Health Care and the Logic of Radical Reform

by Robert Kuttner

excerpted from the book

Taking America Back

and taking down the radical right

edited and introduced by Katrina Vanden Heuvel and Robert L. Borosage

Nation Books, 2004

America has suffered a staggering decline in its fortunes over the past three years. We've fallen from prosperity to recession and "recovery" without jobs. We've gone from peace to war, from relief at the end of the Cold War to fear at the hand of terrorists. We've experienced the worst corporate scandals in a century, the worst stock market collapse ever, the most glaring inequality since the Gilded Age. The federal budget has gone from record surplus to record deficit, while we keep adding to the largest foreign debt on record. The states are still struggling with the worst fiscal crisis in fifty years.

America's families are paying the price. Even with the economy officially "in recovery," wages are down and unemployment is up. Health care is broken. Millions have had their dreams for retirement shattered. Children are victimized as teachers get laid off, classrooms grow more crowded, and preschool and afterschool programs are discontinued. College tuitions are soaring, pricing more and more young people out of the education they deserve.

Instead of addressing those challenges, the policies of the Bush administration are part of the problem. Selected for office by the conservative majority of the Supreme Court after losing the popular vote, Bush has pursued a radical-right agenda remarkably divorced from what he campaigned on- pre-emptive war; destabilizing tax cuts; radical court packing; relentless rollback of protections for workers, consumers, and the environment; assault on the rights of women and minorities; and a crony capitalist corruption devoid even of shame.

... in a brazen payoff to the drug companies that spent millions campaigning for Republicans in the last election, the president's prescription drug plan actually prohibits Medicare from negotiating the best price for seniors.


Health Care: The Logic of Radical Reform
by Robert Kuttner

Most Americans say that they want universal health insurance "that can never be taken away," as Bill Clinton memorably put it. But universal health insurance is off the political radar screen, a victim of the power of the health insurance and drug lobbies, the reluctance of large corporations to support a major increase in government functions (that would actually save them money), the ambivalence of the medical profession, and the caution of most mainstream politicians.

A related problem is budgetary. Although universalizing health coverage under government auspices would deliver a far more efficient use of the health dollar for society as a whole, it would have the fiscal effect of shifting nearly a trillion dollars of financial flows from private to public sector, at a time when that seems inconceivable.

Ours is said to be a highly individualistic society. But history has shown that universal programs of social insurance are immensely popular in America once the democratic system mobilizes public support to break through barriers to their enactment. Social Security is the most expensive, redistributive, and socialistic of our public programs. It is wildly popular, and conservative politicians profess loyalty to it even as they seek to undermine it mainly by stealth. Likewise Medicare, our second most universalistic program and an island of single-payer health insurance. Even with the assaults on its funding and reductions in its coverage, Medicare remains far more efficiently administered than any private insurance program, and is exceptionally popular.

The solidarity that these programs engender is self-reinforcing. There is little doubt that universal and public health insurance, if enacted, would be highly prized by voters. This reality was perceived and explicitly articulated by House Republicans in 1993, when they vowed to resist any version of the Clinton health plan for fear that it would bond a new generation of voters to universal social insurance and to the Democratic Party as its steward.

Today, the system of employer-based health insurance combined with the tender mercies of managed care is a shambles. Expenses are out of control, but the cost-containment pinches in the wrong places. Hospitals are shutting their doors while new for-profit hospitals for special surgery leach money from the rest of the system. Most people lack pharmaceutical coverage. Doctors and patients alike resent the bureaucracy, the cost shifting, the denial of necessary care, the interposition of case reviewers between physician and patient, the skimming of scarce health dollars, the paper-chase, the insecurity of coverage, and the plain misallocation of resources.

Managed care, under private insurance auspices, was billed as the market's answer to reliable health coverage. Today's version of managed care is a far cry from its community-oriented antecedent-nonprofit prepaid group health plans. Those plans, such as Kaiser Permanente, Group Health of Puget Sound, and the Health Insurance Plan of Greater New York, offered a semblance of universal heath insurance within one community. They covered preventive care, they offered far better coordination among a team of clinicians than conventional medicine, and then invested in the long-term health of plan members. They were also "community rated," meaning that everyone paid the same premium, so there was the kind of broad pooling of risk and intergenerational compact that a true national health insurance system provides. Care was "managed" in the sense that there was no financial incentive (or disincentive) to provide clinically unnecessary surgery, and the money saved by using health resources more efficiently could be reprogrammed to better preventive care.

