Mandatory Health Insurance Now!

It will save private medicine -- and spur medical innovation.

Ronald Bailey from the November 2004 issue

(Page 2 of 4)

The U.S. looks much better than countries with nationalized health care when you consider waiting times for tests and treatments. Ohsfeldt reports, for example, that in 1997 the mean waiting time for magnetic resonance imaging (MRI) of the head was 150 days in Canada, compared to three days in the U.S. In 1998 the U.S. had 16 MRI machines per million citizens, compared to 3.4 in the U.K. and 1.7 in Canada. Such delays have a serious impact on quality of care: A patient has to wait longer for a good diagnosis, increasing the probability that his treatment will not prevent a lasting disability.

Even more important, America's mainly private system has made the U.S. a font of medical innovation. The U.S. pharmaceutical and biotechnology industries have developed more cancer drugs than their European, Canadian, and Japanese competitors combined, according to Robert Goldberg at the Manhattan Institute's Center for Medical Progress. Due to other countries' price controls, pharmaceutical research and development is increasingly centered in the United States. Consequently, Goldberg notes, that is where 75 percent of all new drugs are discovered and first used. It was U.S. companies, for example, that developed coated stents for treating narrowing heart arteries and invented LASIK surgery for correcting vision problems.

And even when a new therapy is not invented in the U.S., the country's markets can rapidly deploy it. Although the first test tube baby was born in Britain, the U.S. is now the world's leader in human reproductive medicine, pioneering treatments like pre-implantation genetic diagnosis of embryos and sorting sperm by sex chromosomes.

Insuring Cost Inflation

The payoff for less innovation under a single-payer system is supposed to be lower spending. Yet such proposals do not address the origins of the health care system's ever-escalating costs, which go back to World War II. During the war, employers competing for workers found a way around the government's wage controls by offering health insurance in lieu of higher pay. On October 26, 1943, the Internal Revenue Service further encouraged this practice by ruling that employees did not have to pay taxes on such benefits. In 1954 Congress codified the tax-exempt status of employer-provided health insurance.

Nowadays most insured Americans (61 percent) get their health insurance through their employers. The rest buy their own insurance (9.6 percent) and/or receive some sort of government coverage, including Medicaid (11.6 percent) and Medicare (13.4 percent). However well this system may have worked in the immediate postwar years, it is not meeting the needs of Americans today. Fewer and fewer Americans are following the career path of their grandparents and parents: graduate from high school, go to work for a big corporation that provides health insurance for the family, and retire at 65 with a company pension.

"This arrangement might have made some sense back in the days when most families consisted of a man working at a single company over the course of his life supporting a wife and kids at home," says Grace-Marie Turner, president of the Galen Institute, a health policy research organization in Alexandria, Virginia. "The problem is that politicians are still trying to impose a 20th-century health insurance system on a 21st-century work force." Workers today change jobs more frequently, more people are working for smaller companies that offer fewer benefits, and 8 percent of Americans (a share half as big as the percentage of Americans who are uninsured) start their own businesses.

Health insurance is also much more expensive than it was in the 1940s and '50s, partly because modern medicine can do so much more to heal our ills. As William B. Schwartz, a professor of medicine at the University of Southern California, notes in his 1998 book Life Without Disease: The Pursuit of Medical Utopia, "In 1950 costs of health care were remarkably low, because, for a large percentage of patients, doctors really couldn't do much. People spent relatively little on health care (only 4.4 percent of gross domestic product) and got what they paid for -- very few useful diagnostic tests or effective treatments." In 1950 there were no polio, measles, or hepatitis vaccines; no open heart surgeries or pacemakers; no organ transplants; few cancer chemotherapy agents; no MRI or CAT scans; and no drugs for ulcers, high blood pressure, or arthritis.

Employer-provided medical coverage is itself another major reason for the high cost of heath care. Rather than pay workers wages that will be taxed, companies use pre-tax dollars to purchase health insurance as a benefit. Instead of paying an employee $1,000 more in wages, of which $400 will be taxed away, companies purchase $1,000 in additional health insurance tax-free. In this way companies funnel more than $140 billion a year in federal tax breaks to their workers. The tax-free status of employer-provided health insurance encourages generous coverage that allows employees to ignore the prices of medical services, which in turn encourages providers to charge more and more. Employees, seeking to take advantage of their coverage, tend to overutilize the system, which also puts pressure on prices.

Thus we have a system skewed toward overuse by the haves and underuse by the have-nots, in which the healthiest people (highly paid employees) get the most generous health insurance. The Kaiser Commission reported that per capita spending on health care is $2,484 for fully insured Americans, compared to $1,253 for Americans who are uninsured for a full year.

No Such Thing as a Free Physical

"Everybody thinks they're spending somebody's else's money," explains Robert Helms, a health care scholar at the American Enterprise Institute. Yet "payments for health insurance come out of wages. Everything ultimately comes out of wages; it's just accounting that obscures that fact." For decades American patients have had little reason to worry about how much they spend on medical care, because they erroneously believe someone else is paying for it. Consequently, doctors and hospitals have little reason to control their expenses. Spiraling costs are the predictable result. The federal government has added to the problem with its own third-party payments through programs such as Medicaid and Medicare.

Nowadays patients are accustomed to low out-of-pocket medical expenses, and big companies are expected to give their employees gold-plated health insurance policies. "Insurance should cover low-probability, high-cost events," says Helms. When it comes to medical care, the whole idea of insurance -- of protecting against unexpected losses -- has been obscured. Think how expensive your car insurance would be if the cost of routine maintenance such as oil changes and tire purchases were included in your premiums. This is the problem with most health insurance policies today. Instead of insuring against large, unpredictable costs such as chemotherapy or a heart bypass, many policies cover what is essentially routine maintenance: flu shots, annual physicals, and so on.

Despite such generous coverage, employer-based insurance makes Americans anxious. "It's just a stupid system that causes you to lose your health insurance when you lose your job," says Grace-Marie Turner. "If you lose your job, you don't lose your car insurance or your homeowner's insurance. Why should you lose your health insurance?" Last fall's ABC News/Washington Post poll found that 53 percent of insured Americans were worried about losing their health insurance as a result of losing their jobs. This fear helps explain why most Americans tell pollsters they favor universal government-financed health care.

Unable to unravel this dysfunctional system of third-party payments, American companies have turned to health maintenance organizations, which constrain both doctors and patients to keep costs low. But HMOs ultimately were unable to control costs because they couldn't enforce limits on use and because the gains from preventive care were less than they hoped. Single-payer advocates argue that it's time for the government to step in.