Letter to my British friends on US Health Care debate

My Dear British Friends,

You asked why there is so much bitter debate over proposed changes to the health care system here in the US, particularly since the UK’s National Health Service generally works pretty well in your experience.

When making comparisons between the US and other countries, it is important to remember that the single largest player in our health care sector already is the US government.  We already have a single payer system like the NHS, it is just that it is limited to people over the age of 65 and called Medicare.  Generally speaking, senior citizens here like Medicare a great deal.  Of course, seniors represent the fastest growing part of the population and generate the most health care cost per individual, so Medicare is heading towards insolvency even though everyone in America who works pays for it through a payroll tax.  It is no wonder that seniors like it so much since the benefits that they enjoy far outweigh the costs that they have to bear.  One of the major ways to pay for the current proposed plans is to cut “waste” out of Medicare.  This is why many of the most rabid anti-reform people are older.  Seniors worry that “waste” may mean one thing to a government bureaucrat and another thing to them.  I don’t think many people actually believe that there will be “government death panels” per se, but the talk of them was specifically designed to raise the specter of government rationing of health care for seniors.  In some respects this is ridiculous, because the US government decides what health care seniors get already, but on the other hand seniors worry that they may get less if the government has to cover everyone else too.  Since seniors are among the most active voters here, they are a very potent force in US politics.  Some have been characterizing the protests in August as “unprecedented” when in reality we have seen it before.  I love this clip from a protest when Congress passed a catastrophic health insurance requirement funded through increased taxes on and reduced benefits to seniors back in the late ’80s.  Seniors went berserk (“You’re not a representative. You’re a bum!”) and the legislation was quickly rescinded.

For the rest of the US population, we have a rat’s nest of private insurance.  Although the health insurance industry is not a high margin business, the industry is so large that it generates a large amount of profit in absolute dollar terms.  The more liberal members of the Democrats say that we should extend Medicare to everyone and use what would have been the industry profits to cover those people that don’t have insurance.  Since many of the people who don’t have insurance are healthy young people who could afford it but choose not to spend their money on it, further income to fund the plan can be realized by forcing them into it and taxing either them or their employers to pay for it.  Away from that end of the political spectrum (including the so-called “Blue Dog” Democrats), people look at the looming fiscal disaster that Medicare is heading toward and ask the question of why do we want to expand a program that is clearly unsustainable.

Although most Americans under the age of 65 say that they like their insurance the way that it is, there are several disadvantages that most people recognize:

  • Some people want or need coverage and genuinely can’t afford it. Estimates of how many people fit into this category are all over the map depending on what particular axe the estimator is trying to grind.  The right numbers seem to me to be between 10 and 20 million people depending on whether you count illegal aliens.  To the extent that these people need treatment, they usually receive it in hospital emergency rooms as those facilities are required to treat all people whether insured or not.  To the extent these uninsured patients are unable to pay, the costs are passed along to the rest of the people who do pay (Medicare and insurance companies).  While many people put universal health insurance as an important goal, others think that universal health insurance doesn’t matter as long as people have access to health care when they need treatment, as is the case with our current system (although it is true that access to preventative care is more or less nonexistent).  Finally, other people think that neither is important to have, particularly in the case of illegal aliens.
  • Health insurance is provided through your employer. If your plan doesn’t meet your needs, too bad.  Your employer chooses which plans will be made available to you.  If you lose your job, you can continue paying for it at the same cost for a period of time through a program called COBRA.  However, since your employer paid most of the tab before (actually, you paid for it in the form of lower wages, but that is not the way most people think of it), you will be absolutely stunned by how much it costs.  Once the COBRA period runs out, the insurance provider has to give you the option of continuing the coverage but can charge whatever it wants (and it does not want to lower the cost).  If you switch employers, your plans will change so you may have to change all manner of things from the doctors that you see to the medications that you buy (prescription vs generic, for example).
  • Even when looked at from the employer level, there is very little choice. Employers decide which plans they will offer based on where their employees are located and what insurance providers are active in those states.  Each state has its own requirements as to what health insurers must cover in order to operate there.  By the time you factor in all the constraints, there is not much to choose from.  Large companies need full departments to keep track of all this and the cost of this is considered when making decisions about how many people to hire and what to pay them.
  • Pre-existing conditions often are not covered. Depending on what your employer has been able to negotiate, pre-existing conditions may not be covered for some period of time.  People on the right side of the spectrum say that this is how it should be.  You can’t buy homeowners insurance after your house burns down.  To me, since health insurance is attached to your job, this doesn’t work.  If you have had cancer and lose your job, you will lose your coverage and good luck finding another policy, at least at an affordable price.  Note once again that the big problem is that changing employers means changing your health coverage thus “resetting the clock” on what is a pre-existing condition.
  • There can be lifetime caps to the amount that is covered. This is often a number that seems large, say $1 million, but it can be reached with alarming quickness in a catastrophic scenario.  This was something the actor Christopher Reeve advocated against since many people in his situation (left quadriplegic after getting thrown from a horse) ended up busting their caps.

