Getting Covered

Choose a plan everyone can agree on

This article is a response to The Primary Solution.

Dysfunctional social systems can persist for a long time. Major change occurs only when three developments coalesce: a problem begins to attract popular and political attention; the major players agree upon a refined and feasible proposal; and a transforming political event—a major electoral realignment, natural disaster, economic depression, or war—takes place, creating what the political scientist John Kingdon has called an “open policy window.”

So far, only the first development is in place for health-care reform. There is most certainly a problem, and over the next few years it is likely to receive considerably more public attention as the ranks of the uninsured grow, stress on state budgets from escalating Medicaid costs increases, and strife between labor and management over health benefits intensifies.

As for transforming political events, they are by definition unpredictable. In 1991, no one predicted that Harris Wofford’s use of health care to win the Pennsylvania Senate seat would catapult health care into the 1992 presidential race. Perhaps a series of embarrassing failures for the Republican Party—corruption indictments, accusations of incompetence in handling the Iraq war and the Hurricane Katrina recovery effort—could together represent a transforming event. We cannot know precisely what will open the policy window in the next few years.

What we can do is to prepare the right policy proposal. Many exist; which one best meets the challenge?

According to conventional wisdom, the Clinton health-care-reform plan failed because it overreached. As one influential health advisor to the Kerry campaign put it, “The scope and reach of the Clinton proposal proved to be its downfall.” The message: think small! Try to achieve little things and you might get them enacted. Accordingly, Kerry proposed incremental and limited changes.

This analysis is wrong. In the early 1990s there was a cacophony of proposals, and advocates for reform could not rally around one plan. Because there was no consensus, there could be no coalescence. A major change—even to universal coverage—is possible, but those seeking it need to agree on one proposal or risk another failure. What should that proposal be?

• • •

Many people favor a single-payer system: either Medicare for all, or an American version of Canadian socialized health insurance. The epicenter of the campaign for single-payer is Boston, where the Physicians’ Working Group for Single-Payer National Health Insurance and Arnold Relman, the former editor of the New England Journal of Medicine, have taken the worsening of the current system as an opportunity to vigorously push their proposals.

Single-payer has advantages. It would achieve universal coverage. By creating a unified system, it would reduce administrative costs. And since it incorporates everyone, like Social Security and Medicare, it would give the politically powerful and the well-off a stake in the system, which should ensure adequate funding.

The biggest problem with single-payer is its failure to cohere with core American values. Single-payer puts everyone into the same system with the same coverage and makes it virtually impossible to add amenities and services through the private market. This approach ignores the political culture that, according to observers since Tocqueville, distinguishes America from Canada and Western Europe: the way we balance individual freedom and equality.

How can we have universal care while avoiding some of the problems that make a single-payer system undesirable and unlikely to succeed?

For both religious and economic reasons, individualism has always been at the center of American political values. And America’s conception of equality is rooted in this individualism: the United States is a land of opportunity, not economic security; our commitment is to equality of opportunity, not equality of outcome. As a consequence, compared with Canada and most of Western Europe, we have a smaller government with much less responsibility for social and economic problems, leaving more for individuals to pursue in the private market.

We may object that there is no true equality of opportunity in the United States and that fewer poor rise into the middle class here than in other countries. We may argue that maintaining such a limited safety net is callous, unethical, and harmful to people, the environment, and social structures. But we should not confuse what we desire and think would be best for the country with what is consonant with deeply ingrained values.

Indeed, it is precisely the dissonance of single-payer with American values that has doomed it since it was first attempted, in 1913. Franklin Roosevelt, who pushed through the New Deal, did not even attempt to enact universal health coverage because he thought it futile. Harry Truman’s single-payer plan was soundly defeated. Even the unlikely triumvirate of Richard Nixon, Ted Kennedy, and Wilbur Mills (chair of the House Ways and Means Committee) could not get universal coverage passed in the early 1970s. These political defeats reflect the disconnect between single-payer and basic American values.