Today's version of managed care under the direction of for-profit HMOs has reversed virtually all of these features and incentives. Managed-care organizations maximize profits by "risk-selecting"-targeting relatively healthy subscribers and avoiding sick ones-or by denying necessary care. Physicians have financial incentives to stint on care, not to maximize the right blend of prevention and acute care. As HMOs have given way to loose networks of approved providers, the promise of close collaboration on cases of the old staff or group model practice has largely evaporated. Moreover, managed care has increased fragmentation and diminished patient choice of doctors. And as frustrated consumers move from one insurance company to another, insurers have little incentive to invest in the long-term wellness of their patients. Managed care is just a euphemism for hammering down costs, while contributing to the inefficiency of the system overall. At least $200 billion of the more than $1.3 trillion spent on health care nationally goes for administrative costs and profits that would not exist under a national health insurance program, even as 85 million Americans have been without insurance at one time or another during a recent four-year period.

Meanwhile, the traditional system of employer-provided insurance is unraveling. This system was an accidental byproduct of wage and price controls during World War II. During the era of strong unions, regulated industries, and stable corporate oligopolies of the postwar boom, most large employers provided good health insurance and most workers spent their careers with one employer.

Today, health insurance costs represent a huge drain on company resources, corporations are shifting costs onto employees as fast as they dare, workers who lose jobs or change employers often lose good health insurance, and smaller businesses and newer giants like Wal-Mart often provide no insurance at all. This shifts more costs onto workers or to the public sector, and causes more people to simply forgo necessary care. According to a recent report, fully 26 percent of workers without health insurance, or their dependents, are employed by large companies with 500 or more employees.

This crisis will only worsen in coming years, as science keeps inventing new treatments and cures, as the population ages, and as the federal deficit driven by the Bush tax cuts deepens. We can get a good picture of the Republican approach to the cost crisis. As part of a package tied to grossly inadequate prescription drug benefits, the Republicans have promoted "competition" in the Medicare program. This approach, sometimes called "premium support," has at times been supported by center-right Democratic politicians such as Sen. John Breaux, and by Democratic policy-intellectuals who are mainly concerned with the Medicare cost crisis.

The proposed new system would retain conventional Medicare, but cap the federal contribution to it. In most versions, seniors would be given a voucher worth a fixed amount of money. They could use that voucher toward the cost of either traditional public Medicare or a private plan. However, the costs of decent coverage, public or private, would soon outstrip the value of the voucher. Private insurance companies would target younger, healthier elderly people, and because their payout costs per subscriber would be lower than conventional Medicare, they would continue to skim off the relatively healthier population. Traditional Medicare, meanwhile, would be stuck with an ever sicker and more expensive set of patients, so it would have to cut back what it covered. The system would rapidly fragment into multiple insurers and two basic tiers. More affluent retired people, who could subsidize the government voucher out of pocket, would get adequate coverage, while others would have to choose between necessary medical care and other necessities such as rent and food. The universalism and solidarity-producing benefits of the current Medicare system would be ruined.

If market-based medicine ever enjoyed a presumptive reputation for greater choice and efficiency, that advantage has evaporated. However, because of what political scientist Walter Dean Burnham calls a "politics of excluded alternatives," too many Democrats are thinking too narrowly. Some Democrats fell into the trap of trading gradual privatization of Medicare for a completely inadequate drug benefit. Other Democrats have settled for very modest incremental increases in coverage, at a time when the whole system is built on sand. Still others have proposed a totally self-defeating auto-insurance model, in which citizens would be required to obtain health insurance, and government would subsidize the poor to purchase stripped-down policies. This approach suffers from all the failures of the proposed voucherization of Medicare, and would leave tens of millions of Americans with coverage in name only. It would also introduce demeaning means-testing, which both creates poverty traps (you lose benefits as your income rises) and frustrates the politics of universalism.

Progressives today face a twin challenge. First, we need to return to center-stage universal health insurance as the more efficient and equitable alternative to the current patchwork.

This requires a massive program of public education about the inferiority of market-driven medicine, compared to a universal, government-sponsored system. While we're at it, we need a better term than "single-payer," which is an insider term that mystifies more than it clarifies. My preference is Medicare for All. We need politicians willing to champion it.

Second, we need to defend fiercely the islands of universalism that exist, such as Medicare, and resist voucherization, privatization, and means testing. Any kind of income or asset testing or any voucherization fragments the constituency for universal social insurance. The better the basic package, the fewer people feel the need to purchase supplemental private insurance. More meager the basic benefits, either in a public program or via vouchers, the more the constituency for social insurance splinters.

Third, we need to think hard about the right and wrong kinds of incrementalism. The French radical Andre Gorz used the phrase, "non-reformist reform" to describe modest reforms that logically led to more fundamental reforms. Some partial increments in health coverage logically pave the way more far-reaching changes. Others merely reinforce the fragmentation and the flaws in the current system.

