WHAT THE DEMOCRATS HAVE TO DO TO REFORM HEALTH CARE

Health care is an essential safeguard of human life and dignity and there is an obligation for society to ensure that every person be able to realize this right.
Cardinal Joseph Bernardin, Chicago Archdiocese


WHAT THE DEMOCRATS HAVE TO DO TO REFORM HEALTH CARE

The most important political issue that led to the taking over of both Houses of Congress by the Republicans was the Democratic fiasco in 1994 over national health insurance. Nothing has been done since then to reform health care, although a bipartisan coalition passed the SCHIP program that insured most poor children who were without health insurance. Today, the House sustained President Bush’s veto of the S-CHIP legislation. Bush’s argument is that extending health insurance to more children will lead to socialized medicine. Although this appalls some Republican senators, they could not get the House to override his veto.

When President Bush has a medical check-up he goes to The National Naval Medical Center in Bethesda, Maryland, the Defense Department’s flagship hospital where doctors appointed by the Bureau of Medicine treat him. He then leaves and yells “socialized medicine” as if it’s some terrible disease, if more children would be covered by the S-CHIP program. It is truly amazing to me why no one asks, “Why is socialized medicine good for him, his vice president and cabinet, but so bad for kids?”

The failure of the Democrats, particularly, the Presidential front runners is that they have not united on a health care program that will not raise taxes, not devised a political strategy to have it enacted, and not made a reasoned political argument that the American people could endorse.

Let me be clear. Any viable proposal to provide health insurance for every American must of necessity require a single payer system. The reason is simple. The private health insurance companies take more than $400 billon out of the current system as a result of paperwork and administrative costs.

Included here is a $50 billion dollar cost the insurance industry expends to ensure that do not pay for any pre-existing condition. We all have a pre-existing condition. We will die of some disease, if we don’t die from some other cause.

Hillary, Obama and Edwards not wanting to take on the health insurance industry directly are now presenting proposals that will not work. They refuse to endorse a single payer system. They know that such a proposal will unite the Republican Party and nothing will happen. To a man, the House and Senate Republicans will oppose any such proposal. There is no problem on the House side, because a simple majority carries the day. However, the problem in the Senate is that a 60-vote majority is needed for action on any controversial measure.

This presents a unique opportunity, but some front-runners are afraid to challenge the health insurance companies because they have taken huge political contributions from them. Nevertheless the Democrats have an important issue to nationalize the upcoming 2008 elections. As a first step they can unite and ask the American people to give them a 60-vote majority. This requires that the Democrats put together a comprehensive medical reform package. The proposal must be easily understood, add up in an economic sense, and not raise taxes.

Most Americans no longer support our current medical system. The businesses that currently provide health insurance to their workers are finding it more and more burdensome and want a change. The insurance companies will spend billions to prevent this but with strong and decisive leaders they can be overcome, but only if the Democratic Party comes together on this issue.

In the following sections I outline a workable proposal, describe how to re-adjust costs, not raise taxes, and present statistics to show how the new system could work.

The Proposal

Medical costs are out of control in this country. The double digit increases over the last several years have not only placed an undue burden on businesses that provide health insurance, but have resulted in the unnecessary death of thousands of Americans who could not afford care. Moreover, it is the major cause of family bankruptcy. Our current system has forced others into overburdened hospital emergency rooms to obtain treatment at greater cost than would otherwise be possible if they were treated in physicians’ offices.

As a percentage of our Gross Domestic Product we pay about 50 percent more for medical costs than any other industrial country. These costs are now about 16 percent of GDP and it seems there is no end in sight as insurance rates skyrocket.

Most workers receive health insurance through their employers. Almost all large firms provide this perk, but a significant portion of small firms does not. Medicare covers the elderly, and Medicaid and State Children’s Health Insurance Program (SCHIP) cover some of the poor.

Basically, I propose that everyone be included in a single payer federal program. This will raise the cost of health care, but the average person should not experience any increased cost. Why? Because administrative and paperwork costs imposed by private health insurance companies will be eliminated.

By covering everyone we do away with the $97.7 billion in administrative costs that private health insurance companies exact from the system. These include: determining if the current cost of treatment is due to a pre-existing condition, in which case the cost is shifted back to the patient; cherry picking the population that they want to insure; and other costs, including outrageous CEO salaries, that do not go to health care providers. In contrast, Medicare administrative costs are approximately only 2 percent of payments.

Paperwork is another source of savings. Drs. Woolhandler and Hammelstein cofounders of Physicians for a National Health Program state the obvious when they report that the U.S. paperwork system is a nightmare for doctors and patients. The U.S. has a complex and fragmented private health insurance system with thousands of plans, each with its own regulations on coverage, documentation, and eligibility requirements. According to researchers at the Harvard Medical School and the Canadian Institute for Health Information, enormous savings are possible. Basically the U.S. spends three times as much on health care paperwork per capita, compared with that of Canada. Reducing the U.S. bureaucratic costs to those at the Canadian level would save $286 billion.
(See www.consumeraffairs.com/news04/health_plan.html)
Reducing the administrative cost saves almost $100 billion. Reducing the paperwork costs on hospitals and physicians saves $300 billion, a net savings of $400 billion.

Meeting Costs

How do you finance a system that consumes 16 percent of the economy?

