The Great Health Care Debate

Every 4 years health care pretends to be a big presidential campaign issue. This is despite the fact that nothing has been done with it since the establishment of Medicare and Medicaid in 1965. However, because there are few real domestic issues to talk about and two major candidates (Edwards and Clinton) have made it "their" issue in the past and present, it has (re?)emerged as a major issue once again. Unfortunantly, much of the debate surrounding health care is muddled because of the number of interest groups, political opportunists, people who nothing about it, and people with unsubstantiated opinions. Hopefully, the following diatribe will help steer you through some of the confusion. As always, you have to start with history.

The first modern health insurance was given to Los Angeles workers on an irrigation project in 1908. As part of their wages, they were given access to doctors and medical treatments as a means to promote efficiency. Although often taken for granted, health insurance, from its beginning, was driven by employers who saw the benefit of a healthy work force. In 1929, as the depression hit, Baylor University Hospital offered a prepayment insurance plan to people in the surrounding area in order to avoid bankruptcy. The hospital joined with others in the area eventually evolving into Blue Cross. In 1939, the first true HMO (Health Maintenance Organization) was founded by Henry Kaiser to attract workers to work in his shipbuilding plants (as part of the preparedeness strategy for World War II) in Richmond, CA. (My grandfather was one of the first patients of the Richmond Kaiser hospital. After a crane operated by a drunkard smashed his leg, he awoke one day in his hospital bed to find Henry Kaiser willing to strike a deal with him: if he didn't sue, he'd give him lifetime employment. My grandfather didn't sue. He would later get a job with Pacific Bell.) In 1945, Harry Truman proposed a national health insurance scheme that would provide universal coverage based on payroll taxes (similar to social security and the model for medicare). However, the plan was struck down basically by the organizing of one interest group: the American Medical Association (AMA). The AMA is an association of doctors and is akin to what the bar association is for lawyers. The AMA had a few reasons to oppose Truman's plan, including that it would set how much they could charge for specific services and it would force doctors to deal with certain patients. Interestingly, the most prevalent and appealing rationale was that Truman was trying to "socialize" or "communalize" medicine. At the time, America was in the grip of anti-communist fervor and doctors tended to be very conservative. With hindsight, it was a bit of paranoia considering the rest of the industrialized world has adopted a similar plan and have not fell to the communist menace (yet?) and America has been able to survive despite "socializing" medicine for retired people and poor children (medicare and medicaid)

With the failure of the Truman's plan, medical insurance was thrown into limbo, basically to this day. Without a national plan, employers and employees found privatized health cooperativese (HMOs) to fulfill their medical needs. This of course left millions completely uninsured. In 1965, an attempt was made to solve some of the egregious results of privatized health care by using a social security surplus from the baby boom generation to help fund medicare and medicaid (more on social security in a later diatribe). The most recent health care proposal was made by Bill Clinton in 1993. Hillary was put in charge of the plan and she went to work: producing a massively complicated 1,000 page bill to congress. It was so complicated I can't really discuss it here, but basically the plan aimed to provide everyone with health care that they could reasonably manage on their own, cut health care costs, and cut down on bureuocracy and paperwork. Also, you'd get a health care card to carry around everywhere you went, which I think would be pretty cool. I'll save a full discussion of the Clinton plan for another post, but I'll just say this: it was an awesome plan. It was also the most confusing piece of public policy in American history and easily derided by interest groups who could simplify it into what it wasn't. It was another case of our news media completely failing us.

Fast forward to 2008, and we're faced with another "Great Health Care Debate." As I said, these kind of "debates" happen every four years. Basically, Democrats are waiting for health care costs to get so ridiculous, which they will, that people will have to turn to them. They've been waiting for a while (basically since 1945). Unfortunantly, a lot of people know there's something wrong with health care, they just don't know what. That's because there are four problems (actually, there are 5, but I'll get back to that later):

