Is it time for national health insurance?

John Geyman

8 Incremental efforts over the past 30 years to “reform” health care in the United States have failed to resolve major problems in access, costs, and performance. With each failure, policymakers and politicians promise that the next advance will somehow fix the problems. The list of failed claims is long: managed care in the mid-1970s, prospective hospital reimbursement in the 1980s, health maintenance organizations in the 1980s and 1990s. The latest promises include preferred provider organizations, consumer-directed health care and health savings accounts, and disease management and electronic information technology. All perpetuate administrative waste and profiteering, which are devastating health-care delivery.

Most of all, our reliance on private insurers has created intractable problems that we cannot reasonably expect our market-based system to resolve. Today’s private insurers are often investor-owned and more accountable to shareholders than enrollees. The health-insurance industry long ago abandoned its traditions of guaranteed coverage and community rating (consistent rates within a community), as pioneered by Blue Cross in the 1930s. Instead, “experience rating,” which links rates to the claims of the previous year, has been the industry’s norm since about 1970, so most insurers seek out the healthy and leave the ill uninsured or scrambling to qualify for shrinking public programs.

Here is just one example, from a 2002 article in The Wall Street Journal, of the consequences of experience rating:

Arlene Shallan, a widow from Boca Raton, bought American Medical health coverage in 1994 because her job at a clothing store didn’t provide any. In July 2000, she says, she broke down in tears when she opened a letter saying her premiums would soar 60% to $1,318 a month. . . . Mrs. Shallan’s new premium was more than her mortgage payment.

She called Susan Nelson, the company’s underwriting chief, whose signature was on the notice. According to Mrs. Shallan, Ms. Nelson “asked, ‘Do you know that you are a diabetic? Do you realize how terrible diabetes is?’ ” . . .

Mrs. Shallan says she tried other insurers but none would sell her a policy because she had diabetes.

In other parts of the economy, insurance works best when the risk pool is broad. But the deeply fragmented health-insurance pool limits the potential for the healthy to subsidize the care of the sick. Virtually all Western industrialized countries have recognized this danger and established some form of social, universal health insurance.

The American trend toward consumer-directed health care is driven by the “moral hazard” theory of health insurance. According to that theory, insurance encourages people to overuse health services because they don’t have to pay for them. Copayments and deductibles are seen as ways to prevent such excessive demand. But as John Nyman has shown in The Theory of Demand for Health Insurance, this conception is fundamentally flawed. Insurance is effective and efficient. And copayments and deductibles lead people to delay or forego preventive and necessary care, experience worse health outcomes, more complications, more preventable hospitalizations, and higher mortality.

In addition to its wastefulness and failure to deliver good results, our market-based system is bad for business. American companies are finding it increasingly difficult to compete with companies from countries with publicly financed universal coverage. Before its recent round of layoffs, General Motors was spending $1,500 of each car’s costs on health-care benefits for its workers, and its obligations to retirees’ health benefits exceeded $63 billion.

The rationale for a single-payer national health insurance stems directly from these problems. Independent estimates by government agencies and private-sector analysts indicate that national health insurance can cover all of the uninsured, eliminate copayments and deductibles, and still assure universal coverage of necessary health care while saving money at the same time. (In California, for example, the well-known Lewin group tested nine alternative reform proposals, including various iterations of employer and individual-mandate strategies, and found that single-payer models were the only ones that provided universal coverage and still saved money.)

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So what would national health insurance look like? Would it be the dreaded “socialized medicine” that its opponents have portrayed it as for many years? Medicare, our major social health-insurance program for 40 years, gives us the answer. Since 1965 it has provided a predictable range of health-care benefits to all Americans 65 and older, as well as the disabled since 1972. Its 41 million beneficiaries rate Medicare much more highly than any private health insurance in terms of access, costs, reliability, and quality of coverage. Private interests that opposed Medicare before it was enacted have found it to be a lucrative business opportunity. National health insurance would be no more socialized than today’s Medicare program. It can be viewed as extension of Medicare to all citizens regardless of age or ability to pay.

National health insurance would be publicly financed with a private delivery system, breaking the link with the unraveling employer-based insurance system and strengthening the foundation of American health care: the physician–patient relationship. Every American would be covered for all medically necessary services, including preventive, acute, rehabilitative, long-term, and home care, as well as mental-health and dental services, occupational-health care, prescription drugs, and supplies. Citizens would have a free choice of physicians, other providers, and hospitals without financial incentives or penalties.

As envisioned by the Physicians’ Working Group for Single-Payer National Health Insurance, payment mechanisms would be structured to improve efficiency and assure prompt reimbursement while reducing cost shifting and bureaucracy. Investor-owned facilities and organizations would be slowly phased out and converted to nonprofits. Health planning would be made more feasible to eliminate wasteful duplication and improve the availability and quality of health services across the country. Private insurance duplicating national insurance would be prohibited to achieve further cost savings and strengthen a one-class system of health care. Supplementary private insurance would only be permitted for services not covered by Medicare, such as cosmetic surgery. Boards of experts with community representatives would bring cost effectiveness into coverage decisions and exclude unnecessary or ineffective services. In other words, national health insurance would be able to decrease excessive claims and increase access to necessary services. National health insurance could also develop improved information-management and quality-assurance programs and bring more accountability to the system.