Single-payer advocates respond by noting the enormous popularity of Medicare. Single-payer is, they argue, simply a kind of Medicare for all. But popular support for preserving an existing program with entrenched beneficiaries is totally different from support for enacting a new program. Medicare was created at a unique moment, when Lyndon Johnson was—thanks to a landslide electoral victory and exceptional political savvy—the most politically powerful president we have ever had. But even he did not attempt to create a single-payer system for all; he opted for Medicare for the elderly and Medicaid for the poor. In the 1960s, many people rationalized these programs as the first step toward the ultimate goal of a single-payer system. But over 40 years, that strategy has proved illusory. Medicare has not been expanded, despite repeated attempts to lower the age of eligibility to 55, and any dream of doing so has been shattered by the enormous cost.

Not only does single-payer conflict with core American values, it is also bad politics. A wide variety of constituencies have deep ideological objections to single-payer. They are opposed to having everyone in the same program; they are against big government; they fear the rise in taxes; they don’t like anything Canadian or European. Without being able to appeal to business groups and conservatives, single-payer cannot be pushed through Congress.

Single-payer plans are not only bad politics; they are bad policy. First, a single-payer system, like Medicare and the Canadian provincial system, would institutionalize fee-for-service reimbursement for a substantial portion of the delivery system. Fee-for-service is terribly inefficient; even with single-payer, it leads to duplication of services and tremendous problems with the continuity and coordination of care. Fee-for-service also provides a huge financial incentive for doctors to order tests and procedures and no financial incentive to, say, refer terminally ill patients to hospice. Second, creating a public system that guarantees comprehensive benefits while cutting out the private market invites financial disaster. Single-payer systems that promise comprehensive benefits confront a dilemma: either provide every service at huge and growing costs or ration services by queuing.

Medicare’s financial straits illustrate the problem. Last year, Medicare paid $309 billion for services provided in hospitals and physicians’ offices for over 35 million elderly and 6 million disabled Americans—more than $7,300 per person, representing 2.6 percent of GDP. The addition of the drug benefit will increase the bill to $438 billion in 2006, or 3.4 percent of GDP. By 2020, the number of people receiving Medicare will increase to 55 million and devour over 5 percent of GDP, emptying the Medicare Trust Fund. If unchanged, in 75 years Medicare is projected to consume a higher percentage of the nation’s GDP than the federal government will receive in taxes from all sources.

Maybe the best way to understand the severity of Medicare’s fiscal problem is to consider the magnitude of the steps needed to solve it. According its the trustees, Medicare could be “brought into actuarial balance over the next 75 years by an immediate 108 percent increase in program income or an immediate 48 percent reduction in program outlays.” That is, to eventually solve Medicare’s money problems, we would need to more than double taxes or cut benefits nearly in half today! No wonder a New York Times editorial concluded, “Even in fantasy, no one has yet come up with a way to pay for Medicare.”

The alternative, practiced in countries that include Canada, Britain, and Norway, is queuing: cover all services in theory, but limit the number of MRI machines or cataract operations or hip replacements. Even in Canada, where the citizens feel much less entitled than Americans, queuing has become intolerable and the supreme court has ruled that Canada can no longer limit the private insurance market.

Single-payer advocates respond that they will ensure the system’s efficiency by assembling a board of experts to identify unnecessary or ineffective services. But the issue isn’t ineffective care, the issue is marginally effective care. If the state covers colon-cancer treatments, shouldn’t it cover Imclone’s Erbitux? It was approved by the FDA because it extends the life of patients with metastatic colon cancer for an average of 1.7 months at a cost of tens of thousands of dollars. Erbitux is not ineffective—just marginally effective. Excluding it would mean invoking cost-effectiveness analysis, something that most countries with single-payer systems have been loath to do.

