Universal Health Care in the US
Lora Cicconi and Kerri Strug
Poverty & Prejudice: Social Security at the Crossroads
May 25, 1999


Compared to other Western countries, the United States spends more per capita on health care than any other nation. In 1990, national expenditures for health care were more than 40 percent more than in Canada, whose spending was second highest. Despite the enormous expense of health care in the United States, the general standards of health, such as life expectancy and infant mortality, are not as high as those in countries which spend less. Costs are enormous, yet Americans do not fare better, and often fare worse, than citizens in countries which spend substantially less on health care.

Currently, the U.S. has a health care system based on insurance coverage. The majority of the population is covered by private/employer-based insurance. Generally the employer pays a major part of the insurance premium and the individual pays a deductible when the policy is used. If there are losses, the company and employee share the burden (coinsurance.) The obvious limitation of employer based insurance is that those who are unemployed, elderly, or disabled are not covered. The government deals with this insufficient coverage through public insurance programs developed under the Social Security Amendments of 1965. This amendment created both Medicare, which provides voluntary supplementary medical insurance for the elderly, and Medicaid, which gives grants to states to provide insurance for those below a certain income level.

Despite these programs designed to aid those who do not have group enrollment through employment, there are currently 40.3 million Americans who are currently uninsured. These are Americans who do not fall below the income level which would give them access to Medicaid, yet whose employers do not offer them insurance. Insurance not tied to employment is often very expensive, and the uninsured individuals cannot afford to pay for it. They still receive health care, however, and costs are still incurred. The resulting uncompensated health care bills are paid for by every sector of society.

The health care crisis in America is marked by a two dimensional challenge: both the escalating costs of health care and the restricted access to care. Even without a universal health care program in place, the federal government is a major provider of health care to Americans through public programs (Medicare, Medicaid, veteran care, and research.) In 1965 health care costs made up less than five percent of all government expenditures. By 1990 this number had risen to 15.8 percent, and it is expected to increase to 28.8 percent by the year 2010. The costs at the state level have also risen exponentially, as they must match the Medicaid and Medicare grants from the government and also pay for the health care of prisoners, state employees, and retired state employees. While the government expenditures on health care are often the focus of public interest, health care costs are becoming an increasing burden for the private sector as well. Health care expenditures are currently the fastest growing component of employee compensation. As percentage of wages and salaries, costs for health care have increased nearly fourfold between 1965 and 1990. In response to these escalating costs, American firms have reduced the amount of coverage they offer employees.

Not surprisingly, the government and businesses do not pay the full costs of health care, and ultimately the increasing costs also impacts the household. In addition to increasing out of pocket expenses in terms of more expensive insurance, American households also pay for the cost through taxes for state and federal programs. In 1991 it was estimated that the cost of the health care for a family in Georgia was $5,792, with $4,159 paid directly by the family itself and the remainder paid by businesses. It is estimated that the health care costs for a family will increase to $12,164 by the year 2000, and that due to the high cost many families will have to cut back on insurance if not drop it altogether.

Another cost of the current health care comes in the form of charity care. Many hospitals provide services that they are never compensated for. In 1989 this cost was estimated to be at $300 million statewide in Georgia, with 90 percent of the hospitals providing some sort of uncompensated care. Even after the government compensated these costs, the hospitals still lost approximately $175 million. This expense accounted for 6 percent of gross patient revenues in Georgia in that same year.

A primary reason why health care costs have escalated so quickly in recent years is the quick change from a cost reimbursement system to a capitation system. Until the early 1980's, doctors and health care providers were reimbursed on a cost basis for whatever work they did for a patient, whether this be by an HMO (if the patient had employer-based or individual insurance) or by the government (if the patient had public insurance.) This system obviously leaves the doctors with no incentive to keep costs at a minimum. In the last decade and a half, there has a been a movement towards capitation based payment in an effort to decrease costs by creating incentives to minimize these. Under this system, the hospitals and doctors are reimbursed only a fixed amount per patient with a particular problem. Hence if a person comes in with a heart condition, the insurer will pay the doctor and hospital the same amount whether the patient has surgery or is simply told to change his diet and take aspirin. When more money is spent than the insurance policy covers, the result is that the HMO or the government must inevitably pick up the cost. In turn, they must raise the premiums on the policies they sell to make up for the lost money. This type of system has obvious repercussions for the quality of care as well. Knowing that they will only be paid a certain amount per patient, doctors may be reluctant to order certain tests that may be important to diagnose a patient if they know these tests are not covered by the insurance the patient owns.

