As Iowans prepare to caucus on February 1, a battle royal is playing out in each political party. But while Republicans argue over Donald Trump's conservative credentials and Ted Cruz's temperament, Democrats are having a heated debate over actual public policy. At its heart is the future of health care reform in the United States and which alternative—the "evolutionary" incrementalism of the "pragmatic" Hillary Clinton, or the single-payer "revolution" of the "idealistic" Bernie Sanders—offers the best path forward both on the merits and on the politics. And as the Iowa vote approaches, the wonk wars among academics, analysts and pundits have produced a surprising amount of ill will between the rival camps.
In response, here’s a simple plea to all those of good faith, regardless of the candidate they support: Keep your eyes on the prize.
Six years after the passage of the Affordable Care Act, that prize remains health care that is universal, continuous and more affordable. Despite the indisputable success of Obamacare in reducing the ranks of the uninsured below 10 percent, roughly 29 million people (including undocumented immigrants) still lack coverage. "Universal" means all United States citizens and (at least) all documented immigrants should have insurance. And that insurance should be continuous, with coverage available without interruption even as one's family situation, employment status, income level, and age change. Though necessary, these goals are not sufficient. Comprising more than 17 percent of the entire U.S. economy, health care must become more affordable for both America and Americans.
Remember that six years after then-Senate Minority Leader Mitch McConnell declared, "I think the slogan will be 'repeal and replace,' 'repeal and replace,'" it is certain that the still TBD Republican alternative will swell the ranks of the uninsured and put the cost of coverage beyond the grasp of millions more. Remember, too, that eight years ago then-Sen. Barack Obama opposed the individual insurance mandate and endorsed a single payer solution as his preferred strategy if he was starting over from scratch. And in 2016 as in the hotly contested 2008 Democratic primaries, there is little reason to think that Sen. Sanders, Sec. Clinton and Gov. O'Malley won't come together to support their party's presidential nominee and his or her health care program.
But there's also every reason to believe that the health care plans of the next Democratic president will change from their current incarnations. As the experience of the United States and every major industrialized nation around the world shows, there are two certainties of health care reform. First, "fixing the system" isn't a milestone, but a continuous, never-ending process. Second, that process inevitably requires rate-setting. That is, regardless of who pays insurers, hospitals, physicians, clinics, and drug companies, in one way or another the government will determine how much.
That health care reform never stops is confirmed by a quick glance at the headlines of the last several weeks. The UK's single-payer National Health Service (NHS) was founded in 1948, but now faces work stoppages even though "UK Doctors Suspend Planned 2-Day Strike Amid Talks" over their pay. Across the Channel, "French Health Law Promises Free Doctor Visits" to be covered by France's hundreds of private insurance plans. Meanwhile in the United States, the Obama administration responded to insurance carriers' complaints about the bottom-line impact of the Affordable Care Act's special enrollment periods as "Feds Tighten When People Can Enroll in Obamacare Plans." And in a report reflecting the very decentralized approach to American health care, CNN explained "Heart doctors outraged Florida dumps hospital standards after big gifts to GOP."
Economics, after all, is about the allocation of scarce resources. The health care economy is no different. Its "ecosystem" consists of patients, nurses, doctors, administrators, clinics, hospitals, insurers, government agencies, researchers, universities, pharmaceutical companies, drug stores, charitable organizations, non-profit groups, and religious institutions. National, regional, and local governments must constantly reassess their health care programs as medicines, best practices, economic circumstances, social norms, and technologies change. Whether "socialized" or "free market," ad hoc or years in the making, national health care systems are forever allocating—and reallocating—pain. That is, they will squeeze some or all their ecosystem's participants by mandating the issuance or purchase of insurance, adjusting payments, changing the scope of coverage, controlling access to providers, and setting limits on patient benefits.
As it turns out, the United States doesn't just stand out by spending almost twice the percentage of its GDP on health care as its economic rivals. For most of its recent history, America has been unique in allocating pain almost solely to consumers.
