With prospects quite good for a Democratic Congress and administration in 2009, the United States is on the brink of joining all other industrialized nations in ensuring the provision of some form of basic health care for all Americans.
Reforming American health care is the single most important public-policy issue on the Democratic agenda, and policy experts are weighing in from all sides. I will confine this article to offering some practical reflections on issues that may bear on the final shape of any approved plan.
Get Social Security deficits off the agenda. The supposedly massive future deficits in Social Security will becloud any attempt to get a health-care program passed. The truth is that fixing Social Security is relatively easy. In 2004, for example, economists Peter Orszag, then at Brookings, and Peter Diamond, of the Massachusetts Institute of Technology, developed a menu of tweaks—tinkering with income-based bend points, the cutoff point for covered wages, retirement ages, and the like—that restored the plan to full seventy-five-year funding without crippling changes. The plan was certified as actuarially sound by both the Social Security Actuary and the Congressional Budget Office. The supposed looming disaster in Social Security has befogged campaign debates and will disrupt the introduction of health-care proposals. A Democratic president with a Democratic majority should pass something like the Diamond-Orszag plan as a first order of business, just to exorcise the confusions remaining from the Bush administration’s “privatization” campaign.
Accept the reality of continued health-care spending growth. For most of 2006, I was “embedded” with the cardiac surgery and heart transplant unit of a major New York City hospital. I interviewed patients before and after their surgeries, watched dozens of operations, went on an “organ harvest” run, and was allowed to attend the meetings where the doctors discussed procedures that had gone wrong. Besides being deeply impressed with the technical skills, the dedication, and the ethics of the doctors in the unit, I got a firsthand view of how fast health-care technology is moving. Twenty years ago, open-heart surgery was considered too risky for people over sixty-five. The median age of the patients I saw was about eighty, and the outcome rates were superb.
The iron reality of health care is that death is almost always the lowest-cost outcome. Primarily because of technological advances, we have drastically reduced the death rate from heart attacks. But there are now millions of people who have had heart attacks. And they need expensive followup, high-priced medications, and usually some kind of formal intervention—to repair a stent, to fix a new occlusion—every few years.
Technological advances are constantly creating entirely new medical markets. I saw a half dozen emerging technologies that will have profound effects on the treatment of heart disease over the next decade or so. Radically miniaturized heart-assist devices, for example, are likely to replace most heart transplants. Although heart transplants are extremely expensive, organ shortages limit annual transplant volume in the United States to about two thousand cases. Heart-assist devices will be much cheaper than transplants, but if they become the intervention of choice for people in the early stages of heart failure, total spending will rise substantially. Nearly every important medical arena, from cancer therapy to joint treatment, is on a similar trajectory. Even if we somehow achieved perfect success in eliminating wasteful care and improving system efficiency, the overall direction of total health-care spending would still be upward.
Don’t duck tax increases. The Democratic mantra that a national health-care solution can be financed by “cutting waste” or “eliminating tax breaks for the rich” is simply not true. Creating a new coverage alternative for currently uninsured people in their fifties and sixties, and for low-wage workers, will inevitably boost spending. While there are many measures we can take to rein in inappropriate spending growth over the long term (see below), they will take some years to get up and running, and their impact will be reduced by advances in technology and the steady increase in the median age of patients.
What kind of tax increases are we talking about? At the moment, health care accounts for about 16 percent of GDP, with about half of it, or 8 percent of GDP, financed by government. The average personal tax rate (including all levels of government) is about 26 percent of GDP, so almost a third of our taxes currently go to health care.
My own guess is that by the end of a new president’s second term the added spending momentum from a national health-care program would push health care’s share of GDP to about 20 percent, with perhaps two-thirds of it, or 13 percent, financed by the government. The increased government spending for health care would be equivalent to another 5 percent of GDP. Assuming other government spending grows at the rate of GDP growth, that would require about a 20-percent rise in average tax rates, from 26 percent to 31 percent of GDP. If we maintained just the current level of tax progressivity—which is much greater than many liberals are prepared to believe—about two-thirds of the increased taxes would come from the top quintile of earners.
A health-care tax hike would not derail the economy. There is no obvious reason why that order of tax hike should be destabilizing. Among the thirty leading industrialized nations America has a total all-government tax share of GDP that ranks twenty-eighth. Only Mexico and Korea have lower overall tax rates. A tax rate of 31 percent of GDP would still leave the United States in the bottom third.
More important than gross tax rates is what the tax money is used for. Taxes for health care would almost all be plowed back into the private economy—unlike spending for foreign wars, for example. Political punditry still insufficiently appreciates what a dynamic, high-productivity industry health care has become. It is a technology driver in both electronics and biotechnology, and is one of the few industries to offer a wide range of decently paying jobs and good career ladders to community-college graduates.