Needless to say, this just scratches the surface of what is wrong with our health care delivery system, but it would be a considerable improvement if we addressed only these issues.

President Obama is a long-time supporter of a single payer, “Medicare for all” type of solution, but that is clearly not an option at this point in time given the cost of implementing such a program.  The specific details change on a day-to-day basis, but there are some general points in his plan that remain constant.  His plan requires all Americans to have health insurance.  If you do not have insurance, you will be subject to a fine (which may or may not be a tax depending on what your political affiliation is).  People below a certain level of income will receive credits to enable them to purchase insurance.  Companies over a certain size are required to provide insurance to their employees or pay a fine.  Insurance providers will not be permitted to discriminate on the basis of pre-existing conditions and the like.  A national exchange will be established so that people who are purchasing insurance coverage directly can better understand what coverage is available at what cost. The cost of the program will be funded through some combination of savings in Medicare, taxes on high-value health policies, taxes on medical devices and supplies and the fines or taxes levied on uninsured individuals and companies that don’t provide insurance to employees.  It is not likely that he will get it, but he wants a “public option” plan that will serve as a competitor to insurance companies.  One of the big objections to the plan is that funding it depends heavily on savings that many believe are unlikely to be realized.  In an attempt to drum up some support from Republicans, President Obama has also indicated that he would include some sort of provision for automatic cuts if the savings don’t materialize.  This attempt at bipartisanship will likely be in vain since the Republicans, probably correctly, do not believe that any cuts would be made regardless of the status of savings realization.  Although it seems this hasn’t occurred to them yet, they may even use the concept to stoke more fear among senior citizens worried about cuts to Medicare.

My opinion is that something needs to be done, but that the President’s plan will not solve some of the fundamental problems and will probably cause others.  Much of what is wrong with our system stems from the fact that health insurance is something that employers purchase on behalf of employees.  This is a consequence of a tax provision put into place in the 1940s whereby health insurance premiums paid by employers are deductible expenses for the business and are not counted as income for the employee.  On the other hand, individuals are severely limited in how they can deduct health insurance premiums.  If individuals could buy insurance directly on the same tax-advantaged basis, there would be much more competition with regard to coverage, price and service levels.  This would make things much more competitive from the demand side.  The second thing that needs to be done is to open the market up to increased competition.  The interstate barriers to entry need to come down.  I find it very funny that Democrats talk about how we need a “public option” to keep private insurers honest when the same thing could be done by promoting more competition among existing players.  For reasons that no one can articulate (see this example here), most Democrats do not seem willing to even consider this point.  Switzerland has managed to do just fine promoting competition among private insurers.  Of course, the Swiss could probably run even a government program effectively.  The United States has demonstrated repeatedly that it can’t, particularly when it comes to health care.  President Obama’s plan does nothing about either of these.

My final thought is more personal.  It is true that my child’s recent diagnosis of Type 1 diabetes has made this debate much more personal for me.  Things like pre-existing condition exceptions and having health coverage so tightly tied to being employed are now problems on a visceral level where once they were purely intellectual.  However, just as important as the ongoing costs of treatment are the incentives and disincentives for innovation that we as a nation create.  It is easy to say that the Canadian or UK models are “better” than the US model because coverage is universal and costs seem to be lower, but neither of those countries, or many others for that matter, even approach the rate of innovation in health care that exists in the US.  I don’t know if a cure for Type 1 diabetes will ever be developed.  Certainly doing things like taxing medical devices and supplies won’t help.  Still, I am pretty sure that if we do find a cure, it will come from the American industry.

Best regards,

Your American Friend

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