Americans are going through another episodic bout of introspection regarding the nation’s floundering health care system. That volatility likely will increase as the 2020 presidential election season unfolds. At least six leading Democratic candidates for president are supporting a “Medicare for All” approach. So did many victorious Democratic candidates for Congress in 2018. Some polls even show a majority of GOP voters supporting it.
But depending on the details of the plan, Medicare for All would likely result in wiping out the private insurance companies that currently provide health care for almost 60 percent of Americans. When this fact is made evident, support for Medicare for All plummets to as low as 13 percent.
Meanwhile, President Donald Trump has famously not only tried to repeal the Affordable Care Act, known as Obamacare, but has also continued to champion the private for-profit insurance system. In a 60 Minutes interview prior to his election as President, Trump said, in his inimitably nimble style, “For most it’s going to be a private plan, and people are going to be able to go out and negotiate great plans with lots of different competition with lots of competitors with great companies, and they can have their doctors, they can have plans, they can have everything.” Never mind the feel-good rhetoric of the impossible, and never mind the messenger: Most Republicans agree with the basic gist.
It’s like we have two polarized health care candidates running for office: the nervous incumbent, “Insurance Corp, Inc.,” and the ascending challenger, “Medicare Über Alles.” Yet the irony is that while there is growing consensus that the current system is broken, Medicare for All is not the best replacement for it. The evidence from other wealthy, advanced nations leads to the inescapable conclusion that there is a better candidate than either the incumbent or the challenger.
Yet this unknown candidate rarely makes an appearance in a polarized U.S. debate that has become stagnant and shallow. Both the Left and the Right are dug deeply into their erroneous assumptions and narrow orthodoxies, and both will do nearly anything to promote their view except learn about other alternatives, and so think anew.
So it has come to pass that both sides seem to believe that all European states use some kind of single-payer, government-run or socialized medicine. That supposed fact established, one side praises it and the other vilifies it. But this supposed fact is not a fact at all. Some states use a single-payer system—the United Kingdom, Italy, and Sweden. But many do not, including Germany, France, Belgium, Netherlands, Austria, and Switzerland. These latter states employ something notably distinct, a “third way” of financing and structuring health care that outperforms both the single-payer and for-profit corporate approaches: it’s called “shared responsibility.”
La santé d’abord: “Health comes first”
What all the diverse types of European health care systems do have in common is that they put people and their health before profits—la santé d’abord, “health comes first,” as the French like to say. That philosophy manifests itself in several ways, but the sum of it all is that it produces better outcomes, and always at lower cost than the U.S. system. A Gates Foundation-funded study found the United States is ranked 29th in the world for health care, with Germany, France, Italy, Canada, Japan, the United Kingdom, and most of Europe (even Greece!) ranked higher. The study measured both access and quality of care for 195 countries.
There are many reasons for our wickedly expensive yet under-performing system, and these reasons can be identified by first separating cost-inflation factors common to all advanced nations from those factors peculiar to the United States. Common factors include improved diagnostic and clinical options that increase demand for medical services, and demographic factors such as aging populations. Factors particular to the U.S. system are several, including the general scourge of over-lawyering that forces medical professionals to engage in resource-wasting defensive medicine. But the overwhelming factor that results in the United States spending two to three times as much on health care as other advanced nations comes down to this: Where the French privilege health first, the counterpart American philosophy appears to be, “Insurance companies come first. Then doctors and health care professionals. Last and the least, patients and consumers.”
The evidence clearly shows that the insurance industry in the United States is one of the largest obstacles blocking affordability, universality, and efficiency—but not for the usual reasons cited. Another misperception about the U.S. health care system is that, because it is dominated by private insurance companies, the sickest Americans will be heartlessly exploited in a bid to maximize corporate profits. But reality is not nearly so simple.
In Germany, for example, the backbone of the health care system is over a hundred private insurance companies. Germany’s system is not government-owned or run, and the insurance companies compete against each other for patients while consumers have the freedom to visit any doctor (most of whom are in private practice). The German system delivers quality, affordable health care while spending only about 56 percent per capita of what the United States spends.
