by John R. Battista, M.D.
Prepared for Grand Rounds, Department of Medicine, Stamford Hospital, Stamford, CT  
October 8, 2008

The United States is the only industrialized country without universal health insurance.  The United States consistently ranks in the lower third of industrialized nations in terms of the two universally accepted measures of health care system efficacy: infant mortality and life expectancy.  In addition, because the United States spends about twice as much per capita on health care than other industrialized countries it ranks at the very bottom of the industrialized world in terms of health care efficiency, that is efficacy per dollar spent.  Furthermore, health care expenses are the leading cause of bankruptcy in the United States, a phenomena which is absent in other industrialized countries.  Finally, the US ranks at the very bottom of the industrialized world in preventable deaths and satisfaction with the health care system.  When the World Health Organization ranked world health care systems in 2000, the United States ranked 37th, the worst in the industrialized world.

It is generally accepted that universal health care systems improve the efficacy of a health care system by improving access to health care.  This is consistent with the finding that the United States health care system provides less outpatient and inpatient care per capita than the health care systems of other industrialized countries.  

Thus, our ability to evaluate proposals for US health care reform would be furthered by an understanding of how other industrialized countries succeed in providing universal, comprehensive coverage with more health care and better outcomes at about half our per capita costs.  Interestingly, the major factor in understanding this capacity of other industrialized countries relative to the US is not to be found in pay differentials, or the differential use of surgery, lab tests or high tech procedures; but rather, in the nature of the health insurance funded as well as how that insurance is paid for and administered.  

First, other industrialized countries guarantee or mandate universal health insurance thereby avoiding both the poorer health care outcomes and the increased health care expenses associated with the uninsured.  The uninsured, by avoiding medical care early in the course of illness become more ill than the insured population and die younger.  Furthermore, because they seek more emergency care and end up being treated later in the course of an illness, when it is both more difficult and expensive to treat, they end up spending more for health care than the insured.  For example, hundreds of thousands of avoidable hospitalizations are incurred each year in the United States due to lack of health insurance. 

Second, other industrialized countries insist on comprehensive health insurance covering preventive care, outpatient care, inpatient care, medications, long term care and dental care.  By covering all health care expenses they lower the cost of insurance for these expenses by making sure there are no uninsured in any aspect of the health care system.  In addition, they lower the cost of insurance for each aspect of the health care system by spreading the expenses across the entire population even when some aspects of health care, such as long term care, are utilized by only a small percent of the population at any given time.  Finally, comprehensive insurance saves money by avoiding the additional administrative expenses of having multiple insurance programs to cover the full spectrum of medical care as is characteristic of the United States.

Third, other industrialized countries insist insurers operate not-for-profit and without managed care.  For-profits pay higher salaries than not for profits, and on top of that they currently consume about 13 percent of health care premiums in profit, as well as having additional expenses associated with managing care.  Repeated studies have shown the same services delivered by for profit Medicare, for-profit nursing homes, or for-profit hospitals would cost about 19% less if delivered through non-profit means.  In addition, unmanaged care has been shown to result in a higher quality of care on all recognized quality of care indicators and to be associated with a lower risk of death, thus improving efficacy.

Fourth, other industrialized countries minimize the number of insurers.  The number of insurers is directly related to administrative costs.  Countries with a single, comprehensive insurance plan, so called single payer countries, such as Canada, have the least insurance overhead.  Countries with multiple, comprehensive insurer plans, such as France, with three, and Germany, with about two hundred, have higher insurance administrative costs.  

The United States with over 1400 insurance companies and multiple insurance plans within each insurer, almost none of which are comprehensive, and almost all of which operate for-profit, reveals the vast savings power of these first four insurance principles utilized by other industrialized countries.  In the United States at least 25% of total health care expenses are consumed by insurance billing costs, about the same percent used to reimburse health care providers.  This contrasts with less than 3% in other industrialized nations.  Since 1970 billing administrators have increased 2500% relative to physicians in the US while this ratio has not changed significantly in other industrialized countries. 

Fifth, other industrialized countries have lowered their cost of health insurance by negotiating the price of prescription drugs and bulk purchasing prescription medications and durable medical equipment, thereby saving about 50%.  This approach has been utilized by the VA, Medicaid and HMO sectors of our health care system, but has been prohibited by law from traditional Medicare.  Savings of up to 5% of total health care expenditures could result from the full adoption of these practices.  

Sixth, some industrialized countries have lowered the cost of health insurance by capitating the expenses of hospitals and physician services, thereby eliminating the cost of billing for these services.  This practice runs contrary to the fee for service values of American culture and has little support among American health care reform advocates.  

