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NARRATOR: This is a production of Cornell University.
Employer-based health insurance practiced in the United States today creates insecurity for American workers and saddles American companies with high costs that undermine their competitiveness against international firms. Few would argue the system needs serious reform, yet opinions on appropriate solutions differ widely.
In his new book, Health Care Turning Point, health policy expert Roger Battistella of the Department of Policy Analysis and Management at the Cornell College of Human Ecology warns that shortcomings in inherent in a government-run insurance model would more than likely encourage overconsumption, drive up costs, and ultimately fail. Dr. Battistella argues the time has come for a pragmatic approach to health care reform based on sound market principles and greater transparency to encourage wise consumer choices that seek out good value.
ROGER BATTISTELLA: We know that the topic is far from dead. It's being revised. There's a lot of interest in Obamacare on the political front, and there's some question whether or not it will continue in its present form or will undergo serious modifications.
If you look at the way the bill is structured and its possible implications for the health care industry, it may well be that a second door will open for single-payer care.
Whether this is a realistic aspiration, particularly given the depth of concern that has developed since the economy went into a tailspin, both in this country and in Western Europe in particular-- there's more and more worry that entitlement programs are placing an undue strain on the economy and have really become an impediment to job creation and economic growth.
There's no denying that the problems of the uninsured are very severe, and something has to be done about it. Universal coverage is an important national goal. But how we get there has enormous implications for the well-being of future generations and the future of this country.
Now, what I propose to do in the hopes of leaving ample time for discussion-- possibly debate for those of you who have different views on the subject-- is to touch on the major highlights of my book. Because it doesn't just focus solely on single-payer care. It covers a lot of other important aspects of health reform.
And I suggest we get into them. And following that, I want to take a look at the conventional wisdom and some of the underlying assumptions that support the conventional wisdom, which I think are outdated, followed by a set of conclusions.
The major messages-- the first, as indicated in the subtitle-- single-payer health care is an idea whose time has passed. Why? Due to the demographic and economic realities, which is no surprise for those of you who are informed about public affairs. But we'll get into them later on.
Secondly, free health care is a formula for profligacy. If the money is perceived to come from somebody else's pocket, whether the government or an employer, why not. There's no constraints on consumer behavior. Now, this is an important point that we'll come back to later.
The third major message-- unsustainable national debt projections along with the magnitude of unfunded future entitlement obligations point to the need for a creative public-private partnership for financing universal health coverage. Fourth, universal coverage is a national necessity. We've got to do it. It's long overdue.
But it's insufficient. Because the health sector is one of the largest and most backward components of the national economy in terms of productivity and quality control standards-- surprisingly backwards given the magnitude of the health sector and the image of the health sector being driven by scientific principles.
It's really-- it continues to bear traces of its former cottage industry status. So there's a legacy of that cottage industry history, lots of small-size providers, too small to be able to finance a lot of new information technology services, and too small, in many cases, to generate reliable quality of care data.
So consolidation is very much on the move. And we're going to see more and more consolidation in the health industry. But that's another subject. But the point right now is that the health sector continues to be one of the most backwards in terms of productivity and quality control standards.
And the health reform legislation passed by the Obama administration contains a lot of pilot programs that hopefully will address this. Whether they will succeed is a matter of conjecture. Because the history of pilot programs being implemented on a broad scale is not a very successful one.
Fifth, absent productivity and quality improvements, universal coverage would only make an already bad situation worse by throwing good money at the bad. This is no surprise. This was recognized back in the early '70s during the Nixon administration, the Johnson administration, and the Carter administration.
This was a concern that the political leadership had when the topic of national health insurance came up. Should we be throwing more money into a system that is terribly inefficient? And the concern, of course, as I put it-- you make a bad situation worse.
So successful health sector reform requires the adoption of modern managerial and corporate principles. We have to get out of that corporate-- a cottage industry phase and modernize health care. And this requires the adoption of board managerial and corporate principles.
Now, historically, this was very controversial. Because organized medicine was opposed both to management, which it saw as the enemy of good patient care, because only the clinician was in a position to judge what was best for patients. And they thought it was bad for patient care if non-physicians were second guessing clinical decisions.
