The debate on healthcare reform has come down to trench warfare over a “public option”. This is such a slippery term that most of the public couldn’t tell you what it is, even if an overwhelming majority want it.
What does it mean for healthcare reform to succeed (or fail)? How will we know? Does a public option really determine success or failure? Could something else do the job?
The goal for healthcare reform (as stated repeatedly in the last campaign) is simple. We want universal coverage at an affordable cost. We will be able to tell if reform succeeds if we can say in concrete terms what this means. I propose that we measure results against these two numbers: (1) 15% of GDP and (2) 100% access. More below.
The goal has two parts: (A) Universal coverage and (B) affordability.
Universal coverage means that everyone can get health care when they want it without going bankrupt. That is 100% access. Success means that 100% of people who need to get essential healthcare services (something to save their lives or to keep them out of the hospital emergency room) get them without having their finances so badly damaged that they can’t recover. This is universal availability and individual affordability.
Affordability also means that we, as a country, can afford healthcare. It doesn’t help us if each individual can afford to stay alive and healthy if the country goes bankrupt in the process. Healthcare reform became a national political issue when costs soared over 15% of GDP—Gross Domestic Product, a common economic measure. (They are estimated at 17.6% now.)
When one sector of the economy starts to take too large a chunk of the GDP it has a disruptive effect in the economy because it puts the squeeze on other spending. People need a certain percentage of their income to spend on food, housing, transportation and other things. When a sector goes too far out of bounds it disrupts too much spending in these other sectors, causing real structural damage. This is what’s happening to the U.S. economy as healthcare spending takes over larger and larger blocks of spending. Getting it under fifteen percent seems to keep it from damaging other parts of the economy, making that an ideal ceiling for healthcare costs.
Right now, we are looking at $2.5 trillion spent on healthcare in 2009, on about a $14.2 trillion economy. For us to get this under 15% of GDP we need to cut total healthcare costs by about $370 billion a year just for the people currently getting coverage. Considering that we need to cover something like 40 million additional people, this means not only cutting overall costs but also per capita costs even more steeply.
Corporate waste in healthcare runs about 30%, including the costs of profits, excessive executive pay, unnecessary marketing and unnecessary administrative costs. When I say “excessive” or “unnecessary”, these are measurable numbers. For example, executives that earn more than 50 times the compensation of the average American worker are getting excessive executive compensation. Up until the splurge of the 1990s, most executives earned in the range of 40 times average. When administrative costs are 15% (as reported) instead of about 3 or 4 % (similar to the overhead of Medicare), then that’s unnecessary. All profits in healthcare come at the expense of someone dying or suffering a lack of health care, so all profits are excessive. This is corporate waste—waste in the healthcare system that comes as a result of having a for-profit system.
Corporate waste of about 30% means that about $750 billion of the American healthcare system is wasted each year. We should be able to cut this much out of the system without any impact on quality of care.
At the same time, covering an additional 40 million Americans will cost more money. The current U.S. population is around 308 million, so the average cost per person is around $9300. To get all 308 million Americans covered at 15% of GDP, this cost needs to be closer to $6900 each. This is the equivalent of taking about $646 billion out of the current system in cost reductions. This is less than the corporate waste, but it is far, far larger than anything we can get from proposed solutions other than the public option.
For example, Republicans have talked about opening up competition between states. Aside from the constitutional questions this raises, and the unfairness to those states that are doing a good job of protecting the consumer, the total savings from this kind of competition is on the order of billions of dollars a year, not hundreds of billions. And, it is a temporary solution. After opening up competition, there would be consolidation in the industry. After a few years, we would have three large insurance companies for the whole country instead of a dozen, putting even more intense upward pressure on costs.
Or, take tort reform. This might get a billion a year. Never mind the unfairness to plaintiffs who have suffered horrific damage at the hands of unscrupulous or negligent physicians; that amount just isn’t going to cut it in economic terms.
Co-ops? Public options for individual states? If we could get a few years of moderate relief (I doubt anyone can calculate what this would actually bring), that would not solve the problem. We are not talking about trimming a little around the edge. We need savings on the order of a hundred billion a year, and we need those savings repeated for about seven years. We need something that will take a hundred billion dollars a year off total healthcare costs and do that repeatedly to get anywhere close to 15% of GDP.
The sensible thing to do would be to eliminate healthcare insurance and go to a full single-payer plan. This would immediately result in something on the order of $750 billion a year in savings by eliminating corporate waste. This should be the target of any future attempts at reform, regardless of the outcome of the current round.
For now, we have a choice between getting a public option or not. A public option has the potential (if it is robust—meaning that it allows full competition between the public plan and private plans) to cut corporate waste to the point where we can get something approaching $100 billion a year in savings and continue on that trend. I’m not trying to eliminate for-profit healthcare entirely. I just want to shrink it to the point where we could drown it in a bathtub if we needed to. But that’s not out of hostility or unkindness. It’s just simply what the numbers demand. Unless we are on track to radically reduce for-profit healthcare in this country within about ten years, we will suffer such economic damage that we will not be able to recover a healthy economy in our lifetimes.
These costs also mean that we will not be able to stabilize the federal budget (or the state budgets, for that matter) unless we succeed at healthcare reform. A public option is critical to being able to turn the tide on federal deficits. Without it, the increased costs of healthcare also mean ballooning budgets for Medicare and all the other government-run single-payer plans in the current system. This limits the amount of money that can be used for other purposes, such as stimulating jobs, as well.
So, for the current round of healthcare reform, only the public option has any hope of success. “Success” in this context means a viable economy and manageable government budgets, while providing essential healthcare to all. One need not think too hard about what a failure would mean for Democratic prospects in future elections. In fact, not getting a public option in the current reform is probably the equivalent of giving the government back to the Republicans. And you know how fiscally responsible they are.