That has begun to change with Obamacare. The ACA put a ceiling on insurers' "medical loss ratio" as well as ending annual and lifetime caps on benefits. Carriers cannot turn away or drop customers due to preexisting conditions. Meanwhile, Obamacare offers individuals and families with incomes between 133 and 400 percent of the federal poverty level (FPL) subsidies to purchase private insurance. And in the 31 states wise enough to opt in, the expansion of Medicaid to those earning less than 133 percent of the FPL has enabled millions more to obtain coverage.
But at the end of the day, President Obama left the basic contours of the American health care system in place. Make that four systems. The very popular if troubled VA system provides veterans with a single payer system akin to the NHS. While the elderly get coverage through Medicare and lower-income Americans through Medicaid, most get their insurance through their employer or purchase it from Obamacare exchanges. The insurers, hospitals, doctors and drug companies are still private. And that means many people are still financially vulnerable to the insurers’ narrowing physician networks, employers dropping coverage for non-surgical procedures, and to Martin Shkreli, Pfizer, and their ilk jacking up prices for prescription drugs.
In response, Bernie Sanders and Hillary Clinton have offered two strikingly different approaches. Sanders' could be termed "Medicare-for-All Plus," a single payer government insurance system with fixed payment rates for providers which also eliminates deductibles and co-pays. Clinton's "Obamacare Plus" keeps the ACA framework in place while targeting high prescription prices and growing out-of-pocket costs with additional tax credits for consumers and tighter regulation of insurers and pharmaceutical firms. Neither plan, as Greg Sargent noted in the Washington Post, is especially detailed. Just as important as the question of who pays, Matthew Yglesias rightly pointed out, is the separate but related question of how much:
The thing about saving money by having a single health care payer squeeze providers on reimbursement rates is that adopting a single-payer structure is neither necessary nor sufficient to achieve the gains. In other words, if the American political system wanted to cut doctors' payments, we could do that without moving to a single-payer system. Conversely, adopting a single-payer system does not on its own lead to low reimbursement rates -- that's a separate decision that the political system would have to make.
The term for regulating the fees charged by doctors, hospitals, and others in a multi-payer setting is called all-payer rate setting, and it's a pretty good idea.
As Sarah Kliff explained, "France, Germany, Japan, the Netherlands, and Switzerland all use some version of all-payer rate setting." Even with hundreds or thousands of private insurance plans, since 1980 all five countries have experienced much slower growth in health care spending than the United States (see chart at top). All-payer rate setting is a powerful reason why:
In all-payer rate setting, all of the insurers negotiate jointly with all of the health care providers, and set on one specific price for each procedure...Single-payer health care systems save money in two ways: reducing administrative costs and increasing the bargaining power of health insurers. This is true of all-payer rate setting systems, too.
Whatever you might think of Hillary and Bernie's approaches, the Republican vision for health care is a return to the Hobbesian struggle of each against all in the American health care ecosystem. During the 2012 presidential campaign, GOP torchbearer Mitt Romney explained why he wanted to set fire to the Affordable Care Act:
"We can get health care to act more like a consumer market, and if we do that and we stop making it like a big government-managed utility, we're going to see better prices, lower costs and better care."
Romney and the 2016 GOP White House wannabes have it exactly backward. As a quick tour of the American model and successful systems in place in other modern economies worldwide shows, health care should be treated less like a free market and much more like a government-regulated utility.
Let's start with the conservative free-market nirvana, where buyer and seller each armed with perfect information come together in a voluntary transaction. But from the get-go, the patient-as-consumer faces a knowledge asymmetry almost impossible to overcome. Americans' general deference to physicians isn't just a cultural trait, it simply reflects the expertise and training regarding diagnoses, possible treatments, and likely outcomes doctors possess and their patients do not. For some cases and for some conditions, the layman can narrow that yawning information gap. But WebMD or no, it can't be eliminated. "Health" is not a commodity. Those who believe that choosing a health care product or service is no different than buying a car, television, or cell phone might feel differently after, say, developing colon cancer.