1. Lack of Universal Coverage: Every country in the industrialized world has universal health care except the United States. Why does everyone else have it? Because your gardener with measles is allowed into your gated community. In other words, even the rich have an interest in everyone around them being healthy. Currently about 20% of the country, 60 million people, don't have health care of any sort. Since hospitals have to help people with emergencies regardless of whether they have insurance or can pay for it, a lack of universal coverage costs hospitals a lot of money, by the way. So what? Who cares if the hospital has to spend money? The answer is that you do...or should. Public hospitals are funded by taxes (which means you pay for it) and private/HMO hospitals are forced to raise their hospital rates, which means you have to pay more to be at the hospital (which are now crowded because fewer are being built because too many people who can't pay are going to them because they're not insured) and they raise their insurance rates. Honestly, these costs are a drop in the bucket, but what isn't a drop in the bucket is all the money that is used to treat uninsured people for diseases and ailments that could have been prevented if they had regular access to a doctor if they had medical insurance. Lastly, because HMOs are driven by profit they have an inherent interest to maximize the costs for the consumer, assuming they can remain competitive. Of course, a privatized health care may cause costs to lower because of competition, since so few companies are actually involved in health care and there is significant economies of scale in the health care industry, there is actually relatively low price competition, and when it does occur, it is usually only for the short term. Contrasted with public and non-profit universal health care systems, private health care providers are less concerned with pushing down the costs to the consumer, although they may be more efficient. However, in a market where efficiency often translates to poorer services since there are few options, efficiency as it understood in this context may not actually be a good thing. In fact, because physicians have so many overlapping regulations from HMOs, hospitals, and the government, the private system may actually contribute to MORE bureaucracy and paper work. This just adds more and more costs.

2. Expensive Drugs: You've all heard about those old people going to Canada to get their medication, right? Why do they go to Canada? Because Canada has a national health plan that sets how much drug companies can charge for a certain drug. If the company refuses to sell it for that low...well, then they don't sell them to Canada. Presently, no drug company is boycotting Canada. Well, you might ask, if Medicare is great, why do the elderly have to go to Canada? It's an accident of history. When Johnson signed Medicare into law, the pharmeceutical industry was rather small and did not have the fancy drugs it has now. Johnson just assumed it wouldn't be a problem for people to pay for their own medicines. With some drug costs amounting to $20,000 a year, this has become a disaster.

3. Doctors, Hospitals, HMOs Can Charge Whatever They Want: Without government oversight and regulation in this area, the above mentioned groups can basically charge whatever they want for services. Of course, it's not that simple. Doctors if they're part of an HMO charge whatever the HMO says they can charge (apparently doctors like to be told what to do by a businessmen rather than a politician). A similar thing happens with hospitals and HMOs. HMOs then are limited by the laws of supply and demand and can only charge what people are willing to pay. Thus, everything's peachy pie and the free-market works, right? Well, sort of. There can be a large discrepancy in costs for certain procedures between different HMOs and the average consumer can't figure out what would be the cheapest way to get it. The bigger problem, though, is that a free-market only works when there is free-competition (in other words, never). There are only a limited amount of HMOs an employer or employee can choose from. HMOs have gotten good at carteling their prices to raise them to ever higher level and less good at using price-competition. Hospitals in particular have been hit by a deregulatory fervor left over from the 1980s that sold off most hospitals to large companies who are very intent on gouging their clients. The result has been increased costs for the consumer (a.k.a. you and your employer).

4. Lawsuits: Without government oversight, private doctors have become vulnerable to giant and ridiculous malpractice lawsuits. Surgery isn't easy, but if you as a doctor, who's spent a decade training for the profession, screw up, you could become bankrupt. Most doctors get equally outrageously expensive malpractice insurance plans. Of course, who ends up paying for the added costs for the doctors? If you guessed someone else...you're wrong.

All four of these problems have contributed to an immense increase in the cost of health care. So much so, that HMOs have had to raise their prices. This not only means that both employers and employees have to pay more for health care, but also that small businesses can no longer afford paying for employee health care.

