Health care now costs the average household about $9,500, says economist Eugene Steuerle of The Urban Institute. Almost no one realizes this, because the costs are mostly hidden. Some are paid as Medicare payroll taxes, some as company-purchased insurance, some as other federal and local taxes. What we spend on health care and how we pay for it are largely disconnected. The result is a system that is overbuilt, overused and overpriced. More than half of the 1.2 million hospital beds are unneeded, estimates David Axene of Milliman & Robertson, a consulting firm. Patients who pay routine medical costs directly use 25 to 30 percent less health services than the fully insured with almost no adverse effects, reports a major study (““Free For All? Lessons from the Rand Health Insurance Experiment’’/Harvard University Press).
If unchecked, spiraling health spending will have disastrous social consequences. In 1994 it will consume 14.5 percent of the economy’s output, Steuerle estimates. This is more than twice the level in 1965, and it is squeezing out other desirable government and private spending. By contrast, the absence of ““universal health insurance’’ is a modest problem.
The figure of 36 million uninsured is misleading, because it counts only the uninsured at one moment in time. In 1992 about 58 million people were uninsured sometime during the year. But this overstates the problem, because many of these people – between jobs – were soon reinsured. Perhaps 21 million were uninsured for a year or longer, and a third of these were the healthy young between 18 and 29. Finally, even the uninsured get health care. A study in Health Affairs magazine shows that uninsured adults get about two thirds the care of the insured; uninsured children get about three quarters of the care.
In effect, they’re self-insured or informally insured (costs are passed along to others). Their problem is not so serious that it should drive the whole health-care debate. This has happened only because ““universal coverage’’ speaks to a second and larger problem: fear by people with insurance that they’ll lose it. When the two problems are separated, support for universal coverage drops sharply. One survey asked, ““Which do you think is a bigger problem – that health-care coverage is not available to everyone, or that the costs of care are too high?’’ The response: 67 percent cited high costs, 27 percent low coverage.
By and large, the public is right. Health reform ought to focus on controlling costs and allaying anxieties over insurance loss. These goals could be attacked with a three-part program:
Such plans typically cover most hospital and doctor bills after some threshold of annual expenses – say $2,000 or $3,000. Because these plans are cheaper than comprehensive policies, some companies that don’t now offer coverage probably would. Companies that also offered more generous policies, as most now do, would be required to give workers a choice. Workers who chose the lower-cost plan would get the difference in cash.
Congress would require companies to continue coverage for a year for workers with a minimum of seniority (say, two years). After that, workers would have to pay if they hadn’t found a job with insurance. This would minimize fears that job loss would expose people to a bankrupting medical calamity.
If your company bought a policy worth $4,000 (near today’s average for a family policy), you’d pay taxes on the $4,000; now, you don’t. In theory, this would raise $74 billion in taxes. But Congress should offset this by lowering other taxes. The purpose of ending the tax exemption is to make people aware of their health costs. This would reduce the huge subsidy for insurance, which leads to overgenerous insurance and the overuse and overpricing of health care.
This is clearly a radical proposal. Rep. Jim Cooper of Tennessee, author of a major health plan, calls repealing the tax exemption for insurance ““political nitroglycerin.’’ Everyone in this debate dreads telling constituents of the urgent need to control spending. There are ultimately only two ways to do this: government controls or ““market’’ discipline. We have tried controls for Medicare with scant success. Between 1980 and 1992, Medicare spending rose from $35 billion to $132 billion. Spending per beneficiary (adjusted for inflation) increased 78 percent.
Until now, the ““market’’ for health care has been artificial, because subsidized insurance shields most Americans from true costs. We trust people to buy food, cars and homes; we ought to trust them to buy health insurance. Some would want health-maintenance organizations or comprehensive coverage. Others would prefer catastrophic plans or plans with high deductibles and co-payments. Companies would have to offer more choices; insurers, HMOs, doctors and hospitals would have to become more responsive and price-competitive.
The trouble with ““managed competition’’ is that it isn’t real competition. There’s nothing wrong with HMOs or purchasing cooperatives (these would help small companies achieve the buying economies and choices of big companies). But we shouldn’t prejudge people’s preferences or the best ways to deliver care by writing rules that favor HMOs or cooperatives.
Health reform isn’t worth much if it’s the wrong reform. All our problems (including ultimately helping the uninsured) will be harder if we can’t control spending. No one can say whether this plan would do that in the face of new medical technologies and an aging population. But it is the best bet and should be tried before we’re forced into more draconian methods. Health costs are too important to be hidden. It’s one cover-up we can’t afford.