As stated earlier, the crisis in the American health care system can be viewed as twofold, with escalating costs making up one major concern, and restricted access to health care for millions of Americans the other primary issue. There are currently over 40 million Americans without health insurance. This is clearly a huge barrier to acceptable care for these Americans. Without insurance people are much less likely to go to a doctor if they suspect they may be ill as they know they will have to pay the full price for a visit, often something the uninsured cannot afford. As a result, medical problems may escalate, with the patient only going to the hospital when they are seriously ill and require immediate and expensive treatment. The major problem is that there is no real incentive to see a doctor until one is so sick that it becomes necessary. Preventative care is basically nonexistent for the uninsured, and illnesses which could perhaps have been easily prevented instead become serious and more difficult to treat, not to mention more expensive. Those uninsured who do enter the hospital for treatment do so mostly for treatment due to pregnancy or pregnancy related conditions--this group makes up 28.9 percent of all uninsured seeking treatment in a large urban hospital in the southern United States. Conditions such as respiratory, circulatory, digestive, nervous system, and muscle/bone disorders each made up between 5 and 10 percent of the uninsured seeking treatment. The remainder was comprised of patients with recent injuries or poisoning.

Reforming the current health care system is now a priority at both the federal and state levels. The United States is unique among other first world countries in that it does not have a national health policy. Most developed countries have a system in which the central government sets rules for purchasers, payers, providers, and consumers. There are two primary options available to the United States right now, one of which is a national program like that of other developed countries, and the other of which is an employer mandated system with a public program.

If the U.S. adopted a Universal Health plan, all Americans would be covered by public health insurance, regardless of income, age, or employment status. This insurance would provide all citizens with basic services, including hospital and physician care and long term care. The system would be fully regulated by the government, which would set all fees for hospitals, physicians, and other health care providers. Payment of services could be organized in two different ways. In the single payer approach, the health care of citizens would be financed solely through public funds generated through tax revenues. Medicaid and Medicare would both be abolished for a new program, and private insurance would only be used when individuals wished to buy insurance beyond the scope of the publicly available program. In the multiple payer approach, the current mix of public and private insurance would be maintained and Medicaid would simply be expanded to include the currently uninsured. Those who can afford private insurance would not be offered public insurance and would still be expected to pay for their own insurance.

The other proposed program is the employer mandated system with a public supplement. The government would mandate employers to offer insurance to their workers through a "play or pay" program. If the employer does not offer the insurance (i.e. "play") then they will have to pay a payroll tax which will cost them more than the insurance would have. As a result, the incentive is to offer a plan to employees. With this approach, most of the population would be covered through employer based insurance, and the government could pinpoint those individuals who were unable to obtain employer based insurance or an individual policy. It could offer this group public financed insurance either by expanding the current Medicaid program or by creating a new program. This system, like the national program described above, would provide health insurance to all, and seems similar to the multiple payer approach under the national program. It differs primarily in the costs of the health care services. Under the employer mandated program, costs will still be unregulated and fixed by the working of competitive markets, while under the national program the government sets the costs of basically every facet of the health care industry.