As noted, a number of moderate and liberal politicians have tried to improve health coverage, incrementally, by "filling in gaps" in those who are covered. The State Children's Health Insurance Program (SCHIP), for example, is intended to provide coverage to children who fall between the cracks and receive coverage neither from their parents' policies nor from Medicaid. But SCHIP illustrates everything wrong with this sort of incrementalism. It has slightly increased coverage, but at the cost of reinforcing fragmentation. In the same year, a child can find herself covered by Medicaid, by a plan provided by a parent's employer, and by a state program reimbursed by federal funds under SCHIP. This approach reinforces the administrative complexity, the paperwork, the lack of continuity of care, and the byzantine impenetrability of the system as experienced by ordinary people.

There are several possible approaches to universal health insurance. The most far-reaching would be for Democrats and progressives to put on the table a Medicare for All program, and to organize around it, building support from doctors frustrated by the current mess, trade unionists, editorial writers, elected officials and candidates, and mass-membership organizations. Rep. Dennis Kucinich did this during his campaign for the Democratic presidential nomination, and Physicians for a National Health Program has been doing heroic work on this front, leading to favorable coverage in leading medical journals including both the New England Journal of Medicine and the traditionally more conservative Journal of the American Medical Association. Doctors have gotten such a screwing from the present system that they are fast becoming political allies.

The long-term strategy needs to be a coalition of forces that puts nearly everyone on one side-doctors, patients, unions, mass-membership groups, seniors in danger of losing Medicare, corporations that stand to save money from a socialization of costs-and two powerful nemesis groups on the other side: the for-profit health insurance industry and the drug companies. President Clinton, in 1993, made the disastrous strategic mistake of thinking that "managed competition," running universal care through private insurance companies, could co-opt their political support. But the companies understood the threat to their autonomy, power, and profit; they preferred to insure fewer people with higher profits and substantial control rather than face government regulation of their plans and premiums. Their answer was Harry and Louise.

If Clinton had gone to the country in the midterm election of 1994 and waged a populist campaign pitting health care for all against the selfishness and inefficiency of the insurance industry, political history might have been very different. A presidential candidate or president with nerve and vision could restore Medicare for All to mainstream debate and could create such a coalition politics.

Pending that long-term strategy, which forms of incrementalism might help seed the ground?

One big first step is universal health care for children- not SCHIP but extension of public, federal Medicare to all kids. Children are very cheap to insure because most don't get sick. For the cost of a repeal of part of the Bush tax cut, well under $100 billion a year, every new baby could get a Medicare card, and every child under eighteen or under twenty-five could be covered within two years. Politically, this would create a powerful intergenerational alliance. It would reduce health costs for employers (who would cover workers but no longer children of workers). And, as children turned eighteen or twenty-five, it would produce powerful political pressure to allow them to keep their coverage.

A variant would combine Medicare for the young with a Medicare buy-in option for people age fifty-five to sixty-five. These are the people who are disproportionately losing their insurance and finding new coverage astronomically expensive to purchase. One combination strategy would cover all children under 18 in 2005, extend that to people under twenty-five and allow the over-fifty-five buy-in in 2006, and then extend Medicare to people forty-five to fifty-five in 2007, and fill in the remaining group, the twenty-five to thirty-five-year-olds, in 2008.

These initiatives would help seniors learn that the way to make Medicare secure is to extend it to other age groups who are less costly to insure and whose participation broadens the Medicare political constituency. They would also help educate politicians of the broader fact that Medicare for All is the only sure way to reconcile the cost crisis with the crisis of declining coverage, and to yoke the political interests of those without insurance to those fearful of losing good insurance.

A whole other approach would be to build universal health programs state by state. This is attractive in principle. But the current state budget crisis makes it improbable. And states typically fall back on fill-in-the-gaps approaches such as Howard Dean's vaunted Dr. Dynasaur program in Vermont, which is far from a true single-payer program, or on employer mandates, another second-best reform that doesn't logically build toward true universalism.

A predicate to any incremental non-reformist reform agenda would be careful thought about its elements and dynamics. A good start would be to create the broadest possible commission for universal health coverage, with representation of physicians, insurance experts, elected officials, trade unionists, academics, and leaders of mass membership organizations. This commission would be tasked with creating both the blueprint for the program, as well as a political and popular-education strategy for bringing it about.

The history of American social insurance is that good ideas remain available, waiting for rare moments, such as 1933-37, or 1941-45, or 1967-68, in which progressives gain rare working majorities. The next time that rare moment occurs, the worst possible thing would be for progressives to settle for modest, partial reform.

At present, the Right dominates Washington. But this is a teachable moment for progressives. The market-based health insurance system is collapsing, and ordinary people are the victims. Regular Americans understand the need for a breakthrough, and the Right's remedies will only worsen the shift of health burdens onto citizens. Progressives need the political courage to indict the Right for its failure, and the leadership to show that a bold and comprehensive alternative is possible.

Taking America Back

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