But even if the diagnoses, treatments, and cures for heart disease, diabetes, or depression could be purchased in a free market, in the United States the buyer simply doesn't—or can't—know what price he or she will pay. As Stephen Brill documented in March 2013 ("Bitter Pill: Why Medical Bills Are Killing Us"), hospital prices for drugs, supplies, and procedures are completely opaque. The answer from the so-called "charge master" about what anything costs depends on whether the patient is insured or uninsured (the latter often forced to pay multiple times more than the former) and who the insurer is. As it turns out, that mystery pricing is one of the hallmarks of the American model that spends $2.8 trillion a year (over 17 percent of GDP) on health care, more than Japan, Germany, France, China, the U.K., Italy, Canada, Brazil, Spain, and Australia combined:
As we examine other bills, we'll see that like Medicare patients, the large portion of hospital patients who have private health insurance also get discounts off the listed chargemaster figures, assuming the hospital and insurance company have negotiated to include the hospital in the insurer's network of providers that its customers can use. The insurance discounts are not nearly as steep as the Medicare markdowns, which means that even the discounted insurance-company rates fuel profits at these officially nonprofit hospitals. Those profits are further boosted by payments from the tens of millions of patients who, like the unemployed Janice S., have no insurance or whose insurance does not apply because the patient has exceeded the coverage limits. These patients are asked to pay the chargemaster list prices.
If you are confused by the notion that those least able to pay are the ones singled out to pay the highest rates, welcome to the American medical marketplace.
And in that "marketplace," prices vary widely from state to state, city to city, and even block to block. Data compiled by the Centers for Medicare and Medicaid Services (CMS) in May found that "hospitals charge Medicare wildly differing amounts—sometimes 10 to 20 times what Medicare typically reimburses—for the same procedure," with the 3,300 hospitals analyzed showing wide variation "not only regionally but among hospitals in the same area or city." Making matters worse, the accelerating trends of mergers and private equity investments in hospital chains have spawned the use of unnecessary procedures and "code-inflation" to extract greater profits from patients, insurers, and the federal government. And as the Washington Monthly and theWashington Post documented, the American Medical Association and its secret Specialty Society Relative Value Scale Update Committee (RUC) quietly set the prices Medicare and private insurers will pay physicians based on sometimes dubious assessments of how long a given procedure takes. So whether we're discussing colonoscopies, hip replacements, asthma inhalers, or ER visits, the only certainty is that the costs to Americans will be higher—sometimes orders of magnitude higher—than those faced by the citizens of Germany, Spain, Canada, Japan, or just about any other major national economy.
But even if our American patient-as-consumer had access to transparent pricing information and knew everything doctors know about his or her treatment, health care would still not constitute a free market for a simple reason. In most cases, the transaction between the patient/buyer and the provider/seller is coerced. That is, when you're sick, you can't simply walk out of the market. You have to buy care from someone—or else. (Prior to the implementation of Obamacare, studies put the number of uninsured Americans who needlessly die each year as high as 45,000.) Worse still, because you can never know in advance about a bank account-draining illness or accident or condition that could require regular or lifelong care, insurance is the only path forward.
The element of coercion—that patients in emergency situations or not usually have no choice but to purchase treatment—is why the rhetoric of Rand Paul and his ilk is so cynical and dangerous. Lasik surgery, the GOP's favorite example of their ideal health care system at work, is entirely elective. Of course, you'd never know that from listening to the ophthalmologist senator from Kentucky:
"Insurance doesn't cover Lasik surgery, the surgery to get rid of glasses," Paul remarks. "So it started at about $2,000 an eye, maybe even $2,500 an eye, and it's down in some communities to under $500 an eye because competition works and people call on average four doctors to get the price and see how much it's going to cost."