So private insurance companies are not necessarily the problem. However, there is one major difference between these types of companies in Germany and in the United States: In Germany, they are all non-profits.
When you boil it down then, the real dividing line is not single-payer/Medicare for All versus the current expensive, underperforming, over-privatized system we have in the United States. The real divide is for-profit versus non-profit medicine.
Most of us admire the profit-earning companies that form the basic components of a market-based economy. But when it comes to health care the incentives for profit-making have led to perverse outcomes. That includes quasi-monopolistic health care markets throughout the country that deliver poor service for many Americans at an exorbitant cost.
Any for-profit company is always trying to do two things: first, charge as high a price for its product or service as the market will bear; and second, cut costs. The difference between the two is profits. In health care, “consumers,” also known as patients, lack perfect information about options and generally cannot gauge what the market will bear. The normal elasticities of supply and demand just don’t work as well as in most other domains of the economy—after all, no one ever buys an appendectomy just because it’s on sale. Price signals are thus inherently both weaker and cloudier.
When it comes to health care, for-profit incentives mean charging ever-higher premiums and cutting costs by reducing patient services and invoking various “gotcha clauses,” such as pre-existing conditions, to deny care. No wonder about 28 million Americans (13.7 percent of the population, ages 18-64) remain without any health insurance at all, other than the services of a hospital emergency room, according to the latest Gallup poll. That constitutes an increase of seven million uninsured since 2014, with lower-income, younger adults and women experiencing the greatest increases. In addition, approximately 45 percent of American adults, or about 87 million people, are inadequately insured, meaning they suffered a coverage gap, high out-of-pocket expenses or deductibles, or had no insurance. No other developed nation lets so many of its people fall through the cracks in the health care safety net.
A deeper dive into how profit-maximizing health insurance companies work, and how their behavior distorts health care markets, helps us to understand why even Obamacare, as well-intentioned as it was, could never have succeeded in dramatically lowering costs. As long as the profit-focused system remains in the United States, Americans will not enjoy the quality of care or the affordability realized by most advanced industrial nations.
Open Secret: Monopolies Distort Markets
In the United States, the typical free market cant is all about “competition, competition, competition.” Yet the reality is that health care competition in the United States is more akin to what one might have expected in the old Soviet Union. Some of the reasons, as noted above, inhere in health care; others, however, are cemented into the foundation of the U.S. system.
The American Medical Association issues an annual report on competition in the health care industry, and its 2018 report is illuminating. That report found that, as a result of extreme levels of consolidation among health care companies, competition has declined across 25 states. In 46 percent of U.S. metropolitan areas, one insurer has captured at least 50 percent of the health care market; in 91 percent of cities just one insurer controls at least 30 percent. AMA President Barbara McAneny worries over this landscape, saying, “The slide toward insurance monopolies has created a market imbalance that disadvantages patients and favors powerful health insurers.” The present situation, she says, raises serious anti-trust concerns.
The way these monopoly-like conditions have prevailed in the United States is that dominant insurers in a local market often pay high reimbursement rates to health care professionals as a way of discouraging them from participating in rival insurance plans. This makes it tough for other insurers to hire medical professionals and enter the market. The dominant insurer is then free to raise its premiums to cover the inflated reimbursements. The monopsonizing insurance company makes out, as do the doctors and other health industry professionals—and the patients get stuck paying for it all.
These local insurance market conditions are bad enough, but they work hand in glove with another type of monopoly that exerts control over the supply of doctors. Doctor levels are purposefully limited by the number of medical school slots and medical residencies; those are both set by the Accreditation Council for Graduate Medical Education, a body dominated by physicians’ organizations. Unlike other countries, the United States requires physicians to complete a U.S. residency program in order to practice medicine. In practical terms, this means that American doctors get to legally limit their own competition.
Both of these monopolies contribute not only to driving up health care costs but also ensuring that health care professionals in the United States are paid much more than their international counterparts. Many U.S. doctors are in the upper 1 percent of income earners.
