T.R. Reid's The Healing of America

In 2003, USA Today conducted a poll in America asking if they believed Saddam Hussein was responsible for the 9/11 attacks: 70% believed he was. In 2007, a Newsweek poll revealed that the number dipped to 41%. According to the 9/11 commission, it was concluded there was no connection between Saddam Hussein and Al-Qaeda.

In a rational debate, there must be clear separation between what is believed to be true and what is true; what is popular and what is right. T.R. Reid of the Washington Post, wrote a wonderful book called “The Healing of America.” In it he describes the differences between our current health care system in America and those in countries around the world. What follows are direct passages from his book that illustrates some of the problems we face and some of the solutions:

“Our nation’s health care system has become excessively expensive, ineffective and unjust. In 2000, when a Harvard Medical School professor working at the World Health Organization developed a complicated formula to rate the quality and fairness of national health care systems around the world, the richest nation on earth ranked thirty-seventh. That placed us just behind Costa Rica, and just ahead of Slovenia and Cuba. France came in first.

The one area where the U.S. unquestionably leads the world is in spending.

Health Expenditure as a % of GDP, 2005

USA 15.3, Switzerland 11.6, France 11.1, Germany 10.7, Canada 9.8, UK 8.3, Japan 8.0 and Taiwan 6.2

Japan spends about $3,000 per person on health care each year; we average $7,000 per person.

The thesis of this book is that we can bring about fundamental change by borrowing ideas from foreign models of health care. Whenever somebody suggests that the United States might usefully study foreign health care systems the response is usually; “But it’s socialized medicine.” This is supposed to end the argument. The contention is that the U.S., with its commitment to free markets and low taxes, could never rely on big-government socialism the way other countries do. There are two basic flaws in this argument:

1. Most national health care systems are not “socialized.” Many foreign countries provide universal health care of high quality at reasonable cost using private doctors, private hospitals and private insurance plans. Some countries offering universal coverage have a smaller government role than the United States does.
2. Socialized medicine” may be a scary term, but in practice, Americans rather like government-run medicine. The US Department of Veteran Affairs is one of the world’s purest models of socialized medicine at work. In the Medicare system, covering about 44 million elderly or disabled Americans, the federal government makes the rules and pays the bills. And yet both of these “socialized” health care systems are enormously popular with the people who use them and consistently rate high in surveys of patient satisfaction.

So the problem isn’t “socialism.” The real problem with those foreign health care systems is that they’re foreign. Anybody who dares to say that other countries do something better than we do is likely to be labeled unpatriotic or anti-American.

For all the local variations, health care systems tend to follow general patterns. In some models, government is both the provider of health care and the payer. In others, doctors and hospitals are in the private sector but government pays the bills. In still other countries, both the providers and the payers are private. There are four basic arrangements:

The Bismarck Model:

This system-found in Germany, Japan, France, Belgium, Switzerland, and to a degree, in Latin America-is named for the Prussian chancellor Otto von Bismarck, who invented the welfare state as part of the unification of Germany in the nineteenth century. In Bismarck countries, both health care providers and payers are private entities. The model uses private health insurance plans, usually financially jointly by employers and employees through payroll deduction. They cover everybody and they don’t make a profit.

The Beveridge Model

In this system, health care is provided and financed by the government, through tax payments. There are no medical bills; rather, medical treatment is a public service, like the fire department or the public library. In Beveridge systems, many (sometimes all) hospitals and clinics are owned by the government; some doctors are government employees, but there are also private doctors who collect their fees from the government.
These systems tend to have low costs per capita, because the government, as the sole payer, controls what doctors can do and what they can charge. Countries using the Beveridge Model, or variations on it, include its birthplace, Great Britain, as well as Italy, Spain, and most of Scandinavia.

The Nation Health Insurance Model

This system has elements of both Bismarck and Beveridge: The providers of health care are private, but the payer is a government-run insurance program that every citizen pays into. The national, or provincial, insurance plan collects monthly premiums and pays medical bills. The paradigmatic NHI system is Canada’s; Taiwan and South Korea have adopted variations on the NHI model.

The Out-Of-Pocket Model

Only the developed, industrialized nations-perhaps forty of the world’s two hundred countries-have any established health care payment systems. Most of the nations are too poor and too disorganized to provide any kind of mass medical care. A hallmark of these no-system countries is that most medical care is paid for by the patient, out of pocket, with no insurance or government plan to help. Generally, the world’s poorest countries have the highest percentage of out-of-pocket payment for health. Out-of-pocket payments account for 91 percent of total health spending in Cambodia, 85 percent in India, and 73 percent in Egypt. In contrast, the figure for Britain is 3 percent. The United States, with more than 45 million uninsured, ranks fairly high among wealthy countries on this scale with 17 percent of health care costs funded by out-of-pocket payments.

