Who's at Risk

In some sense we've always been in a health care crisis and we always will be in a health care crisis. The nature of health care, because it's always changing and it's getting better all the time, means that we can never completely resolve the problems that we're facing today and that we never have resolved them in the past. We have a real conflict between how much money we're willing to spend on health care and how much we want for that money, and that's a perpetual conflict.

Who is at risk in this?

The people who are most at risk today are those who have no health insurance at all. They're at risk of not getting regular care when they need it. They're at risk of not catching real problems before they get serious enough to not be treatable. They're at risk of not getting the best treatment when they actually do get sick. And they're at tremendous financial risk. They could lose everything that they've saved in their lives because of some even fairly minor health problem.

What's happened to the doctor-patient relationship?

We've always had a set of multi-level relationships in health care between the doctor and the patient, but then once insurance came into the picture there was also this third level. The doctor and the patient made some arrangement about what appropriate treatment was and then the insurance company, they came in from the outside and paid for it. But in the new contracts, in managed care contracts, the insurance company has more of a say in what is covered by that contract and what is not covered. So they can say, "You can't go to Dr. X. That's not in your contract." And the employer has some negotiation with the insurance company to arrive at that. It isn't entirely clear how that affects the doctor-patient relationship. It need not, but it does affect the payment relationship to the doctor and the patient. And that leaves both of them at a different kind of risk than they used to face.

Talk about problems regarding individual versus group insurance.

There's actually no period in American history when we've had an individually based health insurance system, which I think is striking. The reason for that is that people vary tremendously in their anticipatable health care risks. So some people know that they're going to be sicker than others do at a moment in time. And that means that the people who know that they will be sicker are going to want insurance a lot more than the people who know that they're going to be healthy. And that creates a problem that economists refer to as adverse selection. It means that the sickest buy the insurance and the healthy people stay out, and that drives premiums up very high. Now in order to try and avoid that problem, insurance companies try and target premiums to reflect people's expected health risk. So if they know that you're going to be sick, they charge you a high premium. And the reason that they do that is really the converse, which is that way, if they know you're going to be healthy, they can charge you a low premium which will allow you to continue buying insurance. Otherwise, they'll charge a high premium to everybody and the healthy people will just drop out of the market. So they try and use that information to charge premiums to people that reflect their risk. That's a lot like the car insurance market, where if you've had a lot of accidents you'll pay a lot higher car insurance premiums than if you've had very few accidents. The difference, though, is the range in health insurance is so huge. I mean how much damage can you do to your car? It's pretty limited, but your health -- the amount of money that could be spent on your health is almost infinite. So the differences between the healthy and the high risk people are very, very large in this market, and that really leads to a lot of sorting. In order to avoid that sorting, what we do is try and sell insurance to groups that exists for reasons other than buying insurance. That is, if you get a bunch of people together for some reason that has nothing to do with insurance at all, it's a fair bet that some of them will be very sick, but a lot of them will be really healthy. And the people buying insurance won't just be the sick ones. So this is a way of basically compelling the healthy people to share with the sick in buying insurance together.

Is the employer the best place to be forming
the group at all?

It is increasingly the case that employers may not be a stable source of coverage for lots of people, because they may not naturally form these groups. People may be moving in and out of employment or moving from employer to employer. The problem is, I think, from a policy perspective that there's nothing else. If you look around and say, "Where else in the market are we forming groups for reasons other than buying insurance," I think you'd have a very hard identifying such places. So we're in a situation where we don't have alternative group besides employment, even though, increasingly, employment may not be the way to go. I think that's a real policy quandary for us.

Will it ever be possible to go back to fee-for-service?

I think it's almost impossible. It's really hard to imagine going back to that system. In any system of health insurance what you need to do is come up some way to ration care. We don't like to use that term, but you have to limit how much care people will get, otherwise, they will just -- people who are sick particularly will just use enormous amounts of care that they can't afford to buy for themselves. So we need a system to make people make trade-offs about how much care they buy. In the old system the way we did those trade-offs is by making people pay out of pocket for a large share of their health expenses. The standard contract used to be 20 percent out-of-pocket with a big deductible up front. That was the standard old fee-for-service contract, although many of us forget. Unfortunately, health care costs have gone up so much that in order to make that contract limit people's expenditures enough, you'd have to make them pay an awful lot of out of pocket, or you'd have to stick them with a very high premium. And what we observe is, when people are faced with the choice of a contract with a very high out-of-pocket medical savings account type contract, which is really an old style fee-for-service contract, they never choose it. They always prefer managed care. Very tiny fractions of the population choose those big deductible contracts.