Physicians and other providers would be reimbursed under national health insurance in three ways: fee-for-service, salaried in institutions receiving global budgets, or salaried within group practices and managed-care organizations receiving per-person payments. Hospitals, nursing homes, and other facilities would receive negotiated global budgets with monthly payments. A national formulary would be developed for prescription drugs, and the government would negotiate prices for drugs, medical devices, equipment, and supplies based on their costs (exclusive of marketing or lobbying).

National health insurance could be financed through a variety of mechanisms. One approach endorsed by Physicians for a National Health Program would see employers paying a 7.0 percent payroll tax and employees paying 2.0 percent, essentially converting premium payments to a health-care payroll tax. For over 60 percent of American households, a 2.0 percent tax would add less than $1,000 to their annual tax bill, and another 20 percent would pay no more than extra $1,600 a year. Americans now spend more than $6,000 per capita each year on health care. A family of four spends, on average, more than $10,000 a year on health-insurance premiums, and that insurance provides higher cost sharing and less coverage every year. Many households would experience an overall decrease in their annual health spending while increasing their benefits. Employers now spend over $6,000 a year on their employees’ health care; they too would see cost savings as costs are distributed across a universal-coverage risk pool and as the high administrative costs and profits of private insurers are taken off their backs.

Reliable estimates put the cost savings of national health insurance in excess of $280 billion a year as a result of eliminating excess administrative costs, unnecessary duplication, and cost shifting and substituting single-digit administrative overhead for the 16-to-26-percent overhead of private insurers. Another $50 billion could be saved each year through bulk purchasing of prescription drugs, as illustrated by the almost 50 percent discounts achieved by the Veterans Administration in its drug purchasing.

As with any major policy change, there would be winners and losers in the switch to national health insurance. Patients and their families would be winners. They would gain the right to comprehensive health care, with ready access to a better system without cost-sharing barriers. They would have free choice of providers and hospitals with fewer bureaucratic hassles. Whatever tax increase they might have would be more than offset by the elimination of private insurance premiums and the reduction of out-of-pocket costs. Physicians and other health professionals would be freed from much of today’s cumbersome bureaucracy; they would find the billing process simplified and their overhead lower, which would leave them more time to devote to direct patient care. Not-for-profit hospitals would receive more-stable and more-predictable revenues, together with simplified billing and administration. Business would also join the winner’s circle, since many employers would see cost savings with their new taxes more than offset by no longer needing to pay for escalating costs of health insurance for their employees. The main losers under national health insurance would be for-profit health-care corporations in such industries as insurance, pharmaceuticals and medical devices, which would need to be held accountable to negotiated prices and bulk purchasing by a single payer. Furthermore, of course, many administrative and marketing jobs in today’s swollen private health-care bureaucracy would also disappear, and these displaced workers would need to make a transition to other work.

National public-opinion surveys over the last 50 years have typically shown a majority of Americans favoring national health insurance, even when they are told that taxes will be raised and the program will be “government-run.” If survey questions asked whether people would support a program that would increase benefits, give a choice of providers, cover everyone, and control rising health-care costs, the response would likely be overwhelmingly positive.

Why then, do we not already have national health insurance? The answer boils down to politics and the powerful opposition of private stakeholders in our lucrative and relatively unregulated market-based system. Dollars spent by stakeholders on lobbying and donations to political campaigns far exceed the influence of voting by individual citizens. For example, the health-care industry spent more than $15,000 a day lobbying for its interests over the three years preceding enactment of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, which will generously fill the coffers of the pharmaceutical and insurance industries. Moreover, it is commonplace for corporate leaders to rotate in and out of government, including tours as paid lobbyists.

Other features of the American political landscape have contributed to the five past failures over the last century to enact a national health system. The labor movement in this country is much weaker than in other industrialized countries, with less than 13 percent of workers now unionized. The Democratic Party has largely retreated from the interests of labor and has not endorsed social health insurance since President Truman’s effort in 1948. Congress remains closely divided along party lines. American individualism means a lesser concern for the collective good than is seen in other Western societies. Even in a time of rampant conflicts of interest and financial scandals discrediting one corporation after another, the landscape seems to persist with little real change.

Conservative pro-market interests have been very effective over the last 30 years in preserving deregulated markets despite adverse economic and social impacts. They have effectively framed the debate in their own self-interest through a variety of myths that have been disseminated widely:

The market will solve our problems. The market continues to be advanced as a solution instead of a problem for health care, despite the proven lack of competition (e.g., the recent nine-year Community Tracking Study).

The private sector is more efficient than the government. This is an unfounded claim, as illustrated by the ninefold difference in administrative overhead of the Medicare program (3.0 percent) and investor-owned Blue Cross (26.5 percent).

National health insurance would be “socialized medicine.” This groundless slogan ignores the fact that many countries with national health insurance rely on the private sector for delivery of care, as would be the case in the United States.

