By David U. Himmelstein, MD, and Steffie Woolhandler, MD, MPH
The Annals of Thoracic Surgery
2007; 84: 1435-1446
Almost all agree that our health care system is dysfunctional. Forty-five million Americans have no health insurance, resulting in more than 18,000 unnecessary deaths annually according to the Institute of Medicine [1]. Tens of millions more have inadequate coverage. Health care costs will reach $7498 per capita this year, 50% higher than in any other nation, and continue to grow rapidly. Market pressures threaten medicine’s best traditions. And bureaucracy overwhelms both doctors and patients. Opinion on solutions is more divided.
Discussion of health reform was muted in the 1990s after the defeat of President Clinton’s Byzantine scheme for universal coverage. But now, the accelerating collapse of employment-based coverage under the pressure of globalization is reopening debate. Firms like General Motors (GM) and Ford are crippled by the growing burden of health costs, which add $1500 to the price of a GM car versus $419 for a German Mercedes and $97 for a Japanese Toyota [2]. Meanwhile, low-wage employers like Wal-Mart gain competitive advantage by purchasing goods made overseas (where health benefit costs are low) and offering only the skimpiest of health coverage to their US workers. Governments face a double whammy: everexpanding benefit costs for their employees (eg, teachers, firemen, and police) as well as sharply escalating costs for public programs such as Medicaid and Medicare.
As employers attempt to shed the costs of health care, working families increasingly find care and coverage unaffordable. In 2005, 18% of middle-income adults lacked health insurance for at least part of the year, up from 13% in 2001 [3]. Nearly a quarter of Americans report being unable to pay medical bills, and 13% had been contacted by a collection agency about a medical bill within the past year [3]. Last year, 18% of those with coverage and 43% of the uninsured failed to fill a prescription because of cost, and millions forego routine preventive care like Pap smears, mammograms, and colon cancer screening because of lack of coverage [3]. More than half of 1.748 million American families in bankruptcy courts last year [4] were there at least partly because of medical illness or medical bills; three-quarters of those in medical bankruptcy had health insurance at the onset of the illness that bankrupted them [5].
We advocate a fundamental change in health care financing–national health insurance (NHI)–because we are convinced that lesser measures will fail. Indeed, the alternative to NHI advocated by the Bush administration, so-called Consumer Directed Healthcare (CDH), would actually make matters worse. As discussed in detail below, CDH would financially penalize older and sicker patients, deter millions from seeking needed care, shift additional medical resources to those who are already well served, further inflate bureaucracy, and do little or nothing to contain costs.
The Failure of Incremental Reforms
Since the implementation of Medicare and Medicaid in the late 1960s a welter of piecemeal reforms have aimed to reduce medical costs and expand coverage. Health maintenance organizations (HMOs) and Diagnosis-Related Groups promised to moderate health spending and free up funds to expand coverage. Tens of billions have been allocated to expanding Medicaid and similar programs for children. Both Medicare and Medicaid have tried managed care. Oregon implemented explicit rationing in its Medicaid program, Hawaii passed a law requiring all employers to cover their workers, Massachusetts passed a similar program in 1988 that was never implemented, Tennessee promised nearly universal coverage under the TennCare program, and several states have implemented high-risk pools to insure high-cost individuals. For-profit firms pledging to bring businesslike efficiency to health care now own most HMOs, dialysis clinics, and nursing homes, as well as many hospitals. And, following the prescription of many economists, the health care marketplace has become increasingly competitive. Yet none of these initiatives has braked the relentless rise in the number of uninsured, the costs of care, or the number and power of health care bureaucrats.
All such patchwork reforms founder on a simple problem: expanding coverage must increase costs unless resources are diverted from elsewhere in the system. With US health costs nearly double those of any other nation and rising more rapidly [6], and government budgets already stretched, large infusions of new money are unlikely.
