Single-Payer National Health Insurance around the World Part Iby admin on 06/19/2011 12:53 PM
In 2002 and 2003, we reviewed The Twenty Myths of health care reform. Now a decade later the authors have updated the book, renamed it, and added important 21st century data.
Lives at Risk by John C. Goodman, Gerald L. Musgrave, and Devon M. Herrick
Published in cooperation with the National Center for Policy Analysis
ROWMAN & LITTLEFIELD PUBLISHERS, INC.
Lanham • Boulder • New York • Toronto • Oxford
Introduction: Thinking about Reform
As we move further into the twenty-first century, it is clear that we are living with a number of institutions that were not designed for the Information Age. One of those institutions is health care.
Virtually everyone agrees that our health care system needs reform. But what kind of reform? Some on the right would like to see us return to the type of system that prevailed in the 1950s. Some on the left would like to see us copy one of the government-run systems established in the mid-twentieth century and variously called socialized medicine, national health insurance and, more recently, single-payer health insurance. For example, Physicians for a National Health Program, claiming membership of 8,000 physicians and medical students, contends that “single-payer national health insurance would resolve virtually all of the major problems facing America’s health care system today.”
We believe that neither of these two alternatives will work. But before we explain why, let us stop to consider some central problems that every reform faces. Most commentaries on health policy tend to ignore three very important facts about modern health systems:
1. We can potentially spend our entire gross domestic product (GDP) on health care in useful ways.
2. Whatever portion of our income we are spending on health care today, we are likely to want to spend more in the future.
3. We have suppressed normal market forces in dealing with characteristics one and two.
These facts are not in dispute. Rather, they are readily acknowledged by all health policy analysts.
Also, the first two characteristics are not unique to health care. They are true of many other goods and services as well. But when combined with the third characteristic, they have devastating implications.
PROBLEM: OPPORTUNITIES TO SPEND MONEY
ON HEALTH CARE ARE ALMOST UNLIMITED
Medical research has pushed the boundaries of what doctors can do for us in every direction. The Cooper Clinic in Dallas now offers an extensive checkup (with a full body scan) for about $1,500 or more.2 Its clients include Ross Perot, Larry King, and other high-profile individuals. Yet, if everyone in America took advantage of this opportunity, we would increase our nation’s annual health care bill by a third. More than 900 diagnostic tests can be done on blood alone,3and one doesn’t need too much imagination to justify, say, $5,000 worth of tests each year. But if everyone did so, we would double the nation’s health care bill. Americans purchase nonprescription drugs almost twelve billion times a year and almost all of these are acts of self-medication.
Yet, if everyone sought a physician’s advice before making such purchases, we would need twenty-five times the number of primary care physicians we currently have.4 Some 1,100 tests can be done on our genes to determine if we have a predisposition toward one disease or another.5 At, say, $1,000 a test, it would cost more than $1 million for a patient to run the full gamut. But if every American did so, the total cost would run to about thirty times the nation’s total output of goods and services!6
Notice that in hypothetically spending all of this money we have not yet cured a single disease or treated an actual illness. In these examples, we are simply collecting information. If in the process of search we actually found something that warranted treatment, we could spend even more. One of the cardinal beliefs of advocates of single-payer health insurance is that health care should be free at the point of consumption, regardless of willingness or ability to pay. But if health care really were free, people would have an incentive to obtain each and every service so long as it had any value to them.
In other words, everybody would have at least an economic incentive to get the Cooper Clinic annual checkup, order dozens of blood tests, check out all their genes and consult physicians at the drop of a hat. In short order, unconstrained patients would attempt to spend the entire gross domestic product (GDP) on
health care even though, as a practical matter, that would be impossible.
“Free” health care is of course not really free. It is care paid directly by employers, government or some other entity, and indirectly by workers and taxpayers. The more employers pay for health care the less employees receive in wages. The more the government pays, the less after-tax income taxpayers have. Therefore, allowing patients to go on an unconstrained shopping spree in the medical marketplace would ultimately impoverish all of us.
No serious person wants this result. Not even the advocates of single-payer health insurance want it. Instead, they envision placing many obstacles in the path of patients and doctors in order to constrain spending. These obstacles may not be prices, but they most certainly involve costs, such as the cost of waiting for care. Although its advocates call national health insurance “singlepayer insurance” these days, its distinguishing characteristic is not control of demand. It is control of supply.
Like the systems of Canada and Britain, American health maintenance organizations (HMOs) also make health care free to their enrollees at the point of delivery. They then control access to care, especially expensive care, on a case-by-case basis. Whether or not an HMO patient gets an MRI brain scan, for example, depends upon the symptoms and the probable outcome of the scan, as well as its cost. HMOs, therefore, control costs by curtailing demand.
Nothing like that happens in countries with national health insurance, however. For one thing, doctors in Canada would have no idea how much a scan actually costs and therefore would have no basis for comparing costs with probable medical benefits. The number of brain scans is controlled in Canada, not on the basis of a case-by-case review of patient conditions, but because of spending constraints to limit the number of MRI scanners.