Give that a try the next time you go for chemotherapy, need kidney dialysis or, say, rupture your spleen. Rather than spending time doing the medical equivalent of window shopping, it would be better to remember the advice of Dr. Paul Krugman:
There are a number of successful health-care systems, at least as measured by pretty good care much cheaper than here, and they are quite different from each other. There are, however, no examples of successful health care based on the principles of the free market, for one simple reason: in health care, the free market just doesn't work. And people who say that the market is the answer are flying in the face of both theory and overwhelming evidence.
That overwhelming evidence comes from just about every other economic competitor of the United States. And regardless of how they manage their nation's own complex health ecosystem of insurers, pharmaceutical firms, device manufacturers, hospitals, and doctors, in one form or another each relies on the same mechanism: Rate setting.
To put it another way, countries as diverse as Germany, Japan, the UK, France, Switzerland, and Taiwan treat health care as a highly-regulated utility, not a free market. Like access to water, telephones, electricity, and education, America's partners and competitors have decided that health care simply will be part of the social contract for their citizens in the 21st century. (Such a notion couldn't be more alien to the likes of the Heritage Foundation, which recently lamented that many American poor enjoy such luxuries as television, air conditioning, and cell phones.) And to make it all work, government sets the prices that insurers, hospitals, drug companies, doctors, and pharmacies can charge.
In his 2009 book The Healing of America and companion PBS Frontline documentary Sick Around the World, T.R. Reid examined the different approaches used by the UK, Germany, Japan, Taiwan, and Switzerland to deliver universal health care. But while the UK's National Health Service (NHS) is a single payer system in which hospitals are run by the government and doctors employees of it, the other nations feature private insurers, hospitals, and physicians just like the United States but with one big exception. As Sarah Kliff explained, in the United States "it's that the federal government does not regulate the prices that health-care providers can charge."
Sick Around the World describes the four basic models including the "out of pocket" approach, the completely government-run system implemented in the UK, the Bismarckian social insurance strategies in Germany and Japan, and the single-payer system in Canada that’s emulated by South Korea and Taiwan:
Reid reports next from Japan, which boasts the second largest economy and the best health statistics in the world. The Japanese go to the doctor three times as often as Americans, have more than twice as many MRI scans, use more drugs, and spend more days in the hospital. Yet Japan spends about half as much on health care per capita as the United States.
One secret to Japan's success? By law, everyone must buy health insurance—either through an employer or a community plan—and, unlike in the U.S., insurers can neither turn down a patient for a pre-existing illness, nor are they allowed to make a profit.
Reid's journey then takes him to Germany, the country that invented the concept of a national health care system. For its 80 million people, Germany offers universal health care, including medical, dental, mental health, homeopathy and spa treatment. Professor Karl Lauterbach, a member of the German parliament, describes it as "a system where the rich pay for the poor and where the ill are covered by the healthy." As they do in Japan, medical providers must charge standard prices. This keeps costs down, but it also means physicians in Germany earn between half and two-thirds as much as their U.S. counterparts.
Given the admiration it enjoys from conservatives like Megan McArdle and Avik Roy, Switzerland provides an especially helpful case study for evaluating the U.S. health care system. Unlike France and Japan where the central government regularly negotiates prices and fees directly with providers, Reid explains:
The Swiss system is social insurance like in Japan and Germany, voted in by a national referendum in 1994. Switzerland didn't have far to go to achieve universal coverage; 95 percent of the population already had voluntary insurance when the law was passed. All citizens are required to have coverage; those not covered were automatically assigned to a company. The government provides assistance to those who can't afford the premiums.
How does it work? The Swiss example shows that universal coverage is possible, even in a highly capitalist nation with powerful insurance and pharmaceutical industries. Insurance companies are not allowed to make a profit on basic care and are prohibited from cherry-picking only young and healthy applicants. They can make money on supplemental insurance, however. As in Germany, the insurers negotiate with providers to set standard prices for services, but drug prices are set by the government.