It is clear that the US has a fragmented and inconsistent system of delivery and payment for health care. Policy makers have looked at other countries for potential solutions, particularly at systems in those countries which have an "universal health insurance" system or "single player" system, in order to formulate policies that would allow increased and affordable access to health care in the U.S.. Unlike the employer mandated approach, which would not involve dramatic changes in the infrastructure of the current system, the universal health care approach would involve a complete reconstruction of the entire workings of the entire health care program we have in place now. Everything from the costs of health services, to tax rates, to the payment of health

professionals would have to be altered. . As a result, the U.S. should evaluate the current systems of other countries in order to consider which type of system would work most efficiently for our particular situation. It is important to examine not only the infrastructure of these foreign systems, but also look at whether a similar system would be feasible for the United States. This paper evaluates some of the European programs in terms of both the plan itself and the resulting health of the citizens and attempt to come to a conclusion regarding which type of program would work best for the U.S.

Few health care systems fit the classical definition of "socialized medicine", where the government owns, operates, and finances health care delivery. The United Kingdom and Sweden seem to qualify, as does the US Veteran's Administration and armed forces. Most European countries have a mixture of private and public insurances, with purchase of private insurance mainly obtained by the very wealthy. Approximately 90% of the populations in Europe typically share one common level of quality and amenities in health care.

Britain’s system is predominately a single source of financing for health care through national taxation, with care universally available and free at the point of service. Government funds are used to finance the British National Health Service, (NHS) which is one of the oldest and most widely studied models of universal health programs. It is financed almost completely by general taxation and is accountable directly to the Department of Health and Social Security (DHSS) and Parliament. Access to health services is available free of charge to all British subjects and to all legal residents. Despite the universal entitlement Britons spend only 5.8% of their gross domestic product on health care, one half of what Americans spend as a percentage of their GDP.

Although the NHS is cherished by most Britons, there are, nevertheless, some serious problems with regard to equity and efficiency of resource allocation in the health center. A needs-based formula is currently utilized to distribute regional funding, taking into consideration differences in mortality, the age structure, and the socioeconomic factors between regions. It represents one of the most far reaching attempts to allocate health care funds because it incorporates regional differences in measures of health status. Slow progress is now being made in redistributing the aggregate NHS budget, but substantial inequities still remain, from the point of view of both spatial distribution and social class.

With regard to efficiency, the problems are even more severe because NHS resources are extremely scarce by international standards. There is less slack the marginal costs of inefficiency are higher than in Western Europe or the United States, and the NHS faces the same demands to make available new technology and increasingly aged population. British policy-makers recognize that they must pursue innovations that improve efficiency, but there are numerous obstacles. The tripartite system of NHS itself is a major source of inefficiency. Regional Health Authorities are responsible for allocating budgets to hospitals in their regions. Outside the RHA budget are Family Practitioner Committees (FPC' s) responsible for remunerating general practitioners, ophthalmologists, dentists, and pharmacists. The GP's are reimbursed on a capitation basis, with additional remuneration coming from special "practice allowances" and fee-for-service payment for specific services. Separate from both RHA's and FPC's are Local Authorities, which are responsible for the provision of social services, public health services, and certain nursing services. Such an institutional framework creates perverse

incentives to shift borderline patients from GP's to hospital consultants, to the community, and then back to the hospital. GP's have no incentive to minimize costs and can impose costs on RHA's by referring patients to hospital consultants or for diagnostic services. NHS managers can shift costs to the social security by sending elderly hospitalized patients to private nursing homes. And consultants can shift costs back onto the patient by keeping long waiting lists, thereby increasing demand for their private services. Neither the patient nor the physician bears the cost of the decisions they make: it is the taxpayer who pays the bill.

Besides cost efficiency problems, there are also issues with technology and care for seriously ill patients. Although the majority of the population is receiving basic care, there are problems with the availability of more specialized and newly developed services, especially high-tech or life extending services such as renal dialysis, coronary artery bypass surgery, and various cancer treatments. Hence while the overall population may be healthy and receiving sufficient basic care since they are all insured, those who have life threatening diseases often have problems with access to the latest advances in treatments. There are often waiting lines and a lack of the sort of treatments that may be available in specialty clinics in the U.S.