One study by Health Affairs journal compared physician fees in the United States and five other wealthy countries, Australia, Canada, France, Germany and the United Kingdom. After factoring in possible explanations such as physician supply, higher practice costs, volume of services, and medical school tuition costs, this study concluded that private primary care physicians in the United States are paid 70 percent more in fees for office visits than their counterparts in other countries. Orthopedic physicians are paid 120 percent more for hip replacements than their foreign counterparts. Primary care physicians in the United States earned the highest income by far ($186,582), double that of French ($95,585) and Australian ($92,844) primary care physicians, and much higher than their Canadian ($125,104), German ($131,809), and British ($159,532) counterparts. Disparities among orthopedic surgeons were even greater, with U.S. surgeons earning an average of $442,450 while the French earned barely a third that at $154,380, with Australia ($187,609), Germany ($202,771), and Canada ($208,634) all lagging far behind U.S. orthopedic surgeons.
Dean Baker, an economist from the Center for Economic and Policy Research, says we tend to blame the high prices of U.S. health care on things like drugs and medical equipment. But because U.S. doctors earn so much more than their international counterparts, the U.S. economy pays out “an extra $100 billion a year in doctor salaries”—more than $700 per every U.S. household per year. “We can think of this as a kind of doctors’ tax,” says Baker.
The tax has other aspects. Physician wages can be kept high not only by limiting the supply of doctors and imposing restrictive licensing rules, but also by curtailing the activities of nurse practitioners and other lower-paid health professionals who can treat certain routine conditions more cheaply than doctors. Mark Perry of the American Enterprise Institute says the costs of these tactics “have become painfully obvious.” Baker concludes, “Medicine in America . . . looks an awful lot like a cartel.”
But it’s an odd sort of cartel, because it consists of multiple moving parts: physicians’ medical groups, private insurance companies, pharmaceutical companies, and for-profit hospitals and medical-equipment makers. There is no hard evidence of direct collusion among these parts, but there doesn’t need to be collusion. What we have here is a multi-sectional acephalic decision system whose alignment has been gradually formed by converging incentives. That is why it is so difficult to put our finger on it analytically. It is a rare species: another rentier “vampire squid,” to borrow Matt Taibbi’s description of Goldman Sachs, that has spread its tentacles throughout a distributed system and failed to deliver salutary outcomes.
On top of hyper-inflated doctor salaries, insurance companies add another major strata of exorbitantly paid executives and administrators. In recent years, UnitedHealth Group’s CEO hauled in $66 million in annual compensation, over a thousand times the salary of UnitedHealth’s median worker. Before its merger with CVS, Aetna’s CEO vacuumed up $41 million. Between 2010 and 2017, the CEOs of the 70 largest U.S. health care companies cumulatively earned $9.8 billion, an average of $143 million each, far outstripping the wage growth of nearly all other occupations. This “profits-gone-wild” environment helps to explain why even major non-profit health providers, like Kaiser Permanente, or non-profit insurers such as Health Care Service Corp., which is the parent company of Blue Cross Blue Shield in five states, pay exorbitant executive salaries even in the absence of shareholders.
These factors taken together have produced a nasty cumulative effect. One aspect of it is that private insurance companies in the United States spend between 12 and 18 percent on administration costs, compared to the cost of administering Medicare, which is 2 percent or less. Administrative costs in France’s health care system amount to only 3 percent. A recent study in the Journal of the American Medical Association (JAMA) about health care in eleven high-income countries (United States, United Kingdom, Germany, Sweden, France, the Netherlands, Switzerland, Denmark, Canada, Australia, and Japan) found that administrative costs accounted for 8 percent in the United States but only 1 to 3 percent in the other countries. Some estimates have concluded that the United States could save from $380 billion to $500 billion per year just in administration costs by getting rid of bureaucratic overlap in the health insurance industry.