Another possibility is to offer an old fee-for-service contract and people still do, but it usually comes with a very high premium. When people are faced with the choice of a very high premium and absolute free choice or a much lower premium and managed care, they all flock to managed care. So when you are actually asked to make that choice and face the true cost of it, people don't want that fee-for-service contract anymore.

How did we get to this point in terms of insurance?

When you look at the history of employer-sponsored insurance in this country, what you see is that over time, employers and insurers are always trying to come up with ways to make this coverage more affordable. Remember that health care costs in this country, until very recently, were growing at an astronomical rate over a very long period of time. And nobody liked that. So everyone was trying to come up with ways to save some money. We used to have second surgical opinion programs, utilization review, which we think of as a new thing, actually started in the '50s and '60s. People have been trying to come up ways of controlling the cost of these programs. Now, what happened is, in the '80s especially, health care costs really skyrocketed. They went up very quickly and employers began to ask employees to pay a larger and larger share of the premiums of their health plans. That made people very dissatisfied. Employers were dissatisfied because they were paying higher and higher premiums. Employees were dissatisfied because they had to pay a larger and larger share, and it really caused a search for cheaper alternatives. One of those alternatives was managed care contracts with many more restrictions on them. And what happened is that as employers began to introduce these contracts into their mix, employees began to select them.

Would it be better to toss out
our system and start over?

Tossing it out and starting over again is an attractive idea. The Clinton Health Care Reform of 1993-'94 is a classic example of what happens when you take that idea and really think it through. And the problem is that there isn't a solution out there. There's not a single system in the entire world anywhere that does what we need to do perfectly. And so when we think about redesigning the system, you have to understand that we're not going to come up with a perfect system even if we spend the rest of our lives doing it. Now some of the things that are wrong with our system I think that we can fix. And one of them is, we need to get everybody insured. And I think everyone who thinks about health care policy will agree that getting everybody into some kind of insurance is an absolutely key element to making this work. For one thing, it will make sure that the healthy people don't stay out and it will keep the premiums down for the rest of us. It will also mean that everyone has insurance when something goes wrong that they don't expect, and that's really critical.

What about having a single payer solution?

There are a lot of health care systems out there, and I think one of the things that strikes me is that no two systems in the world are the same. If there were one perfect system, we'd see everybody doing it except us. But we don't see that. Germany doesn't have a single payer system. They have a lot of competing health insurance plans called sickness funds. England has a very different system than Canada. France has a different system than Canada, England, or Germany. So there isn't one perfect model out there. I think that's the first thing that we should be clearly aware of. The second thing you should be aware of is that every one of those countries reforms their health care system every three years, and if their systems were perfect, they wouldn't have to do that. There are always going to be compromises and weighing one thing against another and we're always going to have to do that whichever way we go. Now Canada has a single payer system, which is very attractive in many ways. It really reduces administrative costs, but right now they've gone through a period of extreme cut-backs in their health care system. When you look at consumer satisfaction in Canada, it's as low as consumer satisfaction in the United States, which is extraordinary, given how high it was in Canada ten years ago. It does cost a lot of money to buy people health care. How are you going to do that within a context of the government budget? How are you going to deal with the fact that some people would really like to spend a lot more money on health care than the government does while others are too poor to spend any more? So every one of these systems faces problems and they're all sort of variants of the same problem that we face.

What are the impediments to reform in the system?

There are a lot of impediments to reforming the system. One of them I think is that Americans have very different sort of schizophrenic views about what health care is all about. On the one hand, I think we think everyone ought to have a right to health care. It ought to be the same for everybody. And it's very striking to me that when you ask Americans, "Do you think everyone should have access to the same health care a millionaire gets," people answer almost uniformly, "Yes, everyone should be entitled to the same health care." But, on the other hand, if you ask people, you know, "Do you think people should be able to buy more expensive plans if they want them? Do you think the government should restrict how much money high income people spend on health care in order to keep everybody in the same plan," they're uniformly against that, too. So there's a tendency to both think of health care as something that's really special, that everyone should be entitled to same thing and to think of health care as just like everything else that we deal with where rich people should be able to buy more and poor people are stuck with less. When we get these ideas together and we try and make policy, we're really torn between this notion that we have to restrict how much money we all spend on health care, that we have to make sure that everything is perfectly egalitarian.

I think it's really hard to steer a course between those two very different sort of polarized ideas, about which way to go. And politics falls out that way, too. You know, some people say, "If we go with a national health care system, it's government run and that's a terrible thing. It's going to be Pennsylvania Avenue all the way." Other people say, "If we don't go with a government system, it's the market and the market is evil and we're going to have these for-profit investors on Wall Street making all the money out of the health care system."

What is your proposal?

