The Biggest Dilemma: How to Reduce America Health Care Costs and “Ensure” An Affordable High Quality Health Care for All?

The Biggest Dilemma: How to Reduce America Health Care Costs and “Ensure” An Affordable High Quality Health Care for All?

This blog is not written to enter the debate currently been waged in the Presidential race between Senators Obama and Clinton about their respective health plans. Rather, the purpose is to raise some issues that have been overlooked in both plans.

The Obama webpage gives a well “researched” outline of his plan: “Barak Obama’s plan for A Healthy America” www.barakobama.com/issues/healthcare/ (number of pages 14). I say well researched judging by the number of references (65) used as documentation. To an economist’s eye, especially those of us who at one time or another engaged in research and analysis of the delivery of health care in the US and the UK, the piece is a scholarly one.[1]

The Clinton plan: “The American Health Choices Plan: Ensuring Quality, Affordable Health Care for All Americans,” (www.hillaryclinton.com/feature/healthcareplan/Americanhealthcarechoicesplan.pdp) is an 11- page write up with 21 references. But unlike the Obama’s plan, Clinton backs up some of the plan provisions with data supporting the financial needs for health reform (p.11). The estimates are welcomed not only because they make scrutiny of the plan easier but also they shed light on the credibility of the proposal. The plan gives detailed provisions that if implemented would secure for the American people the elusive universal coverage and the quality of care that we all hope for but we seldom encounter.

As both plans are accessible with a click of the mouse, I shall not reproduce here all of their features. What I will attempt to do is to put the main features of both plans in the context of the current status of American health care system and raise few questions that are left unanswered. Let me first begin with a few statistics. [2]
· The US spends some 2 trillion dollars per year on medical care (US Consensus Bureau Health 2007). This amounts to $6,644 per capita.
· There are 46 million Americans who lack health insurance coverage (of which 9.7 million are children) (National Health Expenditures 2007).
· Over the period 2000-2006 Health Insurance premiums have risen four times more than wages (Kaiser Family Foundation 2006).
· 90,000 Patients die from medical errors in hospitals every year.[3]
· Spending on preventative care amount to less than 4 percent of health care spending. (Lambrew, J.M. The Hamilton Project Brookings 2007).
· Administrative costs as a percent of medical expenditures amount to 27% of Medicare/Medicaid and 16% of private insurance (The Prometheus Fact book/Health use).
· One in six uninsured person lives in a family with an increase between $50,000 and $75,000 (Ibid).
· Per capita health care cost in the US is twice as high as that of Canada, France, and Japan and 2.6 times that in the UK (OECD Health Statistics).

These statistics paint a picture not unfamiliar to Americans. Almost every one knows that we spend a significant proportion of gross national income on medical care (14.44 % in 2007), that patients die in hospitals due to errors, that nursing homes residents are abused more often than not, that malpractice suits are prevalent and costly and that health insurance premiums, deductibles and the cost of drug therapy and testing are rising much faster than the core inflation rate and/or the wage rate. Yet, there has not been sufficient indignation over the status of the US health care system to compel policy makers to address rising cost, the lack of universal coverage and most of all the “quality” of health care. Some of this may be explained by the fact that physicians and patients as well as the public at large, for the most part are convinced that universal medical care coverage would lead to nationalization of the health care system (a la British and the Canadian systems), a system that would limit medical care resources and constraint patient choices.

In this election cycle, something seems to be happening on the health care front. Interest in the Presidential race, especially the selection of the Democratic Party nominee has opened a window for the candidates to press for universal health coverage. The hope is that voters’ interests in a candidate can propel him/her to secure their support for a universal health plan.

Since health care is at the top of the Democratic candidates agenda, let us focus on what they offer, what their plans have in common and where they differ.

· Coverage: expand insurance coverage to the uninsured. Private insurers would be required to offer policies to everyone, regardless of medical history.
· Choice: offer all Americans an enhanced choice in the selection of insurance coverage through a mix of private and public plans including the Federal Employees Health Benefit Program (FEHBP).
· Affordability: make insurance affordable to low-income Americans.
· Quality: improve quality through monitoring of services and modernizing the system.

