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Saturday, October 19, 2019


Well, I have finished reading the mid-term papers, so I thought I would say a few words about a subject much on the minds of candidates for the Democratic Party presidential nomination, viz. universal health care.  As I walked this morning, I imagined myself engaged in a debate with an opponent of the idea.  [This was once I had successfully surmounted my Senior Moment and called to mind the name “Kareem Abdul Jabbar – never mind.]  Not having Google at my disposal, I could not fill in the statistics, but here is the structure of my argument.

I start with four propositions on which I hope there is universal assent [save for Evangelical Christians who believe in the Rapture and thus reject the first proposition]:

1.         Everyone dies.
2.         Other health related things being equal, it is better to live for a longer than for a shorter time.
3.         Other health related things being equal, it is better to be healthy than sick.
4.         Other health related things being equal, it is better for a country to spend less money than more on health.

Now some facts:

1.         The Germans, the French, the British, and the Americans all die.
2.         The Germans, the French, and the British live longer than Americans.
3.         While they are alive, the Germans, the French, and the British have fewer chronic illnesses than Americans.
4.         The Germans, the French, and the British spend much less per capita on health care than do Americans.
5.         The Germans, the French, and the British have universal health care systems.  The Americans do not.

Conclusion One, from facts 2-4:  The Germans, the French, and the British have better health care systems than do the Americans.
Conclusion Two, from Conclusion One and fact 5:  America should have universal health care.

Question:  Why does American health care cost so much more per capita than German, French, and British health care?  This is clearly a complex question requiring much more data than I have, but let me suggest five reasons:

1.         Americans pay much more for prescription drugs.
2.         The private American insurance system spends money on advertising.
3.         The private American insurance system pays exorbitant corporate salaries.
4.         The private American insurance system takes profits.
5.         American doctors earn much higher salaries than their German, French, and British counterparts.

How much of the difference in national health care costs is explained by these facts?  I do not know.

Clearly, moving from our current health care system to a national health care system would be extremely disruptive and very difficult, quite apart from the massive opposition that rich and powerful interests would mount.  But let me make one point among many that could be made, this one concerning employer based insurance.  According to the Kaiser Family Foundation, somewhat more than 156 million Americans have employer based health insurance, which is to say half the country.  Now, let us imagine a firm – United Whatever – with 10,000 employees that offers group health insurance as a fringe benefit of employment.  Let us suppose United Whatever pays Aetna $6000 per employee, or sixty million dollars a year, to Aetna, and suppose that $200 a month, or $2400 a year, is withheld from an employee's paychecks as his or her share of the cost.

The reality is that United Whatever is paying the entire cost.  Leaving aside tax consequences, which are complicated, it would not matter whether it paid the entire bill for health insurance and paid each employee $2400 a year less in wages, or raised each employee’s wage by $3600 a year and required the employee to pay the entire $6000 for the insurance.  The net effect would be the same.

Suppose the United States now shifted to universal health care with a saving of 20%, or $1,200 per United Whatever employee.  The only rational way to handle this would be to tax United Whatever sixty million dollars for the health insurance of its employees, less the 20% or 12 million dollars saved by shifting to universal health care.

That is where the money is going to come from to pay for universal health care.


Anonymous said...

As far as one's pocketbook is concerned, there's a two-pronged problem with health care under capitalism.

The costs of corporate, for-profit health care are always rising AND businesses have increasingly shifted more and more of the cost of heath care to their employees on top of this. It's part of the neoliberal transfer of wealth, another way the elite extract more money from the poor, working classes, and middling folks. The health care system in the U.S. is so hard to change because capitalism is so hard to change.

Longevity and health for everyone vs. profits for the few.

Charles Pigden said...

Capitalism is quite consistent with universal state-funded healthcare. Witness the UK, Germany, New Zealand and the majority of countries in the EU. It's the *American* brand of capitalism that is difficult to reconcile with universal healthcare, not capitalism as such.

JKR said...

