare, vastly higher compared with other nations like France (11.6%), Canada (10.7%), or the UK (8.8%) (Commonwealth Fund, 2015)
- Most for-profit insurance companies in the U.S. have administrative costs between 15-20%. Comparatively, it’s 3% for the Medicare system and 5% for Britain’s National Healthcare Service. (T.R. Reid, pg. 38)
Overall, there are 4 different models that encompass the countries with an established healthcare infrastructure, all of which I’ll garner from Mr. Reid’s book. For a more succinct online reference, look here.
The Bismarck Model
Named after Otto von Bismarck, a Prussian chancellor in the late 1800’s who was mainly focused on building a unified, powerful German state. He despised the spread of socialism in Europe and worked to introduce health insurance and pensions.
This model is currently used in Germany, Japan, Belgium and Switzerland. These countries are similar to the U.S. in the sense that they utilize the private sector for financing healthcare plans. However, unlike the U.S., the industry basically functions as a non-profit charity. Even though hospitals and insurance companies are private entities, there are tight medical regulations which serve as cost-control mechanisms.
The Beveridge Model
Named after William Beveridge, a British economist and social reformer in the early 1900’s who galvanized the National Health Service. The NHS launched in 1948 and provides free healthcare that’s funded purely from taxation to about 64 million residents in the UK.
This model is used in Britain, Spain, Italy and most of Scandinavia. There are no medical bills and healthcare is treated as a social utility analogous to a public library. Most hospitals and clinics are owned by the government where the staff are government employees. There are some private doctors and insurance plans, but polls have shown that only about 13% of (mostly upper-class) citizens in the UK belong to these plans. The exorbitant prices of these Private Medical Insurance plans are the main self-reported deterrent for individuals not subscribing to them.
The National Health Insurance Model
This is a blend of the Beveridge and Bismarck model: the payer is a government-run insurance program where every citizen contributes, but the providers are private. It’s mainly used in Canada with Australia, South Korea and Taiwan adopting some of the tenets.
With no need for marketing, profits, or offices of people who contribute to high administrative costs by denying claims, this system tends to be much cheaper than America’s for-profit system (T.R. Reid, pg. 19).
By mentioning Canada, I feel obligated to write a quick rant about the waiting times argument because it’s often brought up as the holy grail of counterpoints.
First of all, it’s worth mentioning that the ostensible influx of Canadians migrating to the U.S. for healthcare is an exaggerated myth; from the source:
“This study was undertaken to quantify the nature and extent of use by Canadians of medical services provided in the United States. It is frequently claimed, by critics of single-payer public health insurance on both sides of the border, that such use is large and that it reflects Canadian patients’ dissatisfaction with their inadequate health care system. All of the evidence we have, however, indicates that the anecdotal reports of Medicare refugees from Canada are not the tip of a southbound iceberg but a small number of scattered cubes. The cross-border flow of care-seeking patients appears to be very small.”
Secondly, the dreaded wait times are mostly for non-elective procedures; anyone that requires urgent care can get it (T.R. Reid, pg. 130). The wait times are also partially attributed to choice; Canadians voluntarily choose not to spend more on their healthcare system which would result in decreased wait times. Canada spends about 10.4% (2012) of their GDP on healthcare, up from 8.9% in 2002 so there’s legitimate cause for concern.
Lastly, Americans are more frequently observed as heading north for cheaper drugs or treatment compared to their Canadian counterparts (T.R. Reid, pg. 130).
The Out-Of-Pocket-Model
To put it bluntly, this is a system where the wealthy receive medical care and everyone else stays sick or dies. This is mostly seen in rural regions of India, Africa, South America and China where millions will go their whole lives without ever seeing a doctor. As a result, these are regions where people are forced to rely on unsubstantiated alternative medicine for their main method of treatment.
Out-of-pocket spending accounts for 91% of health spending in Cambodia, 85% in India, 73% in Egypt, 17% in the United States and 3% in Britain (T.R. Reid, pg. 19-20).
So which system does the United States use? Well, it’s complicated. From page 20 of T.R. Reid’s book:
- For most working people under 65, they use the Bismarck Model.
- For Native Americans, military personnel, and veterans, they use the Beveridge Model.
- For individuals over 65, they use the National Health Insurance Model.
- For the 45 million uninsured Americans, they’re Cambodia.
With these 4 systems in mind, which one should the U.S. adopt? Should we keep the system we have now where a myriad of for-profit insurance companies contribute to an inefficient, bureaucratic system? Yes, that’s a loaded question fallacy, but it doesn’t make it untrue.