The result has been even less people being covered by any kind of health insurance. Let's look at the numbers. The United States notoriously spends the most money per capita on healthcare in the world. For every man, woman, and child, the US spends about $5700. Comparatively, the UK and Canada spend about $2500. Honestly, comparisons to Britain are misleading because the British system is hyper-centralized, of poor quality because of lack of funding, and would never be used in the US for a variety of reasons. Comparisons with Canada are also questionable because the nation does so much free-riding off of American medical technologies. Additionally, France's system does not lend well to comparisons because it is so highly socialized and controlled by the central government. Instead, I like to use Japan and Germany for comparisons. In both cases, health care is extremely decentralized (which would lend itself well to American federal structure) and contains elements of privatization within a larger nationally run system (in other words, it's similar to what we could have, especially if Truman had won his battle against the AMA). Japan, by the way spends $2600 per capita and Germany $3200. Germany and Japan are interesting also in that their governments spend less on health care as a percentage of government spending than the United States. This is because both systems have been highly de-bureaucratized.

But just because a country spends less on health care, it doesn't make their system any better. A country could spend nothing on health care and...well, they wouldn't be very healthy. Thus, we need some measurement to compare the health value of certain systems. There are a number of different statistics to look at. One easy one is life expectancy. The U.S. life expectancy is 77.5 years compared with 80 in Germany, 82.5 in Japan, 80.5 in Canada, and 79.5 in the UK. Of course, there are a number of reasons why people might live longer that have nothing to do with health care spending (for example, pollution, working hours, age of retirement, etc.) A better statistic then could be infant mortality. Once again, the U.S. is behind: .6% of infants die in the U.S. during the first year of life, compared with .3% in Japan, .4% in Germany, and .5% in the UK and Canada. There are a variety of other statistics I could use to prove the same point: the US, despite spending almost twice as much on health care per person than other developed countries, has one of the lowest health benefits out of its system.

There are essentially two reasons for the inherent comparable inferiority of our system. One is that we, unlike everyone else, do not have universal health care. This has caused a lot of our statistics to become skewed: the early deaths and infant deaths are suffered disproportionately by uninsured people. Some might call this unfair skewing, others might call it indicative of the worst pieces of our health system. Essentially, about 20% of people in this country have health care that is comparable, if not worse, than that in 3rd world countries. Amazingly, a good chunk of our population could look at health care in Cuba, China, Nigeria, or Slovenia with envy. (speaking of which, in a 2000 world ranking of health care systems in the world by the WHO, the U.S. was listed as 37th, one spot ahead of Slovenia and two spots ahead of Cuba.) The other reason is the 5th reason why health care is so expensive that I foreshadowed earlier. If you remember those movies where some struggling father (who usually looks like Greg Kinnear) finds out that his daughter has leukemia or some other terminal disease and he promises to do everything he can to provide her with the best treatment money can buy as he works 7 jobs to find a cure, you'll have an idea where the fifth expense comes from. While it may sound heroic and it makes for a good movie, it is not the best strategy for managing health care. This is because while to that father no amount of money would be too much to his daughter, as a society the value of saving that child is severely diminished. After all, how much money would you give for treating a terminally ill child in Wisconsin? If it's a lot, I can give you some websites and phone numbers. For most people, of course, your wallet is limited and that money could probably be spent better somewhere else. It's sad, but true. However, unlike in every industrialized country in the world, the United States' health care system spends millions of dollars keeping alive terminally ill patients. It is estimated that about $1000 per capita could be saved by "streamlining" when hospitals send home patients and give up on treatments. It's cold but true. The British health system is notorious for such coldness, but most other systems have installed a variety of methods of cutting back on such costs. The U.S. even has its method: most HMOs only cover hospital bills for a month, then you're on your own. That means that if you suffer irreperable brain damage, but still can "live," you'll only be able to do so if you have a special health care package or very wealthy relatives. Given that, you may guess why U.S. health care costs are so statistically inflated: when the insurance runs out, Americans, because they want to be the guy in the movie and because compared to the rest of the world, they have the money to do it, are more likely to support terminally ill patients and patients with irreperable brain damage.

I separated the 5th reason from the rest because it has little to do with health care reform and more to do with economics and American temperament. As I mentioned, changing some rules could save as much as $1000 per capita, but the reason that HMOs don't is because Americans don't want to do this. Fair enough. There are other ways to cut back costs.

In fact, a variety of ways are being proposed during this election campaign. The proposals of the Democrats have driven the debate. In reality, the difference between the Obama, Clinton, and Edwards plans are negligible and trivial. Honestly, the only reason these candidates have a plan is to, one, establish themselves as viable candidates, and two, give the Democrats something to talk about in debates. It doesn't hurt that talking about health care helps the Democrats. You may have noticed that the candidates have not released their Iraq plan yet. All plans that have been proposed and will be proposed by the Democrats have the following characteristics:

1. they will mix private and public systems and include HMOs.