Here are some data from the New York Times online that addresses the flow of money in the health care system.

The first addresses the federal government's contribution to health care:

The second starts with a graphic of overall health care expenditures at present and compares five different scenarios of the cost of Medicare for all:

The scenarios range from an optimistic decrease in health care spending based on a number of assumptions involving structural change -- to an increase in overall spending. The implication seems to be that the 28 million uninsured will be covered, perhaps accounting for increased costs. So the question seems to be "business as usual" or structural change.

What the advocates of Medicare for All fail to point out is that the money to pay for it is already there. Somebody is paying for the the existing system in roughly the same order of magnitude the Medicare for All would cost under the various scenarios. The big component at present is Private Health Insurance at $1.28 trillion and Out of Pocket for $397 billion. So who is paying the insurance companies? Individuals, employers, unions, etc.

As a beneficiary of Medicare, I have to point out its limits. First there are the outlays for optional Part B that runs in the neighborhood of $1,500 per person/year. Then there are co-pays - and deductible - and so forth. Then there is the insurance company agent who comes to sell you Part C and Part D. He works on commission. It takes time and study to get the "right" plan (call it a contract). Then there are medical specialists in billing - and others to resolve billing disputes. And god knows how many people working jobs at the insurance companies. Lots and costs of vested interests!

The money is there whether you call it insurance premiums or taxes. It's going to take some heavy political lifting and candor to make the present system budge.

Matt said...

It's an often repeated talking point that, at least in relation to pharmaceuticals, the US (but who is counted here? I'm actually not sure, but perhaps it's clear to others) spends significantly more than most countries on R&D. The idea, as I understand it, is that the low drug prices in other countries is a result of free-riding on the R&D expenses of the US. In some cases there may be something to that. And, maybe there is something to it in many or even every case. I haven't looks at the claims closely enough to have a clear opinion, and it's possible that even if I did look at them closely, I wouldn't be able to properly evaluate the claims. But, it's a claim that is often made as to at least one aspect of higher medical expenses in the US, so I thought I'd note it.

I'm also pretty sure that doctors in the US make more than in most other "western" countries. We might think this is not, itself, a big problem - just pay doctors less. There is almost certainly something to that idea, even if it would be hard at first.(*) But, one interesting data point is that the UK "imports" a really large percentage of its doctors and health care staff more generally. This seems to suggest that the "domestic" pay (and perhaps working conditions) isn't good enough to attract "local" talent, who would rather do something else for the pay, but that "imported" workers will do it for what the local process will pay. This is not, itself, obviously an issue, except that it does raise potential concerns about brain drain, and developing countries being stripped of their health care professionals. These are themselves complicated issues - ones that I have written a little bit on, but on which I would not pretend to have definitive answers to.

(*) My mother in law was a doctor in the Soviet Union. Doctors were not well paid, for the most part, there, but they did have a certain amount of prestige. That made a difference, but the scheme for training doctors was also very different - it was an undergraduate degree (at least for the start), with no cost (of course), and shorter residency periods, so it's unclear to me, again, how much of a moral can be drawn for other economic systems.

Brian W. Ogilvie said...

"The only rational way to handle this would be to tax United Whatever sixty million dollars for the health insurance of its employees, less the 20% or 12 million dollars saved by shifting to universal health care."

Professor Wolff, I would offer a slight correction. If United Whatever has been able to negotiate a good arrangement with its health care insurer, or its employees tend to be younger or healthier than the average, its tax for universal health care might be higher. Conversely, if it's not big enough to negotiate a great deal, or if its employees tend to be older or sicker than the average, its tax might be lower. Small companies, especially ones that have difficult to ensure employees, would particularly benefit from a single payer health care system, if they are taxed for it based on something other than the specific needs of the people who happen to work for them.

Robert Paul Wolff said...

Professor Ogilvie, I agree completely. Working out the details would be very complicated. mY point simply was that the money is there, and the firms now offering insurance to their workers would end up paying LESS than they do now.

