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It Still Ain’t Necessarily So

Dec
19
2005

My last overly long column explained why America has a different health insurance system than those in rest of the developed world, and the significant effect this phenomenon would have on politics here over the next fifteen years. That’s not too controversial an opinion, but heck, like many of you I spent the weekend over indulging at Christmas parties, and enjoying Chelsea’s first victory at Arsenal since I was young and good-looking, so it’s as good a time as any to stir things up.
Even before the failure of the Clinton health plan there’s been a supposition that we can’t afford to insure everyone. Clinton maintained that we could get to universal health insurance without any tax increases, and was disbelieved by the entire political establishment. He then proposed that health care providers charge less assuming that with more patients they’d make that income on volume. More work for doctors ensured that the medical establishment trade group (the American Medical and Hospital associations) would came out against the plan and help kill it.
But the notion of covering everyone at no additional cost is not the fantasy it might appear. I (with my then-boss Ian Morrison) was a junior author on a paper by Canadians Morris Barer and Bob Evans published in Health Affairs in 1994 called It ain’t necessarily so. Our main argument was that since less expensive health care systems in other countries do manage to cover all their citizens, it might work here.
On the face of it, a person without insurance uses about half the health care dollars of an equivalent insured person. That’s pretty obvious; the uninsured tend to be relatively young and relatively healthy, but they also delay or put off getting care because they can’t afford it.
But this doesn’t mean that we’re not spending money as a nation on the uninsured. If we did “top-up” spending on the uninsured to meet the average spent by those with insurance, it would cost something in the region of $1500 a year each. There are about 45 million uninsured, so we’re talking about a number south of $100 billion. Of course, if there are random countries we want to invade we seem to able to scrape up that kind of sum in loose change stuck in our national couch so you’d be right in assuming that it’s not just finding the money that’s the problem here. After all, our current spending on health care is around $1.7 trillion and has been going up by more than $100 billion annually for the last few years. Adding the uninsured to the collective payroll is not about the costs for them. It’s about the money spent on the rest of us.


When I started studying the political economy of health care in the early 1990s the U.S. was spending just over 10% of the GDP on health care, a little under $1 trillion. A little over a decade later we are spending a whole lot more: Around 16% of a much bigger GDP.
Where’s the money going? You cynics would be right to think that several special interests including the various guilds of doctors, hospitals, nurses, health insurers, drug companies, health care consultants et al — not to mention the stock holders of the for-profit players in those sectors — have been doing pretty well. Of course there are some within that mix doing better than others, but every year the sector is growing. This isn’t because the U.S medical establishment does so much more than anyone else. In a series of articles comparing international care provision and its costs, Gerard Anderson has demonstrated that health care costs more in the U.S. for a simple reason: it’s priced higher.
In this context, the existence of the uninsured can be viewed as a safety valve. Here’s the logic.
As the price of health care rises, people who buy health insurance (predominantly employers) buy less of it, or in the case of those employing low income workers, stop providing it altogether.
But since health insurance is an employment benefit, a combination of union contracts, tradition, competition for employees, and straight inertia, means that most employers continue to provide it. That means the demand is relatively price inelastic; for the most part employers will pay what it costs and grit their teeth. Every so often either the government (for the seniors that it covers in the Medicare program), or the health plans (acting as agents of the bigger employers) will try to slow cost increases. But the net effect of that moaning and groaning is that providers have an excuse to push costs onto the other party, leading to private costs going up higher than government ones, or vice versa–but no real slow down overall.
It’s a vicious cycle of increased costs which over time regularly reasserts itself. But the important point is that despite some workers losing health insurance, and some government cut backs on insurance spending for (say) their Medicaid (i.e. poorer) populations, the additional fees paid by those still in the system – paying now higher costs – outweighs any revenue losses from those who lose their insurance. So despite the commonly perceived “crisis” in the system, every year most of us keep paying more as the alternative – joining the ranks of the uninsured (or tossing our employees into them) – is too awful to contemplate.
Now consider what would happen if there was a full program to cover the uninsured. Somebody, probably a combination of government and employers, would pay for them. So each year that the health care system raises its costs up by another 10%, employers and government wouldn’t be able to toss some of their employers/beneficiaries off their insurance policies. They’d have to pay the increase for everyone – in addition to their share of that increase – for the (previously) uninsured they are now subsidizing.
In such a situation – where their health care costs are going up with no immediate, fast relief – it’s a pretty quick leap to say that employers and government would start getting really serious about how to get the cost of health care off this escalator. And as any big buyer will tell you, the best way to do that is to develop monopsonistic tendencies.
That’s what happened elsewhere in the world where, generally, employers have ceded to governments the ability to negotiate with the health care system. In those countries you get a very interesting national conversation where the government ministers in charge of health care have to explain to their colleagues why their department should get a big increase, when often education, defense, or whatever else was being cut: the alternative of course being new or higher taxes. No one likes higher taxes. So guess what happens? If you don’t think this is real, check out the examples in Canada and Japan in the 1990s, where two countries both managed to reduce the share of their GDP spent on health care in a time of recession. In other words they reduced the absolute amount spent on health care, and the people suffering were not the ones outside the system, but those working in it.
That’s the conversation that the existence of the uninsured helps prevent in the U.S. That, in turn, is why none of the major actors in the US health care system are all that concerned about changing the sad status quo. And if you expect that change to come from within the system, guess again, as the results of this poll out today of health care “leaders” shows. It’s title? Majority of U.S. Health Leaders Reject Fully Taxpayer-Funded Universal Healthcare System: Health Spending Expected To Triple Globally and Consume 21 percent of US GDP.

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