• • •

How can we have universal care while avoiding some of the problems that make a single-payer system undesirable and unlikely to succeed? We propose a system of universal health-care voucher that would provide every American under 65 a voucher for basic health services from a qualified insurance company or health plan. Participating health plans would have to guarantee enrollment and renewal for the risk-adjusted value of the voucher regardless of medical history. Those who enrolled would be free to choose among several basic insurance programs and health plans; those who failed to enroll would be assigned one.

People who wanted to purchase additional services or amenities, such as a wider choice of hospitals and specialists or more-comprehensive mental-health or dental services, could do so with their own after-tax dollars.

Where would the funding for the vouchers come from? From an earmarked VAT, or value-added tax. Earmarking creates a direct connection between benefit levels and the tax level: if the public wants more services to be covered, they must be willing to support a tax increase. A VAT is administratively efficient, cannot be easily evaded, and creates an approximate link between taxation and personal wealth.

Government itself would not administer medical services; the current private delivery system would be maintained. Health-insurance companies and health plans would continue to contract with physicians, hospitals, rehabilitation facilities, pharmacies, and other providers for services to the individuals who enroll in their plans.

Even in Canada, queuing has become intolerable and the supreme court has ruled that Canada can no longer limit the private insurance market.

With universal health-care vouchers, employment-based insurance would probably fade away, and with it the lower wages, higher prices, and reduced employment that it brings. Critics across the political spectrum have noted the many shortcomings of employment-based insurance; few would mourn its passing. Medicaid and other means-tested programs would also become virtually obsolete as those covered were integrated into the mainstream health-care system. (Funding for long-term care such as nursing care would need to be continued.) As for Medicare, it could be phased out over time without forcing any existing beneficiary to switch to the voucher system. Importantly, current Medicare benefits would be supplemented by a tiered pharmacy benefit modeled on the one provided as part of the voucher program’s basic benefits package.

Management and oversight of the voucher program would be the responsibility of a federal health board modeled after the Federal Reserve Board, with multiple regional boards to facilitate implementation. It would define and periodically modify the basic benefits package, inform Americans about their health-care options, reimburse health plans, and collect data on patient satisfaction, quality of care, risk, and geographic adjustments for payments. It would also regularly report to Congress on the health-care system. The success of the voucher program would also be assessed by an independent institute, funded by a dedicated portion of the VAT, that would research the effectiveness and value of different interventions and treatments.

• • •

Why should we endorse the universal health-care voucher system? First, it achieves universal coverage, finally redeeming the American health-care system that leaves 45 million people in the cold. The voucher system accomplishes this universality without means testing or any other demeaning procedures. No one would ever be denied health insurance because of their health, wealth, or any other reason.

Second, vouchers are egalitarian while promoting individual choice. Everyone contributes to the cost of the system, and everyone is covered. But individuals also decide which plan they want and whether to buy additional services. The government will no longer disproportionately subsidize the care of individuals with higher incomes by exempting them from the taxes on their health-insurance premiums that they would otherwise pay at a higher rate.

Third, by guaranteeing everyone a basic benefits package but not comprehensive services, the program would be able to offer universal coverage without opening the government piggy bank to every intervention devised by pharmaceutical companies or device manufacturers. Because only basic benefits will be covered, there will be substantial pressure to ensure that covered services provide value for money.

Fourth, breaking the link between employment and health insurance enhances continuity of care and efficiency of labor markets. With universal health-care vouchers, people can stay with the same health plan as long as they wish. If plans offer multi-year enrollment contracts, they will save administrative costs and have a significant incentive to provide high-quality care. Furthermore, employers will no longer be tempted to make labor decisions based on how much employees’ health care will cost.

Single-payer, for all its virtues, cannot secure bipartisan support because it conflicts with deeply entrenched American values.