The Canadian health care system has received a lot of publicity for its recently developed universal health care system. The socialist country passed the Canadian Heath Act in 1984 which mandated coverage for all Canadian citizens without co-payments by the citizens. The health care system is financed by collective taxes in Canada, which are distributed to the provinces if they comply with the set requirements. These include; universal coverage of the population, portability of coverage, across provincial boundaries; comprehensive coverage of services; reasonable access to services without direct payment; and public administration of insurance plan. Physicians are paid predominantly on a fee-for service basis, according to fee schedules negotiated between physicians' associations and provincial governments. There are few private, for profit hospitals in Canada as most acute care hospitals are private nonprofit institutions. Their operating expenditures, however, are financed through the National Health Insurance system, and most of their capital expenditures are financed by the provincial governments. The NHI is more progressive than most European NHI systems in that the financing is done through complex shared federal and provincial taxes as opposed to payroll taxes. Canada's levels of health are high by international standards, and the program has achieved notable success in controlling the growth of health care costs.

Despite the achievements of the Canadian program, the country is experiencing difficulties not unlike those experienced in the U.S. The country is having problem with the federal deficit and has gradually reduced the amount of funding to the provinces. As a result, the provinces are left focused on cost control. Physicians often complain about low fee levels and hospitals complain about the provinces' high regulation of their budgets. The recent cost control policies may be affecting the quality of service in Canada. Many reports claim that the Canadians have limited access to services. For example in the United States there are 3.26 heart surgery units per million people while Canada has 1.23. In addition, waits for open heart surgery can be six to eight weeks in Canada and a patient is ten times more likely to die by waiting for the surgery versus dying during the surgery.

Like in Britain, there are efficiency problems in Canada as well. Neither the hospitals nor the patients have incentives to minimize the costs of health care. Patients could save money by using a community health center as opposed to an emergency room, but there is no impetus for them to do so because they benefit from "free" tax-financed first dollar coverage. Hospitals have not evaluated the service levels and types of therapy performed in relation to health status, which could help them minimize costs. Naturally, these problems could arise in any system, but it could be argued that they are particularly acute in Canada, where the providers and NHI have a monopoly that supports the status quo.

The German health care system is a social insurance model of government mandated financing by employers and employees. It provides a good example of the pay or play system that the American policymakers have considered for the U.S. The program is administrated by not-for-profit agencies called sickness funds. These sickness funds set and collect the revenues from employer and employee taxes as opposed to general tax revenues. They then hand these revenues over to the regional associations of ambulatory care physicians, which in turn, reimburse the individual physicians for care rendered. Rates for hospitals and fees schedules for physicians are negotiated between the funds and the regional associations hence they are not set by the government like in Britain. The government finances most of the care for civil servants, with employees supplementing coverage through private insurance. Workers contribute a percentage of their gross salary, about 8-16%, to finance the sickness funds, an amount which is then matched by their employer. Workers making more than $37,000 can opt out of the fund and purchase private insurance instead. Most elect to stay in the fund, but some of the well to do supplement the fund coverage with private insurance. Dependents are also covered in full. Private insurance reimburses the physicians and hospitals much more handsomely than the funds, but the majority--more than 90% -- of ambulatory care physicians are barred from treating patients in the hospital. Most of these physicians receive their income from treating the 88% of the population that have a membership in the sickness funds. The cost containment efforts in this country include control of purchase of high technology equipment, increased scrutiny of physicians' practices, cost sharing decreased utilization of brand name drugs, hospital budgets, and regulating physicians fees. Physicians enjoy clinical autonomy in decision-making, but give up their economical control to the professional associations that conduct the negotiations for them. Although there are problems in the German system, it provides a very good example of a country without universal coverage which nonetheless covers much more of its citizens than the U.S. If a single payer approach is not an option for the U.S., it would be wise for policymakers to look at the achievements and difficulties that the German system has experienced using an employer mandated system.