You tax all businesses at the average rate that insuring businesses now pay for private insurance. This will reduce the burden on those employers providing insurance and increase the burden on those not providing insurance. This tax should raise $512.6 billion in 2003 dollars.

Approximately 194.5 million Americans are covered by private health insurance. These workers pay premiums of $136.5 billion to private health insurance companies. These dollars should be paid into the single payer system. This can be accomplished by raising personal income taxes rates so as to cover all workers.

Currently, state and local governments employ about 20 million workers and pay about $300 billion for health care. To make this proposal work these payments must now be paid to the single payer system.

By making these several much needed reforms to our health care system we can reduce to zero the number of Americans without health insurance, reduce the cost of operating the system, reduce the Medicaid burden falling mostly on the states, and reduce the burden on those employers providing health insurance to their workers.

The Politics Of This Proposal

Remember the Harry and Louise ads put out by the private health insurance companies in 1993 to scuttle the Clintons’ proposal (“there has to be a better way.”)? Well, there is.

I am under no illusions that this is a simple legislative proposal. In my book, The Job-Generation Controversy: The Economic Myth of Small Business, (M.E. Sharpe, 1999) I quoted an August 21, 1994 Washington Post op-ed piece that interviewed Charles Lewis, head of the Center for Public Integrity:
Whatever you think about health care reform it is useful to know that a single group, the National Federation of Independent Business (NFIB) has successfully devoted two thirds of its annual budget, about $40 million dollars, to killing the “employer mandate” business tax to finance health care reform. According to John Motley, NFIB’s legislative director, “I see us… the small business community, the opposing forces, in a position having between 55 and 60 votes in the senate. Not controlling but having.” And no one disputes that assertion.



The Statistics

The Centers for Medicare and Medicaid Services (CMS) developed the National Health accounts (NHEA). These accounts describe the funds’ sources that pay for health care goods and services. These sources are classified into private health insurance (PHI),
out-of-pocket-spending in households, other private revenues, and specific government programs, including Medicare and Medicaid. Table 1., below, shows the rapid rise in expenditures for select years.

Table 1. Expenditures for Health Care Selected Years

Sponsor 1987 2003
(In Billions)
Health Services and Supplies $477.8 $1,614.2

Businesses, Households and Other Private 333.2 992.2
Private Businesses 122.4 423.0
Households 186.4 512.6
Other Private 22.4 56.6

Governments 144.6 622.0
Federal Government 75.1 344.0
State and Local Governments 71.5 278.1

According to the Bureau of Economic Analysis household health care spending as a share of personal income was 5.9 percent in 2003, up from 4.8 percent in 1987, (See Cowan and Hartman, Health Care Financing Review, July 2005, Vol 1, No. 2.)

Eliminating Administrative and Paperwork Costs

The potential paperwork and administrative savings of $400 billion a year under a single payer system could:

1. Offset the estimate cost of covering the uninsured at $80 billion.

2. Cover out-of –pocket drug costs both for seniors and those under 65 estimated at $53 billion.

3.Fund retraining and job placement for health insurance workers and others who would lose their jobs estimated at $20 billion. US health insurance companies employ 1.65 million workers.
(See www.researchmatters.harvard.edu.story.php?article-id=677)

4. Make substantial improvement in coverage and quality of care for U.S. consumers who already have insurance.

What Must the Democrats Do To Reform the System?

All the Democratic candidates have differing opinions on health care reform. As they were in 1993, the Republicans will be united against any proposal that might be put forward that establishes a single payer system. Therefore, to accomplish any significant change there must be a unified Democratic position.

If this or a similar single payer system is proposed, the private health insurance companies and their minions in the Senate will fight it tooth and nail. It is almost a certainty, that Republicans will also unanimously oppose such legislation. Sixty votes in the US Senate are needed to end cloture. Uniting on this issue is a way to rally the Democratic Party. If carried out successfully, the result could change the political landscape in this country for a generation, just as the ‘30s Social Security Act changed voting patterns.

Summary

Today 45 million Americans do not have health insurance. As a result, 18 thousand people die each year because they cannot afford access to medical treatment. Therefore, we must make radical changes in the way we operate our health care system. First, we must adopt a single payer system, as do all modern industrial countries. Second, all employees and workers with health insurance must pay into the system. Currently, only employers, the self-employed and workers pay for private insurance. This change spreads the cost equally among all citizens and employers. Finally, because we can save billions of dollars in administrative and paperwork expenditures by eliminating the private health insurance companies, we can afford to cover everyone without raising taxes, on average, on households and businesses.

Other Web Site References

See the paper by McKinsey Global Institute, “Accounting for the Cost of Health Care in the United States” for a detail set of 2005 accounts in the health care area.
www.mckinsey.com/mgt
See,” Financing Health Care: Businesses, Households, and Governments, 1987-2003, Cathy A. Cowan and Micah B. Hartman, Health Care Financing Review, July 2005.
http://www.cms.hhs.gov/HealthCareFinancingReview/


David Hirschberg was a senior economist employed by the Small Business Administration and retired in 1994.
My publications include: The Anatomy of the Job-Generation Issue and Its Impact on Health Insurance Policy, (Challenge Magazine, July-Aug. 2001 and International Journal Of Health Services, Vol. 32, No 1-2002).
http://findarticles.com/p/articles/mi_m1093/is_4_44/ai_77035045
The Job-Generation Controversy: The Economic Myth of Small Business, (M.E. Sharpe, 1999).

drhirsch@comcast.net