Absent new money, patchwork reforms can only expand coverage by siphoning resources from existing clinical care. Advocates of managed care and market competition once argued that their strategy could accomplish this by trimming clinical fat. Unfortunately, new layers of bureaucrats have invariably overseen the managed care “diet” prescribed for clinicians and patients. Such cost-management bureaucracies have proven not only intrusive but also expensive, devouring any clinical savings. For instance, HMOs in the Medicare program now cost the taxpayers at least 12% more per enrollee than the costs of caring for similar patients under traditional Medicare [7].
Resources seep inexorably from the bedside to administrative offices. The shortage of bedside nurses coincides with the growing number of registered nurse utilization reviewers. Productivity pressures mount for clinicians, while colleagues who have moved from the bedside to the executive suite rule our profession.
Bureaucracy now consumes nearly a third of our health care budget [8].
Consumer Directed Healthcare, The Next Disappointment
The latest policy nostrum, Consumer Directed Healthcare (CDH), is premised on the idea that Americans are too well insured, painting them as voracious medical consumers too insulated from the costs of their care. CDH proponents advocate sharply higher insurance deductibles (eg, $5000 for an individual or $10,000 for a family) as the stimulus needed to make Americans wiser medical consumers. In policy wonks’ dreams, these highdeductible policies are coupled with Health Savings Accounts (HSAs), tax-free accounts that can be used to pay the deductible as well as for medical services like cosmetic surgery that are entirely excluded from coverage. But in practice, half of employees covered by CDH plans have no funds at all in their HSA [9], leaving many patients at risk for massive uncovered bills without savings with which to pay them.
CDH plans may benefit those who are young, healthy, and wealthy, but threaten the old, sick, and poor. Under CDH those with low medical expenses win: they get lower premiums, pay trivial out-of-pocket expenses, and perhaps accumulate some tax-advantaged savings in their HSA. But patients needing care lose. For instance, virtually anyone with diabetes or heart disease is sure to pay more under CDH plans. For them, the higher outofpocket costs required before coverage kicks in will exceed any premium savings. Even those with only hypercholesterolemia or hypertension will face higher costs unless they forego needed medications or other care.
The CDH incentives selectively discourage low-cost primary and preventive care while doing nothing to reduce the high-cost care that accounts for nearly all health spending. High deductibles will cause many to think twice before opting for a routine mammogram, Pap smear, cholesterol check, or colonoscopy. In the Rand Health Insurance Experiment, the only randomized trial of such health insurance arrangements, highdeductible policies caused a 17% fall in toddler immunizations, a 19% drop in Pap tests, and a 30% decrease in preventive care for men [10]. While the high deductibles caused a 30% drop in visits for minor symptoms, they also resulted in a 20% fall in visits for serious symptoms such as loss of consciousness or exercisedinduced chest pain [10]. Most patients have no way to know whether their chest discomfort signals indigestion or ischemia.
CDH discourages many patients from seeking routine, low-cost care, but those with severe acute illnesses have no choice. Even 1 day in the hospital pushes most patients past CDH plans’ high-deductible thresholds, leaving the patient with a large bill for the first day of care but with no further incentive to be a prudent purchaser. Hence, CDH incentives inflict financial pain on the severely ill who account for 80% of all health costs but will have little impact on the overall costs of their care.
Moreover, risk-selection incentives inherent in CDH threaten to raise the cost of other insurance options. As healthy, low-cost patients shift to CDH plans, premiums for the sick who remain in non-CDH coverage will skyrocket. Already in the Federal Employee Health Benefits Program, CDH plans are segregating young men from the costlier female and older workers [11]. According to a leaked memo, Wal-Mart’s board of directors considered offering CDH plans to the employees as an explicit strategy to push sicker, high-cost workers to quit [12].
CDH also seems unfair on other accounts. The tax breaks for HSAs selectively reward the wealthiest Americans. A single mother who makes $16,000 annually would save $19.60 in income taxes by putting $2000 into an HSA [13]. A similar mom earning $450,000 would save $720 in taxes.