Regardless, the American health system is unique in the world:
These four models should be fairly easy for Americans to understand because we have elements of all of them in our fragmented national health care apparatus. When it comes to treating veterans, we're Britain or Cuba. For Americans over the age of 65 on Medicare, we're Canada. For working Americans who get insurance on the job, we're Germany.
For the 15 percent of the population who have no health insurance, the United States is Cambodia or Burkina Faso or rural India, with access to a doctor available if you can pay the bill out-of-pocket at the time of treatment or if you're sick enough to be admitted to the emergency ward at the public hospital.
The United States is unlike every other country because it maintains so many separate systems for separate classes of people. All the other countries have settled on one model for everybody. This is much simpler than the U.S. system; it's fairer and cheaper, too.
Make that much simpler and much cheaper, all while producing health care outcomes that are as good or better than those in the United States. Thanks to the supposed free market in the United States, America's 40 million asthma sufferers have to pay $150 for an Albuterol inhaler, compared to $20 in the UK. On average, a colonoscopy in the U.S. ($1,185) costs double the amount in Switzerland ($655). An MRI costs four times as much here as for the Dutch; an angiogram is almost 30 times more expensive for an American ($914) than a Canadian ($35). It's plain that the $7,700 hip replacement in Spain costs six times more here. But as the charts sprinkled throughout this piece show, Americans spend much more (double the OECD average) while actually using less health care (half the physician consultations) than their counterparts in other countries. Touted by Republican free marketeers as "the best health care system in the world," America's is the costliest and among the least efficient even as it fails to measure up to those of our trading partners and allies.
It doesn't have to be this way. Americans can ask doctors, hospitals, and insurers to share more of their pain. Whether directly or through a coalition of insurers, the federal government could leverage its buying power to negotiate drug prices. (The VA does this already to save money; even Donald Trump supports the idea ending the Bush-era ban on Medicare doing the same.) The federal government could go even further, following Germany, Italy, Spain, Australia, and other countries in establishing national drug formularies and "reference" pricing, approaches proven to reduce costs. Even without single payer government insurance, Uncle Sam could follow France, Germany, and Japan in establishing a single "rate card" across all insurers or even mandate non-profit basic plans, as in Switzerland. As Sargent suggests, offering a "public option" for health insurance would be a good start—and even better leverage.
Ultimately, the United States, already spending $3 trillion a year, may have little choice given the trends now underway. The population is aging and over the next 25 years, the growth of Medicare is the largest problem area for the federal budget. Expensive drugs for Hepatitis C and other diseases, new cancer cures, and the development of individual genetic therapies are likely to present growing cost challenges in the future. Mergers among insurers and hospitals have increased at the same time that both have been busily acquiring physician practices. All the while, the erosion of employer-provided health insurance, cost-shifting to workers, and the rise of the so-called "Gig Economy"—the very factors that helped fuel the drive for Obamacare in the first place—mean families will still face the growing burden of health care costs themselves.
It is often said that the only certainties in life are death and taxes. (For Republicans, the only certainties are debt and tax cuts.) But when it comes to health care reform, the certainties are also double. Reform never ends and leads, inexorably, to rate-setting of one form or another by the government. Republicans like Paul Ryan ("Rationing happens today! The question is who will do it? The government? Or you, your doctor and your family?") and the field of 2016 GOP candidates will pretend it doesn't. They will regurgitate the same outdated bromides (inadequate tax credits, selling insurance across state lines, tort reform, etc.) Bill Kristol first vomited up in 1993.
So as the Democratic primaries heat up, the backers of Bernie Sanders, Hillary Clinton, and Martin O'Malley need to stay cool. Democrats will keep the White House if they keep their eyes of the prize for the American people: Health care that is universal, continuous, and affordable for everyone.