Many American doctors have endorsed the single-payer idea, in part because they envy the ability of Canadian doctors to practice medicine without managed care-type, third-party interference. What they overlook is that, at least from a budget perspective, Canadian officials have no reason to care what decisions doctors make. They limit the number of scanners, and therefore the expense of scanning, before doctors see even a single patient. American physicians who support single-payer insurance also tend to discount lack of access to expensive diagnostic equipment in Canada, believing that the problem could be ameliorated by just spending more. They do not realize that the only reason the Canadian system works at all is because the government controls supply. If Canadian doctors (who, again, have no idea what anything costs) had access to an unlimited supply of MRI units, they might spend Canada’s entire GDP on brain scans!
In general, countries with national health insurance control costs by imposing arbitrary limits. They strictly control the number of doctors who can be specialists. They limit access to modern medical technology. The more expensive the service, the more difficult they make access. As a result, in countries with national health insurance, people wait. They wait in the offices of general practitioners. They wait to see specialists. They wait for surgeries. And waiting is a rationing device comparable to money prices in a market system.
In this book we will stress many differences between the U.S. health care system and government-run health care systems. But on the demand side, the differences are not as great as one might suppose. Although health care is not free at the point of consumption for the average American, it is almost free. On the average, every time a patient spends a dollar on hospital care in our country, only two cents comes out of the patient’s own pocket. The other ninety-eight cents is paid by a third party (an employer, insurer or government.). On the average, for every dollar patients spend on physician care, only twelve cents comes out of their own pockets. And for the health care system as a whole, patients pay directly only eighteen cents of every dollar they spend. The rest is spent by some other entity.7
On the demand side, the problem with a system with no money prices is that people view each good or service as though its price were zero. As a result, they tend to try to consume the item so long as it has any value at all. The problem this creates is enormous waste. People seek services until the value to them is almost zero, even though the cost of these services may be quite high. The upshot is that people consume services for which the social benefit is well below the social cost. In Britain, for example, people have to pay out of pocket to see a movie, go to the theater or witness a sporting event.
But the only costs to see a physician are the costs of travel and waiting time. So although the government makes an enormous investment in their training, British physicians spend an inordinate amount of time on trivial complaints.
In the United States, things are not that much better. Although no one wants to enter a hospital, once there, the typical patient in this country has an incentive to use hospital services until they are worth only two cents at the margin (or about 1/50th of the actual cost). Aside from the costs of time and travel and the risk of being around other sick people, patients have an incentive to utilize physicians’ services until they are worth only twelve cents on the dollar. And for the health care system as a whole, our incentive is to spend until the services we receive are worth only eighteen cents on the dollar. No wonder there is so much waste!
In principle, there are not many solutions to this problem. Someone must choose between health care and other uses of money. The question is, who will that someone be? The answer of single-payer advocates is medical bureaucracies answerable to politicians. And much of this book will be spent looking in some detail at how rationing decisions are made in these systems.
A second method for choosing between health care and other uses of money is the method of managed care. The paradigm is the HMO. As noted above, HMOs have far less rationing by waiting than do national health insurance schemes. One reason for the difference is that HMOs tend to make rationing decisions based on medical and economic rather than political considerations. Because some policy analysts believe that a system of competing managed care organizations can solve the problems of single-payer health insurance, we devote a chapter to that idea.
The third method of choosing between health care and other uses of money is to allow patients themselves to choose. A vehicle that facilitates such choices is a health saving account (HSA), from which patients pay medical expenses directly. Funds not spent on health care grow in the account and may be used for other purposes. Singapore has had a compulsory system of “medisave” accounts since 1984.8 Medical savings accounts (MSAs) were introduced in South Africa in the early 1990s and today represent 65 percent of the market for private health insurance in that country.9 The United States experimented with a pilot program for several years and as of January 1, 2004, HSAs are available to all nonelderly Americans.10
So far, these accounts have mainly been used to pay relatively small medical bills, less than a few thousand dollars. These are the expenses that fall under a health insurance deductible. But as the accounts grow and if health insurance evolves toward the casualty model, the accounts could play a role in almost every aspect of health care. Consider homeowner’s casualty insurance, for example. If hail damages a roof, an insurance adjuster surveys the damage and agrees to a sum sufficient to cover the cost of repair—usually by a repair service the insurer knows. But the homeowner is not restricted to this option. He or she can choose other, more expensive repair services or even choose to replace the damaged roof with a nicer roof.
In principle, health insurance could work the same way. In the case of expensive heart surgery or cancer care, the insurer could direct the patient to a hospital or clinic and agree to pay the full cost. But the patient would be free to take the same reimbursement amount and apply it to another hospital or clinic, paying any extra charges from an HSA account.
In the world of casualty insurance, auto repair shops act as agents of automobile owners. Roofing repair services act as agents of homeowners. Suppliers of these services do not see themselves as agents of third-party insurers.
In a similar way, HSAs could free patients to become the real decision makers, choosing between health care and other uses of money in virtually every part of the health care system. In such a world, doctors, nurses and other providers would see themselves as agents of their patients rather than agents of impersonal bureaucracies.
Read the complete book: http://www.ncpa.org/pdfs/livesatrisk/Lives-at-Risk_NCPA.pdf (PDF | 5MB)
Continued in the April, 2014 HPUSA newsletter. . .