There ought to be some limit to the difference between how much really rich people and really poor people can spend on care. That is, while I don't think people feel that they ought to spend the same amount, people do feel that everyone ought to go the same way. That is, if a new treatment comes along, everyone should have some access to it. It shouldn't be limited to just the people who can afford to pay for it. I think we need a system of health care financing that takes that into account, that allows people to take advantage of new forms of technology as they come along. And what I've suggested is that what we might want to do is put a tax on health care that funds health care. I know that sounds sort of contradictory, but if you think about the old country doctor in the small town in America the way we always think of it, how did that country doctor operate? Well, in those days they were all men, so I can fairly say "he", he used to go out and visit the big house and take care of the family of the rich person and charge the rich an arm and a leg for that care. Then, in exchange for that, he'd use that money basically to keep himself in business so that when the poor person down the street came, well, he might have to wait longer in the doctor's waiting room, but the doctor would treat him, too, and not charge him very much. So we had a system that essentially redistributed from health care of the rich to the health care of the poor. And for a long time we implicitly had this system in our hospitals. It was called "cost shifting". Hospitals used to charge a lot to people with private insurance and they'd use that money to pay for the care for of people who couldn't afford it. That meant the more people who had private insurance spent, that is, when technology got good, got better and they spent more and more money on health care, they was more and more money to pay for health care for the poor. All boats rose together, even though some boats were bigger than others. What I'd suggest is that we re-institute that system. We'd have to do it explicitly now because with managed care and provider choice and so on, we can't really have the same kind of inputs and subsidies we used to have. But we could do it explicitly, we could put a tax on health care spending and use it to fund uncompensated care.

Should we go above 15 percent GDP expenditures
on health care?

It's funny when you look at historical documents, people were complaining about the share of health care in the GDP when it was five percent. They said it would be unsustainable if it hit ten percent. And, you know, we're chugging along very strongly at 15 percent and the economy doesn't seem to be suffering for it. It doesn't really matter what share of the GDP we spend on health care. Just like it doesn't matter how much we spend on movies. We could spend 80 percent of the GDP on movies and that would just mean we were a wealthy society and we liked to watch movies and there's nothing ethically, morally, or economically wrong with that. The GDP is going to be spent somewhere and if we choose to spend it on health care, that's fine. There's nothing wrong with that. The issue is how we can finance the health care that we provide to low income people. It's a distributive issue, not a size of the pie issue. Doesn't matter how big the pie is. We can make it as big as we feel, as a nation, we want. What matters is how we're going the make sure that everyone gets a slice.

What about the health care demands of the Baby Boomers that will be coming?

Well, when you get older, health care becomes more valuable to you than the things that you spend money on when you're young. When you're young and you have some extra money, you might want to spend it on a new motorcycle or a new car. When you're older, you might want to spend it on the new knee. There's nothing fundamentally worse about spending in on a new knee than on a new motorcycle. Our tastes for what we want to buy are going to change as we get older, and as we get older, it's almost certain that we'll want to spend more money on health. So what does that mean? It means that rather than a lot of jobs being in the motorcycle-building business, they'll be in the knee-building business. I don't think that there's anything fundamentally wrong with that.

Is there an ethical or moral obligation to make sure people have coverage?

I think when you think about the moral obligations associated with health care, it's a very complicated moral question. One issue is: should people have access to coverage? But what does that mean? For example, I could provide everyone in this country access to the kind of health insurance coverage that existed in 1965, all the treatments that existed in 1965. It would be very cheap. We could offer that instantly. No one would want it. Think about all the things that have happened since 1965 that you would have no access to then. So when we say, is there a moral right to health care, I always want to know what health care? Is there a moral right to exactly what? Does it mean that you have a moral right to have your knee replaced if you can't walk up four flights of stairs, or do you have a moral right to have your knee replaced if you can't walk up one flight of stairs? I think it's hard to talk in moral imperatives when you're really talking about a continuum.

One of the things that strikes me when I look at the data is that uninsured people in this country actually get a phenomenal amount of care. The average uninsured person in the United States gets as much care as the average Canadian in dollars. We spend a huge amount of money on these people. That doesn't mean that we're doing the morally right thing. How do we think about that? It's not just an amount of money. It actually has to do with something substantive. And I think we need to define that before we start tossing around the idea of moral rights.

Can we maintain the status quo?

It's dangerous in health care to say that we can't remain in the status quo, because if you had looked at this situation 20 years ago, you would have said, "This is untenable. We can't remain here for another year," and here we are. So, while I'm an optimist and hope that everyone will get coverage soon because we'll be so disgusted with the horrible situation we're in, I think there's nothing to say that we can't remain in the status quo. Our system is not a rational system, but is it a system that will fall apart instantly? No. It will probably continue to be cobbled together in this patchwork way unless we actually do something about it.