We don’t ration care as countries with national health insurance do. This is a favorite assertion by opponents of national health insurance, which typically exaggerates waiting times in other countries and the dearth of access to medical technology while ignoring the widespread rationing of care in this country on the basis of ability to pay.

American society and its politics are exceptional. This claim seeks to frame our social and political views as uniquely American with few similarities to societies in other countries. But a recent study of health-care systems in many countries and public attitudes toward them (by Alan Maynard, a health economist at the University of York, in the United Kingdom) found common themes across borders with polar opposites in two camps, the libertarian-conservative-Republican camp stressing freedom and the egalitarian-socialist-Democratic camp giving highest priority to creating and sustaining equality of opportunity.

The United States has the best health-care system in the world. This widespread belief is groundless, as shown by many comparative studies of the performance of health-care systems around the world. Proponents of this myth usually make the argument in terms of access to our advanced medical technology (if you have insurance or can pay) while ignoring many studies in this country which have shown worse quality and outcomes of care in areas with the greatest use of technology.

National health insurance would break the bank. This ignores many studies by reputable groups showing cost savings by trading a more efficient single-payer system for today’s wasteful, fragmented and inefficient market-based system.

Despite all this mythology, there is hope for real structural reform as pressure to change grows.

First, the cost of care is the Achilles’ heel of the entire system. The escalation of prices far exceeds cost-of-living increases. Health care is being progressively put beyond the reach of an ever-growing part of the population without any effective cost containment in sight. We will start to see the impact of the “age wave” by 2011, when the first baby boomers reach age 65. Seniors over age 85 are now the fastest-growing part of the population, and care for chronic illness is consuming a larger part of health-care spending. The trend toward consumer-directed health care, with larger copayments and deductibles, will decrease access to necessary care far more than it will contain excessive care. It will lead to larger numbers of underinsured and tighter rationing of care until we move toward some form of social health insurance.

Second, health care has become a large middle-class problem in the United States. In their excellent 2003 book The Two-Income Trap, Elizabeth Warren and Amelia Warren Tyagi find that the average two-income middle-class family today has less discretionary income than in 1973 after basic fixed costs are met. (See also Warren and Tyagi’s “What’s Hurting the Middle Class” in the September/October 2005 issue of Boston Review.) Two and a half million jobs have been lost over the past three years as American corporations continue to downsize and outsource. More and more jobs are part-time without health benefits. Debt, defaults, and foreclosures are increasingly plaguing middle-class families. Medical bills have become a leading cause of personal bankruptcies, even though 75 percent of those bankrupted have health insurance.

Third, health-care reform need not be a partisan issue; popular consensus is possible. A growing number of American voters are defining themselves as moderates. In a 2000 poll by the Voter News Service and the Los Angeles Times, half of voters called themselves moderates, with only 20 percent liberal and 29 percent conservative. In 1965, Dwight Eisenhower made this observation about middle America: “It is only common sense to recognize that the great bulk of Americans, whether Republican or Democrat, face many common problems and agree on a number of basic objectives.” Don McCanne, a senior health-policy analyst for Physicians for a National Health Program notes, “Democrats are interested in ensuring access to affordable, comprehensive health care for everyone, or at least they should be. Republicans are interested in sound business principles which reduce administrative waste and contain costs, or at least they should be.”

Fourth, there is growing evidence that fiscal conservatives are finding common ground with progressives, consumer groups, and their allies on the left. We saw this, for example, when nine Republican senators broke ranks and voted against the 2003 Medicare bill because they deemed it to be too expensive. They had been told that the 10-year cost of the bill would be $395 billion. The latest projection by the Congressional Budget Office now puts that number at $855 billion from 2006 to 2015. It seems likely that the bill would not have passed had the real costs been made clear to legislators Some business leaders have joined the new National Coalition on Health Care, which endorses health insurance for all, cost containment, equitable financing, simplified administration, and improved quality of care. A large 2005 national study by the Pew Research Center for the People and the Press has found that many Republicans (social conservatives and pro-government conservatives) support health care as a public good over the current market-based business ethic.

And fifth, even this affluent country can’t afford to continue to squander such large sums on administrative waste, inefficiencies, and corporate profiteering. With large deficits at the federal level and in many states, public programs will be less able to protect people as they fall through the widening cracks in private-insurance coverage. Forty-one million Medicare beneficiaries are being threatened with further privatization and increased cost sharing as a result of the 2003 Medicare bill. The federal Medicaid Commission has just reported $11 billion worth of cuts for the country’s largest program, involving 57 million poor and low-income Americans. The human cost of these cuts will be high and will bring increasing urgency to health-care reform.

The essential factor now is a matter of political will. We are seeing growing political movements toward single-payer universal coverage in states such as California, Massachusetts, Maine, and Vermont.

The health-care crisis will not go away. We will eventually join all other industrialized Western countries in enacting social health insurance when the system’s cruelty to the sick and the most vulnerable among us becomes too much for the voting public to bear. <

John Geyman is professor emeritus of family medicine at the University of Washington School of Medicine in Seattle. He is author of Falling Through the Safety Net, and he was the founding editor of The Journal of Family Practice.

Originally published in the November/December 2005 issue of Boston Review