Universal health-care vouchers will also rid the states of the burden of Medicaid. By integrating everyone into one system financed at the national level, states will be free to focus on education, public safety, highways, and other critical issues instead of trying to figure out what services to cut in order to pay for Medicaid increases. Similarly, it solves the Medicare crisis without threatening current beneficiaries.

Most importantly, the universal health-care voucher proposal is more politically feasible than single-payer. No major health-care reform proposal can be enacted that does not appeal to conservatives and the business community, and vouchers can appeal to conservatives. They will like the individual choice and the reliance on the private market for health-care delivery. They will like the elimination of Medicaid and the phasing out of Medicare—two programs they have long tried to abolish. And true conservatives will also like the elimination of the substantial federal subsidies for the health insurance of the well-off. More importantly, major segments of the business community will like vouchers. Big businesses, especially those with older employees—GM, Ford, and United, for instance—want out of health care completely. For ideological reasons they will never endorse single-payer, and they fear employer mandates or taxes such as those being tried in Maine. Vouchers provide the ideal solution: a health-care plan that relieves them of financial responsibility while ensuring that their workers get adequate care.

Those who think they recall learning in Economics 101 that VATs are regressive may have some lingering doubts about vouchers. But it is worth remembering that VATs are used in most developed countries to finance extensive social services. Also, a VAT can be made progressive by adjusting what is taxed. Items such as food and utilities that are disproportionately consumed by the poor can be excluded from the base. Income taxes may be progressive in theory, but thousands of deductions and credits have made them much less so. Finally, VATs are efficient and fair because, unlike income taxes, they cannot easily be evaded. This is why many liberal economists and tax experts, including Robert H. Frank and Philip J. Cook in their book The Winner-Take-All Society and Edward J. McCaffery in Fair Not Flat, endorse a VAT or a similar type of consumption tax. (Interestingly, conservatives, such as the economist and author Bruce Bartlett, who have long objected to VATs, have begun to urge them to finance health care.)

Some may also worry that permitting the rich to buy additional services will create an unjust two-tier medical system. Health coverage, they think, will not be allocated based on medical need but ability to pay. But those who oppose tiered health care overlook the many existing systems that have tiers. Canada’s has a natural escape valve: the United States. Affluent Canadians who are dissatisfied with the quality and timeliness of care can purchase care across the border. Even within cities and regions of Canada, access to care varies greatly by residence, income, education, and connections.

Furthermore, if we look to theories of justice for guidance, we discover that a single-tier health-care system is not required. The services guaranteed to all must be “good enough” or “a decent minimum,” but not necessarily everything a person might want. Justice is required, as John Rawls reminds us, precisely because resources are inherently scarce; we must decide how to distribute what is available. Health care is not the only vital service. We are now witnessing our inordinately expensive health-care system drain funds away from education, the environment, and other worthy social goods. A just society that values more than health care should only guarantee people a basic benefits package that ensures that they have a reasonable range of opportunities to live a full life. If people want to spend more of their own money on health care, so be it.

• • •

As the health-care situation worsens and the opportunity for a confluence of problem, policy, and politics arises, we must not squander it. We must unify around a viable proposal that can garner sufficient support to be enacted. A system of universal health-care vouchers achieves the central goal that health-care reform advocates have longed for: a universal guarantee of a basic benefits package, managed in a financially responsible manner. But it also coheres with America’s unique combination of individualism and egalitarianism. And it is likely to garner support from enough conservatives and business leaders to make it a viable proposal.

We can each push our favorite plan and have universal health care fail yet again. Or we can compromise and get all Americans covered.


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About the Author

Ezekiel J. Emanuel is Head of the Department of Bioethics at The Clinical Center of the National Institutes of Health and author of The Ends of Human Life.

Victor R. Fuchs, Henry J. Kaiser, Jr. Professor of Economics and of Health Research and Policy, Emeritus at Stanford University, is author of The Future of Health Policy.

Part of Reforming Health Care, a forum on American health care with Barbara Starfield and others.
Barbara Starfield, The Primary Solution