This Thursday, President Obama will meet with members of Congress for a bipartisan health care summit at the Blair House, to be televised live and in its entirety on C-SPAN. Mitch McConnell of Kentucky, Republican leader in the Senate, will be attending with other Republican senators. House Republicans have yet to announce if they will attend as well.
The present situation is surprisingly straightforward:
Democrats believe health care is being stymied by political tactics, while Republicans are betting that the health care proposals on the table are simply the wrong policy- the overarching question being is this a problem of tactics or strategy?
The Democrats believe that President Obama has a "communication" problem - the American people would like the health care reform policy he is proposing if they only understood what it really does. As Donna Brazile argued on This Week (February 21), Obama has lost the spin-war and allowed the proposed policy to be defined and demonized by its opponents.
Republicans believe that Americans are fundamentally satisfied with the blended public-private health care system we have and not interested in the type of structural changes being proposed by Obama and the Democrats. A 2009 ABC News poll found that of the 84% of Americans with health insurance, "...82 percent rate their health coverage positively. Among insured people who've experienced a serious or chronic illness or injury in their family in the last year, an enormous 91 percent are satisfied with their care, and 86 percent are satisfied with their coverage."
In considering this debate, it may be important to consider a few key points:
First, there is a false dichotomy in the public debate over health care as being a choice between public versus private health care. The present US system of health care has an extensive publicly funded component. Based on the most recent Census survey of the insured, 60% of these Americans have health insurance through their employer, and 9% direct-purchase their health insurance. However 31% of the insured are covered through government programs including Medicare, Medicaid, and military-based coverage, which is to say a full third of the insured population is insured through government-mediated programs.
Second, the uninsured is not a monolithic and unchanging group. Half of the uninsured are what may be termed 'transiently' uninsured- uninsured for less than 12 months. Addressing the question of the uninsured should not lump these two dissimilar groups together. One group is structurally uninsured for reasons that may include demographic characteristics such as being younger, Hispanic/immigrant, and/or being at 3x the poverty level or lower. This group's lack of health insurance may need to be considered within the larger context of policy towards the poorest socioeconomic strata in America. The second group is simultaneously more and less problematic. While this group transitions through un-insured status, it claims a much larger portion of the US population than a snapshot would indicate and creates the sort of risk that may resonate with a sizable percentage of the presently insured.
Third, the absolute size and nature of health care spend must be addressed, irrespective of Obama's health care reform bill- it is the unavoidable context for the entire health care debate. This topics warrants a more extended discussion and will tie the other two points in.
The US spends nearly 16% of its total output on health care or twice as much per capita as we spend on food. While we spend more on diabetes, an obesity related disease, our mix of health care spend is actually more favorable than most of our other peer industrialized countries. The rapid growth in the price of private health insurance is partly a consequence of our hybrid system, where the most expensive segments (i.e., seniors 65+) are paid for by the Medicare system with disproportionate bargaining power, while the less expensive segments (i.e., <65 Americans) are paid for primarily by private insurers that are under-leveraged versus the same pool of hospitals and drug companies. Though covering less than 30% of Americans, government-funded health care (i.e., Medicare/Medicaid) accounts for half of health care spending creating an enormous footprint in the private market. As Medicare attempts to slow its cost growth, that residual expense gets transferred to privately insured Americans.
While the US is a wealthy and advanced country and is therefore more likely to choose a higher level of health spending versus developing countries, we spend more on health care than other highly comparably wealthy countries in Europe, Canada, or Japan with negligible real impact on lifespan. Some private estimates put that over-spend at roughly 1/3 of total spend, which is to say we should be spending closer to 10-11% of GDP on health care, not 16%. The largest portion of that "gap"- roughly two-thirds of the gap, is due to higher use of advanced procedures, especially advanced diagnostics (e.g., MRI or CT scans) and outpatient treatments.
Though high use of advanced diagnostics may be a form of quasi-discretionary spending, the nature of the current public-private health care system transfers costs across society in some opaque ways. For example, based on an Urban Institute analysis of Social Security and Medicare payments, a couple retiring 20 years from now can expect to get 2.5 to 4.5 times more in lifetime benefits than they paid over their working years. That is to say, Medicare is being under-priced at a structural level. The inequity for current Medicare beneficiaries is actually worse and is true for all income levels. In short, receiving Medicare is equivalent to getting a $100K-300K bonus from the Federal government.
