Friday, April 3, 2009

Why We Need Government Run Health Insurance

In a search for a real world model for health care reforms, there is good news and bad news.

The good news is that any of the health care models in highly rated countries will be a huge improvement over that in the US for most of its population. There are many different models and The Commonwealth Fund in March 2008 described some of the disparities even within West Europe. Some countries like the Netherlands since 2006 operate almost entirely through private insurers and providers while offering wide choices. It ranks No. 1 in the Euro Health Consumer Index for 2008. On the other side the No. 2 and No. 3 ranked health care systems of Denmark and of Austria (that rate even higher than The Netherlands in other studies) are mainly government run and financed, with fewer choices. Almost all of the other countries have heavy government involvement through public health insurance and/or regulated pricing (as in Singapore) for many medical services. But the systems vary enormously from country to country.

The bad news is that this wide variation in the health care structure in top ranked countries muddies the picture for reforming US health care. It allows special interests and the lawmakers under their influence to argue against the Democratic consensus on the need for public health insurance as an alternative to private insurance. When driven by the public outcry to lower costs and cover the uninsured, they can point to The Netherlands and the more expensive (but still a third cheaper than the US) private insurance system of Switzerland as examples that we don't really "need" public health insurance in the US. But this is a highly flawed contention, and I'll explain why.

Largely through industry influence and aided by bad planning and happenstance the US has a shortage of providers. Take the important case of doctors. Both The Netherlands and Switzerland have 3.8 doctors per 1000 population, which is above the OECD median of 3.4. So private insurers can get competitive deals and pricing with providers in these countries. In the US by contrast we have only 2.4 doctors per 1000 population so it's entirely a seller's market. That's the main reason many US doctors are opting out of Medicare because of low rates even though these are generous by European standards. We have a similar though smaller problem with hospitals. Due to lax anti-trust oversight we have allowed many hospitals and chains to consolidate so there is now reduced competition and low consumer choice of hospitals in many places.

Detractors will be quick to point out that some (though few) developed countries with less doctors do manage to have relatively good and inexpensive care. Specifically these exceptions are Singapore, Canada, Japan and UK. They have 1.4, 2.1, 2.1 and 2.5 doctors per 1000 population and health care expense per capita of $1,170, $2,578, $3,678 and $2,760 respectively in 2006, compared to $6,714 for the US. But all these countries have managed to keep costs and prices low precisely through heavy government intervention. Singapore directly imposes price controls and restrictions on most hospitals and providers, and has a younger population needing less health care (only 7% are over 65 years old, compared to 14% in the US.) The other three, Canada, Japan and UK all have public insurance playing a huge role that determines pricing.

In other words, when we have a constrained supply of providers as in the US, we also need the purchasing power of a dominant buyer like the government (i.e., a monopsomy) to keep prices in check. Private insurers and their supporters say that this huge buying power of a public insurer gives it an "unfair" advantage, but unfair to whom? Yes, going by the West Europe as well as Medicare versus the private Medicare Advantage enrollment experience, I fully expect that over 80% of the business will go to the public insurer if it were created. That's precisely because this public insurer offers by far the best value, and only the very affluent or those with generous employers will opt for the much more expensive private insurance.

Let's be clear though: public insurance provides the means to drive down prices but does not guarantee it. There still has to be sufficient oversight and proper execution to ensure that special interests don't exert undue influence to come away with overly generous reimbursements. Think Blackwater, no-bid contracts in Iraq and after Hurricane Katrina... But this should be less of a concern post 2008 elections, with the high profile of this issue and a better administration in place. Also we need to separately address the issue of provider shortages.

Back to public insurance the primary responsibilty of US policy makers is to set up a high quality, cost-effective and universal health system for US consumers. It's not to steer business towards private insurers by selling out the public interest. Unfortunately, this is precisely what they did in the Bush era when they created the complex Medicare Part D's drug program for seniors. This barred Medicare from negotiating drug prices and is rightly viewed as a giveaway to drug companies, private insurers and middlemen.

Given its importance will Obama and the Democrats be able to stand firm and set up a public insurance program to run alongside private ones? Or will they submit to "compromise" that eliminates or postpones this step? It's a huge deal that will radically affect health care costs, and is a fitting test of the commitment and effectiveness of the new administration. We'll see.


kenrod said...

National health insurance, and socialism in general, works well in small, homogeneous societies. The two examples you cite, Denmark and Austria, are tiny and homogenous. The reason it works that way is:
1. It's easy to administrate
2. A person doesn't mind contributing to someone that looks and thinks like them.

