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Get Four
|  | JANUARY 23, 2006
By Chris Farrell It's Time to Cure Health CareNearly everyone agrees that all Americans need medical insurance. It's time for Washington to make it happenThe U.S. is the only major industrial nation that doesn't have universal health-care coverage. But thanks to the Maryland State legislature, General Motors (GM ), and President George W. Bush's desire to restore luster to his domestic agenda, a national debate about how America pays for medical care is about to sweep Washington and state capitals. I say let loose the dogs of health-care reform. The complaints about our current health-care system are numerous -- and rightfully so. Employers are upset at skyrocketing premiums. The average premium for a family of four enrolled in a preferred provider organization has doubled over the past 10 years, to $10,000, according to McKinsey & Co. Employees, who are paying about a third of that cost, are none too happy either. Employers now only cover some 60% of their employees, down from 64% in 2000. More than 40 million Americans are without any health insurance. Medicaid and Medicare are straining government budgets. And the "D" in the federal government's new Medicare D benefit -- a subsidy for seniors designed to lower the cost of prescription drugs -- might as well stand for "disaster." HARBINGER OF CHANGE. The U.S. has flirted with some kind of national health policy six times over the past 100 years, only to see the reform impulse wither each time. For instance, a key plank in Theodore Roosevelt's losing Presidential campaign of 1912 was national health insurance. President Harry Truman tried again after World War II, but he was thwarted by a potent combination of political forces, including the vehement opposition of the American Medical Assn., which was determined to defend doctors' incomes against the threat of "socialized" medicine. The Clinton Administration's health-care initiative of 1993 collapsed a year later, after conservatives, physicians, and insurance companies mounted a well-orchestrated attack. "Major changes in health policy, like major changes in any area, are political acts, undertaken for political purposes," Victor Fuchs, the dean of health economists, wrote in his 1993 book, The Future of Health Policy. Well, Maryland's "Wal-Mart Bill" may be a harbinger that the politics of health are changing. The Maryland State legislature recently overturned the veto of Republican Governor Robert Ehrlich, and passed a bill that requires any employer in the state with 10,000 or more employees to spend at least 8% of its payroll on health care -- or pay the state the difference (see BW Online, 1/17/06, "First Wal-Mart. Then Who?"). The only company to fit all the bill's requirements is Wal-Mart (WMT ), which has 17,000 employees in Maryland. SHARING THE PAIN. Now, there's a lot wrong with this bill. Government mandates on employers often have unforeseen, perverse consequences, and creative lawyers will find loopholes to exploit. Still, similar bills are being introduced in some 30 states, and the frustration over the twin pincer of higher costs and reduced service is galvanizing support. Another potential ally in reform is Big Business. The experience of General Motors is emblematic. GM, which provides health insurance to more people than any other private employer in the country, calculates that its health-care bill adds more than $1,500 to the price of every vehicle sold. Chief Executive Richard Wagoner Jr. has publicly complained that there's a crying need for a national solution. Self-interest? Sure, but most American companies share the pain to some degree. Finally, President Bush plans on using the bully pulpit of the White House to address complaints about health care. The White House seems to believe that concern about paying for medical coverage is a big reason behind the sour outlook on the economy that belies the macroeconomic numbers (see BW Online, 1/17/06, "This Is a Remarkable Economy"). The President offered up little in the way of proposals during the 2004 campaign for the White House. Nevertheless, dissatisfaction with the status quo in health care and with Washington may force the Administration to contemplate more dramatic action. SUBSIDY SYSTEM. What might reform look like? I think a good starting point for the White House, business, and anyone else with a stake in the health-care debate is David Cutler's book, Your Money or Your Life: Strong Medicine for America's Health Care System. (I recommend the book to anyone who wants to get a better grasp of America's health-care system.) Among the highlights of his detailed proposal: Cutler, a Harvard University economist, favors a system that would allow all families to buy health insurance the way federal employees currently do. The federal government organizes a system under which insurers submit rates and coverage to the government for approval, and they must agree to cover all who want to enroll. Under Cutler's proposal, participation in the system would be mandatory. Of course, since the average premium for the federal government's policy is some $3,000 for individuals and $8,000 for a family, plenty of people don't have the financial resources to pay the tab. Cutler proposes a subsidy system of tax credits, with the highest benefit reserved for poor people. For example, the credit might be worth $7,000 for families below the poverty line. The subsidy could decline to $500 per family for all families earning 250% of the poverty line or more. Conservatives like tax credits and liberals like progressivity, so maybe this is the kind of blueprint that can garner bipartisan support. Of course, universal health care costs money. Someone has to pay for that subsidy. I'd get the money by repealing the Bush Administration's tax cuts and redirecting the money toward health insurance. Others would eliminate some corporate tax breaks. LIFE'S ECONOMIC RETURN. Still, no matter how the tab is met, the biggest myth in public policy today is that we can't afford universal health insurance as a nation. Rising health-care spending isn't the costly devil it's often made out to be. The increased spending is improving quality of life and generating a lot of economic growth. After all, what we can afford largely depends on the economy's productivity, which has been strong over the past decade. And many medical treatments more than pay for themselves with a high return on investment, from improving infant birth weight to treating heart attacks to getting rid of cataracts. For instance, economist Frank Lichtenberg of Columbia University studied the returns on medical technology and medical-care spending between 1960 and 1997. He calculated it cost $11,000 in medical spending and $1,345 in pharmaceutical research and development to gain one year of additional life, and the economic return for a year of life added up to $150,000. That's the kind of return that hedge-fund gunslingers would love to offer their investors. Finally, medicine ranks high among America's most technologically innovative industries. Most people agree that universal health-insurance coverage is a good thing. The question that rightly troubles everyone is how to pay for it. But it can be paid for, and it makes good economic sense to do so. The issue now is whether our politicians are up to the task of offering health-care benefits to all citizens.  Farrell is contributing economics editor for BusinessWeek. You can also hear him on American Public Media's nationally syndicated finance program, Marketplace Money, as well as on public radio's business program, Marketplace. Follow his Sound Money column, only on BusinessWeek Online Edited by Patricia O'Connell Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
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