2. they will seek a cost cutting mechanism. Clinton has proposed a panel to analyze and regulate medical practice efficiency. More conservative candidates may focus on tort reform, just because they hate lawyers like John Edwards.

3. They will seek universal or near-universal health care. Because his plan is not compulsory, strictly speaking, Obama's plan is not a true universal health insurance coverage plan. This is more a technicality more than anything else. Look for all the other candidates to exploit this in debates.

4. They will maintain a patient's ability to choose a doctor and give them some flexibility in their preferences.

5. They will pretend their plan is simplistic when it is extremely complicated.

6. They will address drug costs.

7. They will be very confusing and boring.

The Republicans have been less willing to propose a health care plan because they know it's not an issue they're going to win with. In many ways, they will basically argue that the status quo is okay and all that is needed is a few minor tweeks. In 2004, Bush did just that with a half-assed drug plan and a highly conservative tort reform package that had no chance of passing in Congress (full of lawyers?).

One Republican that has broken the mold is Rudy Giuliani. Giuliani's proposal is so crazy it just might...be crazy. Giuliani's plan is to continue the conservative mantra of tax cuts and deregulation and apply it to health care. Essentially, Giuliani proposes to give every American a tax credit for having health care and let them choose their own health coverage. He uses the term PPO to refer to the new health organizations that will spring up in the new consumer directed health provider market, but he's just using something familiar to describe something foreign. As he talks about it, Giuliani would make health insurance similar to auto insurance. Now, there would be some benefits to this, namely that costs would be radically driven down as the Geicos of health care compete in the marketplace for those who want insurance in name only to get the tax credit. Unfortunately, health insurance is not auto insurance. As in auto insurance, consumers would be vulnerable to swindling. Currently, health care plans are screened by labor unions and employers and simplified for the buyer so that they aren't scammed. Without these intermediaries, such screening would be left to the consumer. There is also the problem of funding. Where would this tax credit come from? Will Giuliani raise taxes to pay for the tax break? Probably not. Certainly the plan, without new taxes, would be beneficial for the employer who would no longer have pay anything to have their employees in good health. Giving a tax break with the numbers Giuliani has been throwing around ($15,000 per family) would cost about 150 billion dollars. I do have to admit that the plan would insure more people and would probably approach universal coverage, accepting that the insurance would be completely voluntary. In some speeches he has suggested giving a further tax break (welfare?) to those who can't afford the few thousand dollars that would differ between the tax break and the cost of the health plan. But the biggest problem with the plan, the problem that makes it nonesensical, is that treating health insurance like auto insurance defies the whole purpose of health insurance. The basis of health insurance is that you don't know when you might get sick. Although some people are usually healthier than others, it's not comparable to people being better drivers than others. If you were struck by a sudden and expensive illness you would be forced to pay the monstrously high premiums you would have to pay for crashing into three school buses while drinking vodka and changing your baby. The reason people get health insurance is so that they are covered when something goes wrong, not for when they make a mistake. In this system, if you got sick, your premiums would raise and you would be a less sought after customer by health insurance providers. In fact, it is the pooling of clients without health problems with those that have health problems that makes health insurance a profitable undertaking for HMOs.

The health care debate is confusing, tedious, and easily convoluted. Hopefully, I've outlined what the problem is and given a foundation for making your own political decisions. Obviously, my own viewpoint is that we need a decentralized public system. However, I accept that this is politically impossible (thank you, AMA). I should end by giving you the following warnings:
1. No matter how much you study it, health care will always be confusing. It is sometimes impossible to get past the rhetoric and figure out what's actually being proposed.
2. If there's a simplistic campaign commercial that makes a plan seem ridiculously bad, it's probably misleading you.
3. If someone uses the term "socialized medicine" he/ she is probably a closet fascist.
4. If there's a lot of money behind a plan (from drug companies, hospital associations, or HMOs), it's probably a bad plan.
5. Just because it's complicated it doesn't mean it's bad. It just means that it'll never get passed.