The United States can be distinguished from Canada and England from two primary vantage points. First of all, as described above, it uses a multiple payer approach of private providers and private organization instead of a publicly financed NHI system. Although the U.S. has the highest per capita health expenditures (with private and public expenditures combined), and spends the highest percentage of its GDP on health care, it still retains the lowest share of public expenditures as a percentage of total health expenditures. The U.S. is considered to be on the private end of the public private spectrum, and has one of the smallest public hospital sectors when compared to Western

Europe. The U.S. is also different in comparison to Canada and Western Europe with regard to the distribution of health resources. For example, the U.S. has fewer hospital beds per thousand population than any Western European country or Canada, and also has the lowest use of inpatient care. Despite the many differences between the U.S. and other nations, there are also many similarities. For example, both systems are based around the hospital, with roughly one half of total health care expenditures spent on the hospital sector. In addition, the broad structure of both systems is based on third party reimbursement, whether it be public or private. While it may be the government paying of most services in NHI based countries, and the HMO's in the U.S., the magnitude of third party payment dwarfs the out of pocket expenditures of the patients. It is a common belief that private organization leads to much higher out of pocket payment by consumers, but this is not accurate. The U.S. does have the highest share of direct out of pocket contributions by consumers (at 23% in 1975) but the comparative number in France was 16% under an NHI program, so the difference is not as large as the image of private financing would suggest. Hence although the absence of an NHI program is a major characteristic that distinguishes the U.S. from Western Europe and Canada, there are still similarities between the public and private systems.

The second factor that distinguishes the U.S. from other countries is the unique American popular opinion. In contrast to Western Europe and Canada, the U.S has a long history of anti-government attitudes. The suspicion about "big" government and its tax on individual liberties is a pervasive American value. The U.S. has a less egalitarian and unified view of citizenship than most countries. The U.S. has values based on individuality and social heterogeneity, while in Western Europe and Canada the understandings of citizenship are based on solidarity and universal rights to a certain standard of living. There is a general aversion among Americans to any sort of universal entitlements, whether it be health care or income supplements-they are often viewed as handouts or gifts that people then take advantage of. Clearly there are stark contrasts between the U.S. and more socialist countries in terms of values and opinions. They cannot be ignored and are most likely a major barrier to the passing of a universal health bill in the U.S.

The question the U.S. must ask itself is what inferences one can draw from the comparative analysis with other countries. Perhaps the U.S. is exceptional in its program and the attitudes of its citizens and therefore should not seek to make changes that would bring its health care system closer to those in Western Europe and Canada. Countries often use such arguments to reject the opportunity to learn from other countries. To the extent that the U.S. health care system shares many similarities with those in Western Europe and Canada, however, and is in the middle of a health care crisis, there are lessons to be learned from the achievements and mistakes of other countries. For example, many Americans are opposed to a universal entitlement program because they believe it will lead to runaway costs. However, nations that entitle all residents to health care spend less money than the U.S. because they save money on administrative costs, which are huge in the U.S.. Hence by doing a comparative analysis and using another country's system as a starting point, policymakers can learn how to create a national health program that does not lead to increased costs for the U.S.. Canada is often held up as a good model of a cost efficient system, and the British system as well could be viewed as a preferable alternative to the status quo. Britain spends less than half as much money per capita as the U.S. and assures first dollar coverage for its entire population.

Another common complaint among Americans is that if we establish a national health system the quality of care will fall. Americans fear that physicians will not be as prominent in their fields as they are now, that specialty clinics will disappear, and that technology will not advance at its current pace. However, by examining other countries, it is clear that those with national health programs have produced some of the leading physicians and hospitals in the world. In addition, general benchmarks of care are higher in countries such as Canada, Britain, Japan, and France, even thought the U.S. spends by far the highest percentage of GDP on health care. Infant mortality in the U.S. (in 1990) was 9.1 per 1000 births, compared to 7.9 in Britain, whereas the U.S. spent 13.2% of its GDP and Britain only 5.8%.