Seventh, other industrialized countries have lowered health insurance costs by funding these costs in relation to income rather than risk.  In other industrialized countries the total cost of health care for the entire population is determined and divided among the population so that each person, or employer, pays the same percent of their income, or payroll, for insurance to cover all these expenses.  In the United States the private insurance population is fractionated into groups and the cost of the insurance is calculated by assessing the health risk of the group or a particular individual within such a group for the specific medical services the insurance will cover.  The factors typically involve age and illness history.  As a consequence, health insurance is more expensive the older and sicker you are.  Additionally, because the cost is not modified by income, risk based pricing makes health insurance unaffordable to most hourly workers.  

This method of making health insurance more affordable is at the heart of the health care reform dilemma for the United States.  The only way health insurance can become affordable for a substantial proportion of the uninsured population of the United States is to adopt community financing of insurance and pay for that financing as a percent of income earned.  To do so requires financing health insurance through a public tax mechanism rather than a private billing mechanism.  Yet, this solution is opposed by a wealthy and powerful minority of people in our country who falsely consider such a solution to be socialism and believe that any socialized health insurance funding mechanism would be inherently inefficient and ineffective, despite consistent evidence to the contrary.  

A fuller understanding of these seven means of saving cost and improving outcomes can be furthered by examining the three distinct ways they have been utilized by other industrialized countries: the socialized medical system of Great Britain and Spain; the single payer system of Canada, Taiwan and  Scandinavian countries; and the not-for-profit multi-payer system of Germany and France.

In socialized medical systems the population is insured through public funds obtained through an income tax and a value added tax.  The government owns the health care facilities.  Physicians are paid a salary to work in hospitals, and a capitated rate to treat outpatients.  Hospitals operate on a global budget.  There is no billing for services.  Both Great Britain and Spain allow individuals to opt out of this public system by paying for private health care.  Such systems tend to be underfunded and have waiting lines for non-acute services.  They are much less costly than the US system while delivering generally comparable outcomes.  There is little or no support for such a system for the United States where there is a strong belief that physicians should be paid fee for service and there should be free choice of health care providers, which is not characteristic of socialized health care systems.

In single payer medical systems the entire population is covered by comprehensive health insurance administered by a single organization.  Funding is accomplished through public funds for the unemployed, poor, disabled and retired in combination with an income based health care tax on working families and a payroll tax on employers.  These funds go into a health care fund, not general revenue, which is administered by a regional public office in accord with national policy.  Rates and coverage are set by regional administrators in negotiation with health care providers.  Health care workers are paid fee for service.  There is no managed care.  There is free choice of health care providers.  

This is the system most health care reformers advocate for the United States.  However, they suggest the single-payer system be administered by a not-for-profit trust controlled by a board of health care providers, health care advocates, taxpayers reportable to government, rather than being operated by the government itself.  Prospective studies suggest this system could deliver comprehensive health care, without co-pays, for all Americans with a 6.5% income tax and a 6.5% payroll tax while maintaining the current funding for the Medicaid, Medicare and CHIP’s programs which would be upgraded into comprehensive insurance without additional funding.  This system would improve health care outcomes for the United States while constraining costs and making health insurance much more affordable for the entire population.  

This single-payer model is supported by about 60% of the population and physicians, but has limited support among politicians who wish to maintain the private insurance industry. In the current presidential race, single payer health care reform is supported only by former US Congresswoman Cynthia McKinney, the Green Party Candidate, and Ralph Nader, who is running as an independent.    

The third form of universal health insurance in other industrialized countries involves using the tax mechanism to fund large, quasi-public, not-for-profit insurance pools.  These not-for-profit insurance pools are highly regulated, quasi-public institutions which share profits and losses, and offer only one comprehensive health insurance plan.  They are funded through a health care tax, an employer payroll tax, and public funds for the unemployed, disabled and retired.  They have little or no resemblance to American for-profit insurers.  They are not publicly traded companies with a fiduciary responsibility to stockholders.  Instead, they are not-for-profit, quasi-public institutions with a responsibility to the people they insure which negotiates on their behalf with health care providers for fees and services.  Such a system has co-pays, but utilizes a mandated cap to insure there is no medical bankruptcy  There is no managed care.  There is free choice of health care providers.