Jim Westrich said...

I think this a good framework for discussing the US health care. I wanted to add something that touches on your list of reasons why the US is more expensive. (This mostly relates to your reasons 3-5 and relates to Anonymous' post above).

Private health insurers only care about making more in premiums/revenue than what is paid out in claims/costs. They may negotiate hard with providers for lower rates but generally have less power so provider rates go up (btw, I believe in international comparisons facilities like hospitals have higher relative expenditure than physicians). Now, they also bargain with purchasers of insurance (while this number keeps going down--private insurers generally bargain with employers) on premiums. The employer may try to bargain hard but the fallback is not insuring their employees. Some financially vulnerable companies make that decision and their employees become uninsured, state insured, or fend for themselves with a lot less bargaining power (individual insurance markets are way more expensive than group markets). Anyway, the employer generally has less power in this bargain so premiums go up. The basic point is that private insurance structurally cannot provide anything close to socially efficient results (there are many more failures but I think the basic economic position is the biggest).

What is the bargaining position of public insurance? The final rates in Medicare are a combination of 1) objective measures of inputs, 2) use of some bargaining and purchasing power, and 3) political power. Providers and their professional spent lots of money on lobbying for Medicare rates with mixed success. All attempts to figure out how much Medicare for All would cost use mostly unacknowledged assumptions about how those 3 factors would play into future spending. Democratic (and Republican) critiques of MFA assume that there is nothing we can do about 3) and that the political power of providers is too be assumed (the Urban Institute, which is really good on other issues, seems to assume that prices will go up which makes little sense). I think most good research (including out of PERI at UMass--Bob Pollin, et al.) make better assumptions about what is likely to happen as around the world the increased "single payer" purchasing power does result in substantially lower prices.

Bernie made a political decision to say "Medicare for All" instead of "Single Payer" and it has made financially scoring MFA weaker as too many people just extend Medicare prices. Certainly the actual MFA proposals in the Senate and the House currently (this was not always the case so there is valid confusion here) assume active use of monopsony purchasing power. It is certainly possible that political expedience and cowardice will lead to weak single payer bargaining but I assume any political movement strong enough to get single payer passed would be strong enough to understand the importance of doing it responsibly.

As you note there is plenty of money in the current system but I also wanted to point out that the structure of single payer itself has very likely savings inherent in it.

Keith said...

Someone said "who knew healthcare was so complicated". To many commenters I would recommend "Don't be like Someone".

There are some fundamental things not being discussed at all. There is the Delivery of Healthcare and the Financing of it. Ignoring that distinction (which seems to be persistent) is a huge mistake.

Healthcare Financing: basically, who's paying and what they are willing to pay. Currently those funding healthcare are (mostly) companies and Medicare. All of which have rules about what they will pay for and how much they will pay. The rules are administered by the (dreaded) Insurance companies. There are two flavors:
- Not For Profit (many BCBS)
- For Profit (some big BCBS and commercials)
I could go into the differences, but my point is that this financing / administration (and motives, incentives) is not being discussed beyond slogans.

And how does that relate to MFA? Well, Medicare is a *Financing* arrangement, not Delivery. Medicare defines what is covered and what will be paid for it. Providers submit claims - just like regular insurance - to a processor that adjudicates them against benefits rules and fee schedules. The administration is done, typically, by the same businesses that process non-medicare claims. It is the same system, just with a different sponsor paying the bills.

A very different topic is Healthcare Delivery: who is providing the treatment? In the current Medicare and non-Medicare models, individual commercial entities provide care (and are compensated by the claims arrangement above). In many countries the providers are employees of the medical system, receiving salaries. There is no financial claims system. And there are also variations in between.

Unless we are discussing, when we say Medicare For All, the implications of these two concepts (Finance, Delivery) then we are guilty of sloppy reasoning which, as we know, will lead to (umm) uncertain results.

Don't be sloppy. Don't be like "Someone".