Even at very modest rates of economic growth, the kind of growth in health-care spending envisioned here would not “squeeze out” growth in other sectors. People could go on consuming bigger McMansions, Japanese SUVs, and Chinese and Korean consumer electronics, although the rate of increase would necessarily be slower than in the recent past. America’s enormous trade imbalances may indeed require just such a shift, and health care is usually a positive contributor to trade.
Government-funded care will come with limits. Much of America’s high spending is driven by too-rapid adoption of new technologies, often just in pursuit of higher reimbursements. The cardiology profession, for example, made a wholesale switch to new, and much more expensive, stents a few years ago. (Stents are tiny wire-mesh scaffolds that prop open blocked arteries.) Other countries adopted them much more slowly, in part out of budget concerns, and in part to await more complete outcome statistics. While the newer stents are now the treatment of choice in all advanced countries, recent outcome data have pushed American usage rates down close to those in the rest of the world, at substantial cost savings. The explosion of spinal surgery in the United States, with apparently quite ambiguous outcomes, is shaping up as a similar story.
Several large American health-care systems, like the Veterans Administration and the Kaiser-Permanente plans, have good track records in managing the adoption of new technologies. The secret is a senior-doctor management layer that imposes system-wide protocols. But the vast majority of U.S. doctors operate with no such constraints. Any drug or surgical intervention is fair game, provided only that the FDA has deemed it safe and of some benefit, however small, for some patients.
Americans hate restrictions on choice, and doctors hate it more than most. But a broadly available, high-quality health plan with substantial taxpayer support will be affordable only with reasonable restraints on inappropriate or unproven care.
A related issue is the absolute hash we make of managing care for the very expensive patients with multiple chronic diseases. (It was painful to sit in intake sessions and watch elderly people struggle to come up with a list of their medications. Elderly heart patients almost always have multiple co-morbidities, but, with no common records, they must act as their own care coordinators.) Solutions will involve care-management networks, probably staffed by medical social workers, standard record systems for doctors participating in the national initiative, and similar managerial steps. Perinatal care presents another such opportunity.
Quality. Serious mishaps in the airline industry trigger professional inquiries that frequently lead to industry-wide operational or equipment adjustments. The surgical “morbidity and mortality” meetings I observed were honest and hard-hitting and several times produced useful ideas for practice changes. But they were not fed into any larger system of professional learning.
Democrats should break off their love affair with trial lawyers. The heaviest cost of the present tort-based system of compensation for medical injury is not malpractice insurance but the resultant secrecy of medical records and the lack of detailed system-wide error tracking. A public system that merely tracked mortality rates for heart surgery in New York State quickly led to consistently lower mortality rates than elsewhere in the country. Comprehensive quality- and error-tracking systems could greatly improve almost all types of care, without eroding patient confidentiality. But unless they are accompanied by professional patient-victim compensation boards, in place of tort suits, they could become a happy hunting ground for lawyers.
A comment on efficiency. After watching the struggles of the claims staff at my heart center, I’ve come to the conclusion that the health-care paperwork morass is caused not by multiple payers but by the hundreds of different plans and payment schedules.
Medicare is often singled out for its low overhead compared to the profit-making companies. But Medicare contracts its overhead-intensive claims-review and processing functions to the same big private health insurers that run the major plans. So why is its overhead so much smaller? One reason is that Medicare runs a single national system, while the private plans must have different offerings for each state, with mandatory coverage rules usually pushed through by industry lobbying groups. In addition, a competitive business model requires a range of coverage options, plus marketing and sales costs.
A basic, substantially uniform national health plan, with decent but not lavish coverage, will have processing efficiency similar to Medicare’s, whether or not it is provided through private insurers. In addition, it will define the de facto national data-processing and data-exchange protocols required to create a true national health patient, treatment, and provider tracking system.
But a second reason for Medicare’s low overhead is that it will pay for almost anything that has cleared the FDA—that’s why “Medicare Mills” line the shopping malls in gerontocracies like South Florida. Creating and managing an intelligent and responsive process for incorporating proven new technologies into the national program, however, will require substantial overhead expenditure. Very low overhead is not a virtue if it means a lack of control.
American health care is by itself one of the largest industries in the world. Achieving an imperfect but more or less stable and reasonably efficient solution within a single two-term presidential administration will be a massive public-policy achievement. Getting there will require traversing a financial and political minefield. It will take political commitment, consistent vision, a shrewd sense of practical compromise, and political timing, persistence, and decent luck.
The first serious proposal for a national health-insurance program was made almost seventy-five years ago during the early New Deal. There now seems to be a real chance to make it happen. The chance may not come around again for another three-quarters of a century.
This essay is part of the Issues 2008 series of commentaries on the important issues confronting the next president and Congress.
Related: America's Blind Spot: Health Care and the Common Good, by Daniel Callahan
Read more of Commonweal's coverage of health-care reform here.