American politicians, who support universal health insurance but wish to maintain private insurance companies have been interested in altering the multi-payer system of Germany and France by mandating health insurance coverage while leaving the private, for-profit, health insurance system intact.  This individual mandate is commonly combined with a mandate on employers to provide health insurance for their workers or pay into a public fund to assist workers in obtaining health insurance.  This was the position of Hillary Clinton and Mitt Romney in their campaigns for President.  A mandate on health insurance for children is advocated by Barak Obama, although he does not support a mandate on health insurance for adults.    

Mandate systems can result in universal coverage.  However, international experience suggests this can only be accomplished when the payments for a mandate are collected through payroll and income taxes with the government taking up responsibility for the non-employed population.  In addition, a mandate system would need to require comprehensive health insurance coverage and caps on out of pocket expenses to solve the efficacy and bankruptcy problems of the United States health care system.  Bare bones, major medical insurance with payment limits would do little to solve the efficacy problem for the United States because such coverage would continue to result in inadequate health care access while doing little to stop the problem of medical bankruptcy.  In fact, the vast majority of people bankrupted by health care bills had health insurance at the time they developed a major medical illness.  The simple truth is you can not make private health insurance affordable for the hourly, sick and near elderly worker unless you make it inadequate or substantially subsidize its cost with public funds.  That is because the overhead on private for profit insurance companies is much higher and their use of risk based accounting practices commonly makes it unaffordable for those segments of the population who are most likely to be uninsured: the sick, the near elderly and the hourly workers.  Thus, a mandate on health insurance will most likely result in a decrease in the number of uninsured coupled with an increase of publicly subsidized, non-comprehensive health insurance with payment limits in order to lower the cost of the insurance to both the individual and the state, as has occurred in Massachusetts.  This kind of increased coverage will do little or nothing to solve the efficacy or bankruptcy problems of the United States.  None the less, this is one direction health care reform in this country may be headed despite clear evidence that more effective and more efficient universal health insurance could be obtained through a publicly funded comprehensive insurance program.  

John McCain, the Republican Presidential nominee, does not support health care mandates.  Instead he would offer incentives to private health insurance coverage by making employer health insurance taxable, combined with a $5,000 tax deduction for private health insurance and the deregulation of state health insurance requirements to make private insurance plans cheaper.  This plan, if enacted, would further erode employer-based health insurance by increasing the cost of such insurance through providing an incentive for young, healthy workers to reject it.  Furthermore, it is anticipated to result in an increased numbers of Americans who would be covered by inadequate health insurance thereby worsening the health care efficacy and medical bankruptcy problems in our health care system.  It might decrease the number of uninsured in the short run by making private health insurance more affordable, but increase the number of uninsured in the long run as privately insured people would find they no longer can afford private health insurance as they become older or ill. 

Barack Obama, the Democratic Presidential nominee, supports allowing individuals to purchase health insurance through the Federal Health Benefits Program in addition to a mandate on health insurance for children.  Opening the Federal Health Benefits Program to all Americans would lower the cost of health insurance for older Americans and sick individuals who are unable to afford private health insurance.  It would not solve the problem of making health insurance affordable to the hourly workers.  He thus proposes to subsidize the cost of purchasing health insurance for such individuals.  Such a program would substantially decrease the number of uninsured but would not address the higher administrative cost of health insurance of the private sector and the poor efficacy that results from their use of managed care.  In addition, it would not solve the problem of bankruptcy which results from the lack of comprehensive insurance coverage and the existence of limits on insurance payments. 

In summary, although publicly funded health insurance administered through a single payer option is empirically the most cost effective means of lowering the cost of health insurance and improving the efficacy of the American health care system, the two major parties have rejected this approach because of their support for the private insurance system and the pharmaceutical industry, coupled with an irrational belief that for-profit, free market health care reform will solve the problems of our current health care system.  In addition, single payer has been grossly misrepresented as a government run, socialized medical system that would cost more and result in waiting lines.  The main hope for passage of a publicly funded comprehensive and universal health care system for our country lies in its passage at the state level and having such a system spread to the national level, much as occurred in Canada.  In addition, the public funding of elections, the inhibition of politicians from receiving financial benefits from corporations and lobbyists while in office, and the development of multi-party politics in the United States would all benefit the possibility of publicly funded, comprehensive health care reform for the United States.  For now, advocates of a single payer health reform can be heartened by its increasing support among physicians and the general population and can take solace in the belief that its passage in the United States is inevitable as other health care reform options, such as individual mandates, are tried and fail, and the health care crisis in this country continues to worsen.  The current health care reform situation is very much as Winston Churchill described it: “You can count on Americans to do the right thing- after they’ve tried everything else.”