These salient features notwithstanding the “devil” is in the details. Take coverage for example: Hillary Clinton envisages a system that offers coverage for all (universal coverage), achieved by mandating that everyone have insurance. The question of affordability comes later. Barack Obama does not see the need for mandates (although he mandates coverage for children) on the ground that by making the plan affordable, the uninsured will buy coverage. This clearly is a point of contention not only between the candidates but also among health economists (see Krugman, P., NY times, op. Ed. March 4, 2008). The bottom line seem to be: if you want universal coverage, mandates is the way to go. Making insurance affordable does not guarantee purchase.
The question that arises is: “if insurance is affordable, why wouldn’t the uninsured buy coverage?” The answer is simple. Why buy coverage if there is a “third party payer”. Currently some uninsured persons receive medical care through the “uncompensated care pool”. Insurance companies shift the cost of providing this care to those who buy insurance by raising their premium. The same is true for auto insurance (it is estimated that 14% of drivers do not buy insurance). Despite the mandates, most auto insurance plans include provisions (with additional premium) to cover damages by uninsured motorists. The bottom line then is that mandates may not assure universal coverage but it is likely to reduce the cost to third party payers compared with a plan without mandates.

Aside from mandates, Clinton envisages a health care system that is not too different from the existing system…a private/public system, although the plan may end up expanding the public component if many Americans (currently insured and the uninsured) move to opt for coverage under the Federal Employee Health Benefit plan (FEHBP).[4] The Obama plan favors a bigger role for the government in the medical care market through the creation of a “new public insurance program” offered to those who neither qualify for Medicaid or SCHI, nor covered by employers’ plans. His plan also calls for a “National Health Insurance Exchange.” This organization is envisaged to be a ‘watchdog’ for the private insurance market protecting those who want to buy. Insurance and facilitates enrollment in the newly established public plan.

Reading the lines and between the lines, it is clear that the Obama plan comes down on the side of public provision. The question is: will there be one public plan or several like those offered by FEHBP? And what agency will administer the plan? Will it be part of the HHS department or an independent agency? And what is the cost of administration and who bears the additional costs? Above all, why the need for a new public plan given that the Obama health plan also calls for extending FEHBP to non-government employees?

Two fundamental elements not adequately addressee in both Obama and Clinton plans had to do with “measurements of health outcomes” and the phenomenon of “cost shifting”. ‘Quality’ needs to be defined in terms of “long term outcomes” and in relation to cost, monetary and time costs across generations. In talking about quality neither plan gave adequate attention to patients “waiting time”, “quality of access” (which doctor, procedure or hospital), and to “medical errors” committed by physicians, radiologists and hospitals (even though some of these errors carry with them monetary payments through ‘malpractice suits’). What about access to catastrophic insurance and quality of access to nursing homes. Another related issue is the status of those covered by Medicare. Will Medicare subscribers have the option to opt out of Medicare (part B) and join another plan, especially in view of the fact that the Medicare premium paid is progressive (rises with income) and for most Medicare beneficiary private insurance is needed to supplement medical coverage?

We have gone down this road before (several reform proposals made in the 1980s and the 1990s). Two options are usually debated. Keeping the private/public mix but change this or that provision or junk the system and nationalize (one payer) medical care. Past experience suggests that a private/public system is the preferred system. Piece meal changes are the way to go. There is nothing wrong with this approach as long as the contemplated reform ushers in at least one improvement. No one denies that there are many elements that need fixing in the US Health care system. Let us hope that reforming America health care system gets a fair hearing and not falls by the wayside once the presidential election comes to a close.

[1] Ott A. and Gray W. The Massachusetts Health Pan: The Right Perception? (1988).
Ott A. Choice and Incentives in Health Care: A Comparison between the US and the UK (two conference papers, Institute for Economic Studies (IEPS), Clark University and the University of York, UK).
Ott and Lin J.H. Equality of Access to Health Care: A Comparison of the US and UK systems (1986), IEPS.
[2] Some of these Statistics are cited in Obama’s plan.
[3] As Dennis Cortes, President and CEO of Mayo Clinic puts it “this is the equivalent of two 747 planes crashing every two days”. Talk covered by CSPAN 2, March 21, 2008.
[4] Although FEHBP is a Federal government program, it does not entail public provision of services. FEHBP offers federal employees some 10 plans such as Blue Cross/Blue Shield with different levels of premiums, contributions, benefits and deductibles. It differs from private employers plans in the level of government contribution towards the purchase of the chosen plan. For details see: US Office of Personnel Management webpage.