In simplified form, the root of the problem is fairly straightforward. Medicare is under-priced, but hid that flaw in two ways- it pushed costs to working-age Americans by paying too little to medical providers using its enormous clout, and relied on the retiree-to-worker ratio to fund the cash flow deficit. If you live long enough to get Medicare, the government will give you benefits far in excess of what you paid into the system- an exact analogy to welfare.
Unfortunately, those hidden flaws have appeared as problems in another part of the health care system. As the retiree-to-worker ratio has changed (as the Baby Boomer population bulge slowly approaches the Medicare threshold), these tactics have exerted a more intense pressure on the rest of the system. Ultimately, a majority of the cost excesses of the US health care system have pushed their way into spiraling costs and premiums for the private portion of the health care sector, creating a vicious cycle of premium raises and rising uninsured.
That brings us to the present situation.
I would personally draw several conclusions.
First, the root cause of the US health care "problem" (a combination of significant uninsured and high costs) is closely related to (if not actually due to) the government-run portion of the health care system. Medicare has put so much distance between the costs and the benefits of health care that it has distorted the behaviors of patients, doctors, hospitals and private insurers across the entire US health care system. It is not an insurance system so much as it is a welfare system, but the level of US taxation is too low to support this as a mere transfer payment (i.e., rob Peter to pay Paul). Instead, the US government is (ultimately) borrowing money in order to subsidize Medicare beneficiaries while bumping the poorest working-age families into uninsured status. Absent this government-financed distortion, private insurers, patients, and the rest of the health care delivery system will be able to stabilize the growth of costs at a rate more closely related to the increase in health care benefits.
For an illustrative analogy, suppose the government collected $500 from you every year from the age of 20 till you were 60. For simplicity we'll keep everything in inflation-neutral and interest-free dollars as these are not germane to the illustration. Over your working lifetime you would have contributed $20,000. But when you turn 60, the government buys you a car that is worth $40,000. You have received twice the benefit you paid in. In order to cover the difference, the government does two things. It negotiates with the automaker aggressively (because the government is also buying 5 million other people a car) and only agrees to pay $30,000. The government borrows $10,000 to cover the rest of the difference between the $20,000 you paid in and the $30,000 it spent. Meanwhile, the automaker attempts to recover its necessary total profit (recovering cost of capital and the cost of research, development, marketing, and overhead) by raising the price of the $40,000 car to $50,000.
At the end of the day, you got a great deal, the government got into debt, and the private non-government car buyer now has to pay $10,000 more for the same car. This is the basic dynamic that Medicare has created.
Second, true health care reform will mean "someone" will need to pay higher prices and/or receive less services, and the group that is at the center of this problem is Medicare beneficiaries. This group makes up the legendary "third-rail" of US politics- called third-rail because its like the third-rail on a subway...touch it and die. Whether senior citizens now and in the future should receive a free subsidy by the rest of society or not ultimately needs to be separated from the accounting sleight of hand that is creating this subsidy. If Americans believe that senior citizens deserve an extra $200B-400B a year to spend on medical care, then that should be made a transparent transfer that is clear, up for debate and scrutiny, and made by a willing electorate. Instead, because of the haphazard way this subsidy is being funded, it is wreaking havoc across the entire US health care system and obfuscating the entire health care debate as portions of this subsidy end up being passed on as health care inflation, and other portions showing up in the national debt.
Third, the problem of a significant number of uninsured needs to be split between the transitionally uninsured and the structural uninsured. Transitional uninsured should have the ability to transfer the annuitized value of their lifetime employer or employee paid health insurance premiums into a secondary market for insurance, if they so choose. Making health insurance a portable asset addresses the reality of a more dynamic workforce that changes jobs frequently- doing for health insurance what 401Ks did for retirement assets. The structurally uninsured will need some explicit subsidy if they are to get coverage. This brings up one of the most complex debates in domestic policy- do we put an economic floor on poverty? By separating out these two types of uninsurance, it will be easier to have an honest and clear debate about the economic, ethical, moral and social implications for whether or not to enact a guarantee of health coverage. The answer will likely be yes, but of a very limited form, as this has been the defacto policy of the US for many years, and is the reason why ER's in major urban centers are being used as free clinics by the poor. Creating an explicit form of "minimum" health insurance for the most economically disadvantaged will likely result in greatly improved health and well-being, as well as a net cost reduction for the United States' health care system.
-Austin