The major reasons our national medical bill is so much higher than any other country’s are two things that the United States does differently from every other country: the way we manage health insurance and the complexity of our health care system.
The United States is the only developed country that relies on profit-making health insurance companies to pay for essential and elective care.

About 80% of non-elderly Americans have health insurance; generally they get it through the job, with the employer paying part of the premium as well. The monthly premium goes toward paying the worker’s medical bills, but the insurance firms also soak up a significant share of the premium dollar to cover the costs of marketing, underwriting, and administration, as well as their profit. Economists agree that this is about the most expensive possible way to pay for a nation’s health care.

Basic health insurance must be a nonprofit operation. According to the SEC most for profit insurance companies maintain a medical loss ratio of about 80%, which is to say that 20 cents of every dollar people pay in premiums for health insurance doesn’t buy health care. Americans tend to believe that the private sector can manage any type of business better than government can. This is not the case when it comes to health insurance. Medicare, the government run single payer system created by Congress in 1965 to pay for basic health care for the elderly, has administrative costs of about 3 percent. This is about the same for Canada’s health care system. Britain’s National Health Service, a system where government both provides and pays for health care, has administrative costs of 5 percent.

In other developed countries, health insurance plans are required by law to guarantee coverage for anybody (“guaranteed issue.”) American insurance firms are allowed to pick and choose their customers. That way, they avoid selling health insurance to the people who need the most health care-and are the most expensive to cover. American insurers have to pick and choose their customers to avoid a problem known as “adverse selection.” That term refers to people who refuse to buy health insurance when they’re healthy but go shopping for a plan after they’ve been diagnosed with a serious disease. If an insurance company had to sell coverage to all those people, it would quickly face claims in excess of the premiums it took in. The solution to adverse selection is to mandate that everybody pay for health insurance, through either a private company or a government program. That requirement is known as the “individual mandate,” and it is a necessary corollary to “guaranteed issue.” If insurance companies have to cover everybody who applies, they need to have everybody in the insurance pool to cover the costs. All other developed countries require both “guaranteed issue” and the “individual mandate.” The United States has neither.

In other developed countries, insurers are required to pay every claim. US insurance companies deny about 30% of all claims, although some of these are eventually paid through an appeal process. “Rescission” is another practice to maximize process. Rescission is a legal term that means “We’re canceling your coverage.” This occurs when an insured person who has been paying premiums for months or years has a serious accident or contracts a serious disease, and the insurer’s Rescission Department looks through the injured person’s records, looking for a reason to cancel the sick person’s coverage.

Americans under sixty-five can’t get health insurance that is permanent. If you leave your job, voluntarily, or otherwise, you lose your insurance. No other country uses that model. In France, Germany, Japan, etc., people get health insurance as a benefit of employment, but the coverage continues if the jobs ends. Government pays the premium until the unlucky employee can get back to work.

Other countries do allow health insurance companies to make a profit on some supplemental policies-but not on the basic coverage plan available to everybody.

The second major anomaly of the US system-the flaw that forces us to spend more money than any other country on health- is sheer complexity. We have the most developed the most fragmented health care system with “providers” sending bills to a vast array of different players.
There is one system for Americans over sixty-five.
There’s on for military personnel and a different one for veterans
There’s a separate system for Native Americans and another for people with end-stage renal failure
There’s one system for Americans under sixteen living in poor families.
In addition to the hundreds of different private insurance plans.

Each paying entity has its own distinct rules about what care it will pay for and how much it will pay for and how much will it pay. Quite often, neither the buyer (the patient) nor the seller (the doctor) know how much a particular treatment costs. The presence of countless different payers and fee schedules drives another unique feature of American health care: the cost shift. Medical providers-doctors, hospitals, labs-naturally try to shift the costs toward the highest payer. If Medicare, with its recurrent budget problems, cuts the fee it pays a hospital for a particular procedure, the hospital will raise the price for other payers to make up the difference. That’s another reason why the same operation in the same hospital on the same day can have ten different prices, depending on who is paying. The administrative patchwork makes everything more complex and expensive than it needs to be. A British hospital, a Taiwanese hospice, or a Canadian clinic will deal with one paying entity and one standard payment schedule. When you go to the doctor in France, the standard fee schedule for each potential treatment is posted on the wall, showing exactly what the bill will be and how of it the insurance plan will cover. One of the fastest-growing aspects of the American health care industry is the booking business for “compilers,” middlemen who compile bills that doctors submit and then shuttle them through the payment system. This makes life easier for doctors, but at a price: It adds an extra level of complexity and yet another layer of bills to the overall cost of American medicine. The US Government Accountability Office concluded that if the country could get the administrative costs of its medical system down to the Canadian level, the money it saved would be enough to pay for health care for all the Americans who are uninsured.”