If making Americans pay more out of their pockets for care could constrain health care costs, it would already have done so: the United States already has the world’s highest out-of-pocket costs for care and the highest health costs. Co-payments in Switzerland–a nation near the top of the charts in health spending–have not reduced total health expenditures [14]. In Canada, charging co-payments had little impact on costs: doctors less frequently saw the poor (and often sick) patients who couldn’t pay, but filled their appointment slots with more affluent patients who could [15, 16]. Higher co-payments for medications in Quebec resulted in increased emergency department visits, hospitalizations, and deaths for the poor and elderly [17]. Similarly, capping drug coverage for Medicare beneficiaries in the Kaiser HMO caused a sharp drop in adherence to drug therapy (as well as a rise in lipids, blood pressure and blood glucose) but no change in overall health costs [18].
Moreover, CDH and HSAs add new layers of expensive health care bureaucracy. Insurers and investment firms are already vying for the estimated $1 billion annually in fees for managing HSAs [19]. And CDH will force physicians to collect fees directly from patients (many of them unable to pay)–a task that is even costlier than billing insurers [20]–while still making us play by insurers’ utilization review and documentation rules: failure to do so disqualifies bills from counting toward the patient’s deductible.
Although CDH proponents paint a rosy picture of consumer responsiveness and personal responsibility, CDH would punish the sick and middle-aged while rewarding the healthy and young. Employees would bear more of the burden, employers less. Working families would be forced to skimp on vital care, while the rich would enjoy tax-free tummy tucks. And as in every health reform in memory, bureaucrats and insurance firms would walk off with an ever larger share of health dollars.
The Case for National Health Insurance
In contrast to CDH, a properly structured NHI program could expand coverage without increasing costs by reducing the huge health administrative apparatus that now consumes 31% of total health spending. Health care’s enormous bureaucratic burden is a peculiarly American phenomenon. No nation with NHI spends even half as much administering care nor tolerates the bureaucratic intrusions in clinical care that have become routine in the United States. Indeed, administrative overhead in Canada’s health system, which resembles that of the United States in its emphasis on private, fee-forservice-based practice, is about half the US level [8].
Our biggest HMOs keep 20%–even 25%–of premiums for their overhead and profit [21]; Canada’s NHI has 1% overhead and even US Medicare takes less than 4% [8, 22]. And HMOs inflict mountains of paperwork on doctors and hospitals. The average US hospital spends one-quarter of its budget on billing and administration, nearly twice the average in Canada. American physicians spend nearly 8 hours per week on paperwork and employ 1.66 clerical workers per doctor [23], far more than in Canada [8].
Reducing our bureaucratic apparatus to Canadian levels would save about 15% of current health spending, $300 billion annually, enough to fully cover the uninsured and to upgrade coverage for those now underinsured. Proponents of NHI [24], disinterested civil servants [25, 26], and even skeptics [27] all agree on this point.
Unfortunately, neither piecemeal tinkering nor wholesale computerization [28] can achieve significant bureaucratic savings. The key to administrative simplicity in Canada and other nations is single-source payment. Canadian hospitals, which are mostly private, nonprofit institutions, are paid a global annual budget to cover all costs, much as a fire department is funded in the United States, obviating the need for administratively complex per-patient billing. Canadian physicians, most of whom are in private practice, bill by checking a box on a simple insurance form. Fee schedules are negotiated annually between provincial medical associations and governments. All patients have the same coverage.
Unfortunately, Canada’s program was starved of funds during the 1990s by a federal government that faced budget deficits, reflecting the pressure from the wealthy to avoid paying taxes to cross-subsidize care and other services for the sick and poor. Where once Canadian and US health spending was comparable, today Canada spends barely half (per capita) what we do [6]. Shortages of a few types of expensive, high technology care have resulted.