Conservative thinkers like economist Thomas Sowell have criticized liberal proponents of single-payer health care, writing in his classic Knowledge and Decisions, “It is amazing that people who think we cannot afford to pay for doctors, hospitals, and medication somehow think that we can afford to pay for doctors, hospitals, medication and a government bureaucracy to administer it.” But, in fact, all the evidence shows that non-profit medicine, whether government-run or not, is far more efficient and cost-effective than for-profit medicine, especially in reducing bureaucratic costs. According to the World Health Organization, the higher costs of private insurers are “mainly due to the extensive bureaucracy required to assess risk, rate premiums, design benefit packages and review, pay or refuse claims.” Private insurers also incur additional expenses through “advertising, marketing, distribution, reinsurance and the need to generate a profit or surplus.”
Competition is supposed to make the private sector more cost-efficient than the public sector, but the WHO observed that, in practice, private health insurers are more likely to compete not by delivering care at lower cost but “on the basis of risk selection”—that is, by turning away those most likely to generate high medical bills. One estimate found that between two and three million Americans are employed by insurers and health care providers not to deliver health care, but to deny care and to shift costs to other people and institutions.
This helps explain some of the perverse incentives baked into the system: Insurance reimbursement favors fixing sick people, not paying for the preventive care that averts illness in the first place. Some medical researchers argue, plausibly, that as much as 75 cents out of every dollar we spend on health care is for treating chronic, preventable “lifestyle” diseases such as heart disease, stroke, obesity, atherosclerosis, type 2 diabetes and diseases associated with smoking, alcohol and drug abuse.
Access and Affordability
Evidence from around the world, in many different countries and under a variety of settings, strongly suggests that the most direct way to break the logjam in health care affordability is to introduce a robust non-profit element into the health care market. A Medicare-type single-payer system would accomplish this, but the variant of the system used in Germany, France, Belgium and elsewhere would be a much better choice, for a variety of reasons.
These other states have developed a “third way” hybrid based on the principle of “shared responsibility” between workers and employers, in which each contributes their fair share to the existing insurance fund. Participation for individuals is mandatory, just like getting a driver’s license for operating an automobile.
As is the case in Germany, a core feature of the French system is comprised of private, non-profit insurance companies. Whereas Germany has over a hundred such companies, in France there are just three, called “Sickness Insurance Funds,” or SIFs. These organizations developed after World War II as a series of private mutual insurance arrangements between employers and employees, organized around specific industries and occupations. The SIFs continue today as private organizations but operate under the supervision of national and regional governments.
As in the United States, most French doctors and nurses work in private practices or for private health organizations, not for the government; an individual can pick any doctor or hospital she wishes. Every French citizen holds a green plastic card for health care coverage, the carte vitale d’assurance maladie. This little plastic rectangle is not only a golden ticket to some of the best health care in the world, it also has completely replaced paper billing and medical records. France has switched to digital record keeping, while the United States still lags behind in implementing this important tool for boosting efficiency and cost-effectiveness.
Like in the United States, the French generally get their insurance through their employers. The SIFs are financed by compulsory payroll deductions, with employers paying around 13 percent of a worker’s wage and workers paying 8 percent. For those who cannot afford their share, the government covers their amount. The French health care system is considered among the best in the world, scoring high marks for affordability, abundance of doctors, short waiting times, and cost-effectiveness.
Cost Controls to the Rescue
Besides the non-profit private insurance companies, the second key difference between the French and U.S. health care systems is that the SIFs are subject to firm cost controls. A national agreement is negotiated for all treatment procedures, fees, and rate ceilings among representatives of the health care professions, patient-consumer representatives, the SIFs, and the government. Just as with Medicare, this stakeholder agreement prevents health care costs from spiraling out of control. For an office visit or some services, patients may pay a small co-payment or out-of-pocket fee.
Certainly in other industrial and service markets, cost controls have not always worked well. But when it comes to health care, the combination of negotiated price structures combined with non-profit medicine has produced results that are impressive, especially when compared to for-profit medicine.
