Government Payment for Health Care — Causes and Consequences
By Victor R. Fuchs, Ph.D.
The New England Journal of Medicine
December 1, 2010The most obvious, easily quantifiable difference between the United States and countries that have national health insurance is that those countries spend much less on health care, whether measured per capita or as a share of the gross domestic product. Not only is the United States the highest spender, but the gap between it and the other countries is unnaturally large.
The difficult question is why the special interests have more influence over health policy in the United States than they do elsewhere. The answer probably lies in part in the structure of the U.S. political system, including the role of primary elections, long and expensive election campaigns, the separation of powers, the numerous congressional committees and subcommittees with overlapping authority, and the need for supermajorities in the Senate in order to pass meaningful legislation. But the quirks of the political system can’t be the whole answer. If the U.S. public wanted a different outcome, over time they could move policy in that direction.
A second large difference between health care in the United States and in countries with national health insurance is the more important role of redistribution in the latter countries. Such redistribution is evident in the greater equality of access to care and in the sharing of costs through taxes on income or payroll, value-added tax or sales tax, or other forms of taxation that are either proportional or progressive with respect to income. Of course, all insurance is redistributive after the fact. The large amount of care utilized by a small proportion of policy holders is paid from the premiums of others who use little care. The important distinction is that under a national health insurance system, the redistribution occurs before the event, since it is clear that some individuals will pay much less tax than the value of their insurance and some will pay much more.
Since redistribution plays a greater role in the health care systems of other countries than it does in the United States, there is an implication that a more egalitarian ethos holds sway in Europe, Canada, Australia, and New Zealand. From de Tocqueville to the present, many observers have commented on the stronger role of individualism in the United States than elsewhere, but there is no consensus regarding its explanation. Possible contributors to the phenomenon include the heterogeneity of the population, the revolutionary origins of the country with its dedication to “life, liberty, and the pursuit of happiness,” and the absence of many centuries of a common language, history, and culture. In speculating about the possible rise of despotism in a democracy, de Tocqueville painted a grim picture of individualism taken to the extreme. He wrote, “Each . . . living apart, was a stranger to all the rest — his children and private friends constitute to him the whole of mankind; as for the rest of his fellow citizens, he is close to them, but he sees them not; he exists but in himself and for himself alone.”
The lower spending and the greater redistribution in countries that have national health insurance are not independent phenomena. If spending in these countries were at U.S. levels, the taxation required to accomplish their redistribution goals would probably wreck the economy. Given the social or political desire to redistribute health care resources, constraints on spending become a necessity. These constraints take various forms, such as controls over the number and specialty mix of physicians, limits on facilities and acquisition of expensive technologies, hard bargaining over prices charged by drug companies and other suppliers, and restraints on physicians’ fees and incomes, among others.
Because the governments in these countries pay for most medical care — usually 70 to 90% of total expenditures — they are in a good position to apply these cost-restraining measures. They have what economists call “monopsony power.” The U.S. government, although it pays for almost 50% of health care, makes very little use of its power to restrain costs. Thus, in one sense, Americans wind up in the worst of all worlds, with government bearing a big part of the burden of paying for health care, with the concomitant large burden of taxes, but exercising very little control over the cost of care. As an indication of how absurd the situation is in the United States, government currently spends more per capita for health care than eight European countries spend from all sources on health care.
And…
What’s Ahead for Health Insurance in the United States?
By Victor R. Fuchs, Ph.D.
The New England Journal of Medicine
June 6, 2002The announcement that most of the nation’s biggest insurers — Aetna, CIGNA, Humana, the United Health Group, and Wellpoint Health Network — will be introducing a new kind of health plan during the next year or two signals the beginning of a new era in health insurance in the United States. These plans feature a complicated menu of premiums, copayments, and deductibles. One of their major effects will be to shift the burden of health care costs from employees who use little care to those who use more. Thus, the new plans will be another nail in the coffin of health insurance as a form of social insurance.
The Reemergence of Social Insurance
The case for the fairness of the social-insurance model will be strengthened as people realize that most health problems have, at least in part, a genetic basis. The case for the model’s efficiency will benefit from recognition that employment-based insurance has high administrative costs but provides no advantages to society as a whole. The desire to exert more direct control over increasing expenditures will provide an additional reason to introduce some form of national health insurance.
The timing of such a change, however, will depend largely on factors external to health care. Major changes in health policy are political acts undertaken for political purposes. The political nature of such changes was apparent when Bismarck introduced national health insurance to the new German state in the 19th century. It was apparent when England adopted national health insurance after World War II; and it will be apparent in the United States as well. National health insurance will probably come to the United States after a major change in the political climate — the kind of change that often accompanies a war, a depression, or large-scale civil unrest. Until then, the chief effect of the new plans will be to make young and healthy workers better off at the expense of their older, sicker colleagues.
In his 2002 NEJM article, Victor Fuchs explained the inevitability of national health insurance in the United States, but cautioned that will likely only come to our nation “after a major change in the political climate – the kind of change that often accompanies a war, a depression, or large-scale civil unrest.” In his current NEJM article, he provides plausible reasons as to why there has been such resistance to the inevitability of national health insurance – intense enough perhaps to require political upheaval, if we expect action. We have been trying war and deep recession. Does that mean our only hope left is “large-scale civil unrest”?