Yet Canada’s health outcomes remain better than ours (eg, life expectancy is 2 years longer), and most quality comparisons indicate that Canadians enjoy care equivalent to that for insured Americans [6, 29]. Moreover, the extent of shortages and waiting lists has been greatly exaggerated. For instance, there are no waiting lists for emergency cardiac surgery, and the median wait for nonemergency cases is 6 days in Saskatchewan, 24 days in Alberta, and 21 days in Ontario [30]. At present, waits in British Columbia (where the Ministry of Health posts current waiting times at http://www.hlth.gov.bc.ca/waitlist/cardiac.html) average 9 weeks for elective cardiac surgery, with five of the province’s 24 cardiac surgeons having wait times of 2 weeks or less for elective procedures.
A system structured like Canada’s, but with double the funding (ie, the current level of health funding available in the United States), could deliver high quality care without the waits or shortages that Canadians have experienced.
The NHI that we and many colleagues have proposed would create a single tax-funded comprehensive insurer in each state, federally mandated but locally controlled [31]. Everyone would be fully insured for all medically necessary services, and private insurance duplicating the NHI coverage would be proscribed, as is currently the case with Medicare. The current Byzantine insurance bureaucracy with its tangle of regulations and duplicative paperwork would be dismantled. Instead, the NHI trust fund would dispense all payments, and central administrative costs would be limited by law to less than 3% of total health spending.
The NHI would negotiate an annual global budget with each hospital based on past expenditures, projected changes in costs and use, and proposed new and innovative programs. Many hospital administrative tasks would disappear. Hospitals would have no bills to keep track of, no eligibility determination, and no need to attribute costs and charges to individual patients.
Group practices and clinics could elect to be paid fees for service or receive global budgets similar to hospitals. Although HMOs that merely contract with outside providers for care would be eliminated, those that actually employ physicians and own clinical facilities could receive global budgets, fees for service, or capitation payments (with the proviso that capitation payments could not be diverted to profits or exorbitant executive compensation). As in Canada, physicians could elect to be paid on a fee-for-service basis or receive salaries from hospitals, clinics, or HMOs.
A sound NHI program would not raise costs because administrative savings would pay for the expanded coverage. Although NHI would require new taxes, these would be fully offset by a fall in insurance premiums and out-of-pocket costs. Moreover, the additional tax burden would be smaller than is usually appreciated because nearly 60% of health spending is already tax-supported (versus roughly 70% in Canada) [6, 32]. In addition to Medicare, Medicaid, and other explicit public programs, our governments fund tax subsidies for private insurance that cost the federal government alone more than $188 billion annually [33]. In addition, local, state, and federal agencies that purchase private coverage for government workers account for 24.2% of total employer health insurance spending [34], dollars that should properly viewed as a public rather than a private health expenditure.
The NHI we propose faces important political obstacles. Private insurance firms and HMOs staunchly oppose NHI, which would eliminate them along with the eight, nine, and even ten-figure incomes of their executives. Similarly, investor-owned hospitals and drug firms fear that NHI would curtail their profits. The pharmaceutical industry rightly fears that an NHI system would bargain for lower drug prices, as has occurred in other nations.
Practical problems in implementing NHI also loom. The financial viability of the system we propose depends on achieving and maintaining administrative simplicity. The single-payer, macro-management approach to cost control, which relies on readily enforceable overall budgetary limits, is inherently less administratively complex than our current micromanagement approach with its case-by-case scrutiny of billions of individual expenditures and encounters. Even under NHI, however, vigilance (and statutory limits) would be needed to curb the tendency of bureaucracy to reproduce and amplify itself.
NHI would reorient the way we pay for care, bringing the hundreds of billions of dollars now squandered on malignant bureaucracy back to the bedside. NHI could restore the physician-patient relationship, offer patients a free choice of physicians and hospitals, and free physicians from the hassles of insurance paperwork.
Patchwork reforms cannot simultaneously address the twin problems of cost and access. CDH is a thinly veiled program to cutback on already threadbare insurance coverage and offers no real hope of cost containment. NHI offers the only viable option for health care reform. We invite colleagues to join with the 14,000 members of Physicians for a National Health Program (www.PNHP.org) in advocating for such reform.
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