My personal, opinionated solution is to adopt a “health care for all” single-payer system. Physicians for a National Healthcare Program have a detailed FAQ on their website that addresses a lot of the common objections to this model.
I think this country would benefit immensely from a healthcare system that has been proposed by Vermont Senator Bernie Sanders.
Although a 2015 Center for Medicare and Medicaid Services report highlighted that healthcare spending is about $3.2 trillion/year, Bernie’s plan posits that it can reduce this spending by $6 trillion over the next 10 years. Admittedly, it’s not very clear on his website on how these savings will be accomplished. However, his recently published book ‘Our Revolution: A Future to Believe In’ paints a more lucid picture.
From page 324-325 of the book:
“Private insurers’ overhead currently averages 12 percent, as compared with only 2.1 percent for fee-for-service Medicare. The complexity of reimbursement systems also forces physicians and hospitals to waste substantial resources on documentation, billing, and collections. As a result, U.S. healthcare administration costs are about double those in Canada, where the single-payer system pays hospitals global budgets and positions via simplified fee schedules. Reducing U.S. administrative costs to Canadian levels would save over $400 billion annually.”
I think the $400 billion number by solely adopting Canada’s system is overestimated, the closest number I found was in a 2014 Commonwealth Fund study which concluded that reducing our administrative costs–costs that also have no link to higher quality of care– to Canadian levels (2011) would result in $158 billion annual savings. The PNHP FAQ sourced above corroborates this by stating the U.S. would save $150 billion a year.
Reducing administrative costs to the Medicare level of 2.1%, however, would certainly get the U.S. to the $400 billion number. The New England Journal of Medicine did a study that found replacing our for-profit, multi-payer system to a national health program would save $320 billion in administrative costs.
These savings are combined with the following revenue-raising taxes:
- 6.2% income-based health premium paid by employers ($630 billion/year).
- 2.2% income-based health premium paid by households ($210 billion/year). Also, any household making under $28,800/year wouldn’t pay this tax and households making $50,000/year would only pay $466/year under this plan.
- A progressive income tax ($110 billion/year) which includes the following:
- 37% on incomes between $250,000-$500,000
- 43% on incomes between $500,000-$2 million
- 48% on incomes between $2-$10 million (this only affects 113,000 households, or 0.08% of the taxpaying population)
- 52% on incomes above $10 million (this only affects 13,000 households, or 0.01% of the taxpaying population)
Also thrown into the mix is taxing capital gains, limiting tax deductions for the rich, and an estate tax which combines to $128 billion/year in revenue raised. Add all of this together combined with the savings listed above and you have a grand total of $1.398 trillion which pays for the $1.38 trillion cost of implementing this system.
With all the dry economics out-of-the-way, I think the moral imperative of our system lacking healthcare equity is the heart of the issue . Alleviating the burden of healthcare costs for the poor, working class people who need it the most is an accomplishment that we should ultimately strive for. Currently, medical bills are the number one cause of bankruptcy in the United States. This unnecessary stress on our nations poorest people, which leads to higher vulnerability to diseases later in life, is something that our policy makers are exacerbating as a matter of choice. That is simply immoral and a systemic failure.
Poor Americans live in areas with worse air quality which can lead to a litany of problems like lower birth weights, kidney problems and even an increased propensity for heart attacks and strokes. All of this leads to an estimated 470,000 deaths per year and perhaps even millions when different factors are included, from the study:
“Using simulated concentrations for 2000 and 1850 and concentration–response functions (CRFs), we estimate that, at present, 470 000 (95% confidence interval, 140 000 to 900 000) premature respiratory deaths are associated globally and annually with anthropogenic ozone, and 2.1 (1.3 to 3.0) million deaths with anthropogenic PM2.5-related cardiopulmonary diseases (93%) and lung cancer (7%).”
Until we get a strangle hold on man-made pollution, these problems will continue to persist and intensify.
A Change Of Culture
Americans today are seeming to become increasingly hostile towards the mere mention of any sort of tax increases regardless of context. We seem to view the government as a school yard bully who takes our lunch money; this is true in some areas. For example, The Army Corps of Engineers spending $74.5 million on an unused airport and $29 million on a harbor with no roads connecting to an Alaskan town of 75 full-time residents.
Healthcare isn’t one of these areas. As I’ve explained above, in the context of healthcare, the for-profit, private system is actually less efficient, less equitable, more bureaucratic and wasteful than the government. As a nation, we’ll simply have to do the hard work and look at the profound long-term benefits of a meager tax increase for a single-payer system. If we don’t, the U.S. will continue to fall further and further behind other developed nations in all categories of health.
yet another blog 