These kinds of government-regulated price controls are not only good for health care consumers, they are also good for French businesses, which can forecast their health care costs with greater confidence. Because the U.S. system (outside of Medicare) has nothing like these sorts of price controls, Americans pay far more for health care. This includes coughing up from two to ten times more for top prescription drugs than do the French and other Europeans. One study found that in 2016 the spending per capita on pharmaceuticals was $1,443 in the United States compared to a range of $466 to $939 in ten other high-income countries.
Germany’s health care system, like France’s, is also a “shared responsibility” system rather than single-payer. Workers and employers each contribute a mandatory 7.3 percent of the individual’s salary (which means that German employers contribute much less than the 11-13 percent that U.S. employers pay on average). Prices also are controlled via a national uniform fee schedule negotiated between sickness funds and physicians, overseen by government regulators. “The principle is that the rich pay for the poor, the young for the old, the healthy for the sick,” says Ulla Schmidt, Germany’s former Federal Minister of Health. “Our funding is based on the concept of solidarity. This means that contributions are made according to financial abilities and people receive benefits that correspond to their needs.”
That all sounds vaguely socialistic, yet it is a far more efficient and cost-effective method than the hyper-privatized, for-profit U.S. system. Despite having universal coverage and quality health care, France spends about 11.5 percent of its gross domestic product on health care (working out to about $4,902 per person), compared to 17.2 percent and $10,209 per capita in the United States (where 28 million people still lack access). No other Organization for Economic Cooperation and Development (OECD) country is even close to the sky-high American expenditure levels, with Switzerland the closest at 12.3 percent and $8,009 per person. Germany’s numbers are 11.3 percent and $5,729 per capita, Australia, Italy, Britain and Spain are at 9.1 percent ($4,543), 8.9 percent ($3,542), 9.6 percent ($4,246) and 8.8 percent ($3,371), respectively, with Canada at 10.4 percent ($4,826) and Japan 10.7 percent ($4,717).
The vast differences in the types of countries with non-profit medicine—from geographically large ones like Canada and Australia, to those with large populations like Japan and Germany, to increasingly diverse ones like France and the United Kingdom, to those with a stronger tradition of social capitalism—reveals how much of an outlier the U.S. health care system has become.
Indeed, with comparative numbers like these, it is no surprise that Americans living and working in Europe mark well the stark differences between the United States and various European national health care plans. One American expatriate living in Belgium told me that both he and his sister in the United States had the very same procedure, called a catheter ablation of the heart, to eliminate an irregular heartbeat. While her employer-based insurance covered the lion’s share of the bill, still she spent $2,400 out of pocket for the procedure, which was performed as an outpatient service under a mild sedative. For the same procedure in Belgium, her brother paid just under $100 and received full royal treatment, including two nights in the hospital for observation and post-op recovery. The medicine he now needs to take costs him about $4 for a three-week supply, but in the United States that same medicine costs his sister $19—nearly five times more.
Various studies have found U.S. health metrics lagging behind other countries in a number of areas. The recent JAMA study of health care in 11 high-income countries found that life expectancy in the United States was the lowest of the 11 countries at 78.8 years (the other countries ranged from 80.7 to 83.9 years, with a mean of 81.7 years). U.S. infant mortality was the highest (5.8 deaths per 1000 live births, compared to 3.6 for the other countries). Other studies found the United States performed poorly in areas such as the highest mortality rate for avoidable deaths, hospital admissions for preventable diseases, higher rates of medical, medication, and lab errors, post-operative suture ruptures, mortality rates for various diseases, longer waits for an appointment when patients are sick, and use of the emergency department in place of regular doctor visits.
In other categories, such as recovery from strokes, post-operation recovery, and five-year survival rates for certain cancers, the U.S. system scores well. But considering how much more money Americans spend on health care, the U.S. system should finish at or near the top in virtually every category—and it plainly does not, despite what most Americans seem to think.
Some defenders of the U.S. arrangement claim that these statistics are skewed because America has greater inequality and higher numbers of poor people (and a higher percentage of racial minorities) with worse health. While statistically true–and a pretty lame and insensitive defense—the real question is, how much difference does it really make? In actual fact, several studies have shown that better-off white Americans lag behind their international counterparts as well.
