Saturday, January 22, 2011

Business Political Power: The American Health Care System

While inequalities in various other things are necessary for economic incentives, health care should be provided on a fully equal basis, with family income no longer playing any role in access to quality health care. Only the power of government can produce this result.

What is needed is a health-care system that is equal, universal, comprehensive, privately provided but publicly funded, and compulsory through the tax system.

The United States has spent some one hundred years debating these issues, since Theodore Roosevelt's campaign of 1912. At every stage, a huge part of the American business community, and the bulk of America's great business oligarchy, have fought tooth and nail against expansions of the role of government in health care.

The Obama administration's health-care law, which was the most that was then politically feasible, achieved very significant reforms. In type, it is essentially the Swiss system, i.e. use of private insurance companies but with regulation and subsidies to remove some of the worst abuses. It, however, falls far short of what should be the aims in a civilized society.

I. Two Major Surgeries

There are two major surgeries among the many further reforms that are needed:

A. Exclusion of the private insurance industry

The function of medical insurance should be transferred to government, and the private insurance industry should be prohibited, by federal law, from offering any insurance in the medical field, with criminal penalties for the officers of any company violating this prohibition.

There are a considerable number of reasons for this conclusion, relating to cost reduction, equity, and political considerations:

1) Administrative costs of the insurance carrier would be reduced, for several reasons:
  • Administrative costs are inherently higher when the insuring organization is administering a multiplicity of insurance plans, designed to appeal to differing income levels and health status, as compared to a single plan covering all medically appropriate procedures and treatments.
  • Private insurance companies compete for larger shares of the market with extensive advertising, which is paid for by premiums. Most of this expense would be removed by governmental provision of medical insurance.
  • Private insurance premiums pay for astronomical salaries and perquisites of the chief executives of private insurance companies. The same work could be done equally well by civil servants for a tiny fraction of these costs.

(2) Private insurance companies have a vested commercial interest in appealing to differing income levels and health status, thus playing different groups against each other by appealing to their narrow self-interests. This tends to destroy any political sense of solidarity within the population on behalf of providing health care on a fully equal basis.

(3) Private insurance companies promote the voluntary principle, allowing healthy persons, in various degrees, to opt out of insurance pools. This increases the per capita cost for persons left in the pool, as opposed to spreading medical costs over the whole of society.

(4) Private insurance companies, and the business community generally, hold that competition and private-sector bargaining with providers are "essential to controlling costs." Direct governmental regulation of fees charged by providers, however, can be equally effective, and far simpler in avoiding complicated organizational structures. This reduces actual total administrative costs.

(5) The Obama reform will mean high administrative costs in enforcing the requirement for citizens to purchase private health insurance. A far superior approach to compulsory health insurance is to provide universal health care free, or nearly free, and then to force most citizens to pay toward the costs through a progressive tax system, which would redistribute the burden within society.

(6) Finally, use of commercial companies to achieve a social purpose requires extensive governmental regulation, and this, even if it nominally removes all undesirable behavior of private insurance companies, must work uphill against resistance, for two reasons:

  • The executives of private insurance companies are hired and fired by shareholders, who have only one interest, maximizing profits, which is extraneous to the social purpose.
  • Particularly in the United States, there is within the business community a deep culture of hostility to governmental regulation, which is perpetually illustrated by the behavior of the Republican Party.
B. Elimination of fee-for-service

The fee-for-service method of remunerating physicians, hospitals, and other providers should be extensively curtailed or abolished altogether, because it vastly inflates costs. Billions of claims for individual medical procedures must be processed, which requires a vast assortment of private and public bureaucracies, and it offers endless opportunities for padding of medical charges.

It should be replaced by payment of physicians by salary, under one or another arrangement, and funding (reimbursement) of hospitals and other providers by various types of global financing.

Many other countries have long ago moved away from the fee-for-service concept. Americans cling to it because it is part of an individualistic political culture.

If someone were to propose that military hospitals be financed by fee-for-service, there would be an instant verdict of insanity. That is the appropriate verdict for the existing American use of fee-for-service.

II. The Choice of Level of Government

One option is to transfer the function of health insurance to state governments, with regulation and equalizing grants from the federal government. This is essentially the Canadian system. An eminently intelligent plan of this type was the Wellstone bill (S.491), introduced in 1993, in the 103rd Congress, 1st Session, by U.S. Senators Wellstone, Metzenbaum, and Simon. This approach has the political advantage of appeasing the American fear of "centralized authority," i.e. the federal government. By the same token, however, it has the great political and administrative disadvantage of cumbersome relations with fifty state governments.

The optimum approach is to locate a system of universal health care at the federal level, and do so, not by creating any new administrative structure, but by adding it to the existing Social Security system, which has field offices in every small community across the nation.

Moves in this direction were considered in 1935, but President Franklin Roosevelt, one of the nation's most powerful Presidents, was forced to retreat by more powerful forces, namely massive lobbying by the private insurance industry, intense opposition from the American business community generally, and popular fear of "socialized medicine," which a huge part of the American business community has always promoted by massive, and misleading, propaganda.

III. End the Business Oligarchy

The most fundamental reform would be to get rid of America's great business oligarchy, which has obstructed reform in health care, and a thousand other fields, for a hundred years and more.

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