Therefore, in Denmark, people are all white Danes, relatively hard working, and have the same values. When they see someone like that hurting they don't mind helping out. Besides, everyone knows everyone else, and they know who's going to work and who's lazing at home. There's a sense of pride and, conversely, a sense of shame. Socialism, to some extent, works there. This is even true of larger populations that are homogenous like Japan which you cite.

But when you come to 300 million in the USA it breaks down. Why should I bail out that illegal Mexican who hasn't paid into the system? Or, that drug dealer and gang banger who doesn't go to work? The mathematics of socialism doesn't add up where everyone wants everything and there's not enough incentive to make them go and get it.

Even in larger populations like England, social medicine has broken down. People complain of the rationing and high costs in taxes. And it's partially reverted back to private insurance.

And it worked in France for a while where you knew who a Frenchman was. I can speak french to some extent but I would never be considered a Gaul decendant. But now, with the influx of Moroccans there's resentment. That North African could be born there, eat croissants and speak the native tongue, but remember he's not French. So what the hell is he doing in my hospital bed?

So in Denmark, if you asked Hamlet, "To be or not to be?" to national health insurance. He would answer, "In Denmark, to be. In the USA, not to be."

Sandip Madan said...

I don't find this "we're more diverse so we need different" argument against public insurance too convincing.

For one thing, very few people in increasingly diverse France (and even UK) would trade their health system for ours. Moreover, public universal coverage actually makes everyone who pays taxes participate in shouldering the burden, and everyone being assured of basic healthcare in return.

kenrod said...

On the other hand, I wouldn't trade my Blue Cross/Blue Shield plan for a European health plan. However, if I was an umemployed drunken bum on the streets of New York, I would love the English system. So it's a false choice.

If this example doesn't convince you that gov't should run business then nothing will. Until the 1960's the gov't had a total monopoly on the Post office. Since then private companies, like FedEX and UPS, have broken the business. Today, the Post Office is synonomous with lethary, craziness and poor service. When someone is rude you can ask him if he's gone "postal"?

On the other hand, FedEx is synonomous with speed, alacrity and promptness. When someone wants something in a hurry, you'd tell him to "Fedex" it to you.

And look at UPS. Secretaries have been known to skip coffee breaks to get a peek at the brown uniforms stride past their desks. There's pride in what their appearance.

So Sandip, have you gone postal in asking for a gov't health plan? :))

Sandip Madan said...

Notice that the USPS (postal service) is still in existence, competing and operating in parallel with the privately run UPS and FedEx. That's the model that reformers (and I) are talking about for healthcare.

Anonymous said...

But the US Postal service runs huge deficits every year and is only kept alive by grants from Congress. Likewise Medicare Part A is scheduled to be bankrupt by 2013. So you want to add another 200 million citizens to that list and bankrupt Part A by 2010???

Sandip Madan said...

Nope. You pay for public insurance with increased taxes while saving much more by avoiding the employer / employee payments towards private insurance. The Medicare data shows how the public plan is cheaper than payments to the private insurers. You naturally end up with more money in your pocket when overall expenses decline.

Anonymous said...

But this is the way insurance is right now anyway. We have half the population insured by the gov't in the form of Tricare for the military, programs for teachers and university staff, Medicare and Mediaid.... But you were proposing Medicare for all, which is an awful idea.

And having Medicare tell us that their costs are lower is not to be taken seriously because of conflicts of interest. That's what I mean that the referee should be a player in the game because it totally lacks credibility.

Sandip Madan said...

Awful idea? Yes, the proposal is to offer a Medicare type plan to all. No one stops you from continuing with your private insurance, so why should you mind? Those Medicare vs. private plan numbers are actual budget expenditures, not just "claims" by Medicare.

Anonymous said...

Medicare is a one size fits all, and this is America... we want choices. It's like Henry Ford saying "You can have any car you want as long as it's black." You know how long that lasted.

Medicare and CMS is a highly regulated beauracracy trying to finetune when people can enroll, disenroll, the deductibles, formularies.... It is also one of the most heavy handed agencies, shutting out insurance companies that don't walk the straight and narrow rules that nobody seems to understand.

Yes, insurance companies can sell private plans to overlay the benefits, but it's like Ford saying you can only have a black car but maybe you can add a radio. YOu have plans A thru L, and they just vary by slight degrees.

And if you forget to sign up within 3 months, God forbid, you can get only a very inferior plan with no drugs until January next year.

Medicare might work well in Singapore and HongKong where people are very compliant and have great respect for authority. But getting Americans together is like herding cats. One size fits all ain't for us.


Sandip Madan said...

The way the public option will be added, no one stops you from getting the car of your choice. Just let the rest of us have an option to buy the more uniform black car from a public company at a fraction of the price.