The U.S. clearly needs to take a look at the facts and figures of itself and other countries and ask itself what must be done to improve the health status of its citizens and decrease costs. American citizens seem almost blindly opposed to universal coverage as it runs against the individualistic values of the country. However, if they look at the successes of both Britain and Canada, and even Germany with its employer mandated program, they would realize that the health status of the country could greatly increase without costs running out of control. There is clearly something wrong with a system that spends almost 40% more of its GDP than the next highest spending country (Canada), yet consistently falls behind three or four other countries in the health of its citizens. Perhaps if the U.S. could get past the mental barrier to universal entitlements, or even employer mandated insurance, and look at the actual benefits the system could offer, a national health system would be set in place. Whether or not this will occur any time in the near future is very ambiguous, however, as efforts to pass some sort of universal health coverage bill have thus far failed.

 

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Appendix:



Health Care Expenditures, 1990

Country

Public Health Expenditures as % of total health expenditure

% Total Expenditures on Health in GDP

Australia

68

7.4

Austria

67.1

7.9

Belgium

88.9

7.5

Canada

72.2

9.7

Denmark

82.8

6.3

Finland

81

7.2

France

74.4

9.3

Germany

71.6

8.6

Ireland

79.8

7.1

Iceland

86.9

8.1

Italy

77.6

7.3

Japan

71.9

6.8

Luxembourg

91.9

6.8

Netherlands

71.3

7.7

New Zealand

81.7

7

Norway

95.3

6.9

Sweden

79.8

7.3

Switzerland

68.3

7.7

United Kingdom

83.5

5.8

United States

42.2

13.1

Source: OECD Health Data, 1993
GDP = Gross Domestic Product

 

 

Total Health Care Expenditures Per Capita 1988-1990 (in $ US Purchasing Power Parities PPP)

Country

$US (PPP)

United States

2826

Australia

1321

Belgium

926

Canada

1847

Denmark

930

France

1609

Germany

1368

Greece

343

Italy

1172

Japan

792

Spain

504

Sweden

1174

Switzerland

1496

The Netherlands

724

United Kingdom

931

Source: OECD Health Data, 1993

 

Sources of Finance for Health Care Expenditures: The Mix Between Public and Private in 1988-1989 as a % of Total

Country

Public

Private

Australia

64.9

35.1

Canada

73.5

26.5

France

68.2

31.8

Italy

68.2

31.8

Japan

74.5

25.5

Netherlands

75.8

24.2

Sweden

90.1

9.9

Switzerland

68.6

31.4

Unitd Kingdom

84.7

15.3

West Germany

72.0

28.0

United States

44.0

56.0

Source: Organization for Economic Cooperation and Development Health Data File, 1993.

 

Comparison of Life Expectancy and Health Care Expenditures

At Birth**

At Age 65**

TOTAL

MEN

WOMEN

TOTAL

MEN

WOMEN

% GNP

France

77.1

72.9

81.3

18.3

15.7

20.4

9.4

Netherlands

77.1

73.7

70.5

17

14.4

19.3

8.6

Spain

76.4

73.1

79.7

16.9

15

18.4

7

Germany

75.9

72.3

79.1

16.5

14.1

18.1

8.7

United Kingdom

75.4

72.5

78.2

16

13.9

17.8

7.1

United States

75

71.5

78.4

16.9

14.8

18.7

14

belgium

74.8

71.4

78.2

15.9

13.6

17.8

8.2

Ireland

74.4

71.6

77.3

14.9

13.1

16.5

7.1

Britain

73.8

78.5

18.6

22.7

* % GNP of each country spent on health care
** Life Expectancy data

 

Health Care Expenditures and Status (1990) Life Expectancy

Life Expectancy

At Birth

At age 60

Country

Health Expenditures (1984) as % of GDP

Males

Females

Males

Females

Infant Mortality Rate per 100 live births

Britain

5.8

73.8

78.5

17.5

21.8

7.9

Canada

9.7

73.8

80.4

18.9

23.7

6.8

France

9.3

72.7

81.1

18.8

24

7.2

Japan

6.3

75.9

81.9

20

24.4

4.6

United States

13.2

72

78.8

18.6

22.7

9.1

Source: OECD Health Data, 1993.




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