The mortality rate for middle-aged white Americans (aged 45 to 54) is much higher than their European counterparts, nearly double that of Sweden and Austria. A large international study led by the RAND Corporation found that white Americans 55 to 64 years old have significantly higher rates of diabetes, heart disease, stroke, lung disease, and cancer than white Brits in the same age group, even after controlling for income levels, race, and ethnicity. “This study challenges the theory that the greater heterogeneity of the U.S. population is the major reason the United States is behind other industrialized nations in some important health measures,” said Richard Suzman, program director at the U.S. National Institute on Aging.
So the gap between the United States and other developed nations is enormous, and will not be closed by a few tweaks to the existing health care system. That was always the principal defect of Obamacare: It was half a loaf designed to increase universality, but by doing next to nothing to lower costs—because it left too much of the for-profit U.S. system intact—its achievements turned out to be financially unstable and politically unsustainable.
Generally speaking, the profit motive has been wrung out of the health care systems of just about every other developed country in the world, except in the United States, and that, far and away more than the other factors involved in cost inflation, is why Americans spend two to three times more money for health care than those of other countries. When a non-profit system displaces a for-profit one, incentives are no longer aligned toward maximizing huge pay-offs for insurance companies, their stockholders, overpaid CEOs, and doctors accustomed to outsized financial entitlements. That may not be sufficient in all cases for ensuring quality health care delivery—even the European systems sometimes exhibit cracks through which people fall. But it does help liberate the delivery of services to develop in commonsense ways in which people’s health becomes the sun around which the other planetary components revolve.
Shared Responsibility or Single-Payer?
So here’s the $66,000 question: If the goal is to reduce costs, increase affordability, and extend coverage, all without sacrificing the quality of care, which type of health care system would best accomplish this? The single-payer, Medicare-for-all method of Britain, Italy or Canada? Or the “shared responsibility” plan of France, Belgium, Germany, and Japan?
Both are forms of non-profit medicine, and either would be vastly better for most Americans than what we have now. But in talking to many different people in Europe, including a number of American expats, many of whom have lived and worked in different countries and so can compare health care systems, it becomes clear that the shared responsibility systems offer clear advantages over single-payer. They have a better reputation among the people who use them, particularly because they seem to result in shorter waiting periods for surgery and other procedures. It is not uncommon for some patients living in single-payer countries like Britain to travel to shared responsibility countries like France or Belgium to access certain services because the lines are shorter and the care is better.
While the UK’s government-run National Health Service deservedly receives high marks, it’s also true that the UK is falling behind other OECD countries. The NHS has among the lowest per capita levels of doctors, nurses, and hospital beds in the Western world. Another study found that, in the United Kingdom, outcomes for people with potentially fatal diseases fall short of those in Western Europe and Australia.
In addition to better performance, shared responsibility plans would likely provide an easier transition for Americans to non-profit medicine. “Medicare for All” is a great bumper sticker slogan, but abolishing insurance companies will be a very tough sell. Converting for-profit companies to non-profits won’t be easy either, but it is a better fit for American culture and traditions—and, as noted in passing, America already has experience with large non-profit insurance companies, such as Health Care Service Corp.
The irony is that, if you are a member of Congress—whose European-level benefits far outpace those of most Americans—or if you are an elite athlete with a professional sports team, or work for Google, Facebook, Apple, or some other very profitable corporation, you have access to the best that U.S. health care has to offer. The quality of care available in the patchwork U.S. system depends a lot on one’s income level, job situation, and geographical location. For the vast majority of Americans, access to quality care falls far short of that available to most Europeans, Australians, Canadians, or Japanese.
Americans love to be number one and win the “gold,” whether in the Olympics, the Tour de France, the Davis Cup, the World Series, or the Super Bowl. Most Americans especially like the drama of seeing the heroic underdog win. One wonders when that passion will be directed at their own health care plight. It would be grand to beat the French at something so vital to so many people’s lives.