Corporatization was also bitterly opposed by organized medicine throughout this century because it believed that the best way to organize health care was to have physicians practicing in solo fee-for-service settings. That, of course, is all changing. Fewer and fewer physicians are going into solo practice.
I was listening to NPR News this morning. And I understand that half of all medical school graduates today are going to work for hospitals. The movement for corporatization and the introduction of modern managerial principles is well underway. There's considerable momentum following decades of bitter, vitriolic resistance.
Eight-- entrenched political interests together with cultural values underpinning medicine as a profession and the attachment of consumers to freedom of choice are formidable obstacles to change. We've got to reform health care, but how do we do it? Do we do it through mandates, or do we use more indirect measures?
We had an example of what can happen if people feel as though they are being pushed into unfamiliar forms of health care in the 1990s with the reaction against managed care. Managed care is something that everybody grew to lampoon, everybody grew to dislike.
Now, there's a lot that's good about managed care. And many of the principles developed within the framework of the managed care industry are the very foundation of many of the reforms that continue to be necessary.
The managed care industry led the way in terms of disease management, physician profiling, basing reimbursement on the basis of-- provider reimbursement on the basis of quality, so on and so forth.
Now we don't-- and the new lexicon is no longer managed care. It's integrated delivery systems. Isn't it? But what is the difference? It's managed care with a new name.
The imposition of reforms through centralized mandates is inadvisable due to the potentially counterproductive polarizing effects. Now, there's nothing as dramatic as abortion. But if people feel as though they are being forced to give up preferred forms of care, naturally there's going to be a lot of resistance.
The real challenge to policymakers-- can we do it through more subtle means? And I think there are alternatives that look promising. For example, why couldn't we give people vouchers? And those vouchers could be used to buy any one of a number of pre-screened, pre-approved insurance plans. Over a period of time, people-- particularly moderate and low-income people-- naturally will gravitate to the plans which offer higher value. And what is the characteristic of those plans? Not-for-profit, managed care plans, like Geisinger. The Mayo and Cleveland are not not-for-profit, but they offer other good examples.
Could we do it organically, naturally, without all of the tumult, the conflict, the bitterness that would accompany any attempt to impose a change through mandates? Do we have to coerce people, or can we move them gently into the new arena of health care and health care delivery?
The 10th message centers on a hidden pragmatism of the competitive market, because it provides a slower but better alternative to centralized mandates. Why? Because it de-politicizes responsibility for controversial change.
We had some examples in the 1970s and the early 1980s when the government tried to ration the supply of new hospital beds through a comprehensive health plan. Very little was accomplished. Why?
Because if a hospital disagreed with the health planning agency's decision, it sought to appeal it. And failing to change things versus the bureaucratic channels, it went directly to its representatives in Albany, or whatever, the state capitol.
And then the politicians intervened. The hospital got what it wanted. If that didn't work, the hospital or the health care providers would take the health planning agency to court and tie it up for years.
And in a battle between lawyers, which side do you suppose could hire the best legal talent? The hospitals, of course. Much better if we can do it within the context or the framework of the market.
Because whether it's a myth or not, to the extent that people believe it's real, the invisible hand has important practical consequences. It's the market. And within the context of the market, everybody assumes that they have a fair shot at affecting the outcome. Because the outcome is not preordained by some centralized authority.
The 11th point-- cost containment will not succeed unless consumers share in any efficiency savings. Why should a consumer care how much health care costs are coming out of their pocket if they don't stand to gain from it? We can appeal to national patriotism, a sense of social responsibility. We've tried that. It doesn't work very well.
This is where HSAs come in, and I believe will continue to have a future despite the fact that there is sizable political reservations about it within the current administration in Washington. 12th-- consumer-driven health care is an idea who has arrived for the reasons that I've indicated.
Let's take a look at some prevailing health care myths. This is a list of some of the more significant ones, in my opinion. First-- single-payer coverage lowers health spending and eliminates social and economic health disparities.
This is always the claim when national health insurance is first introduced. What happens? Does health spending go down? No. Look at all of the cost estimates, the cost projections that accompany the introduction of the National Health Service or that company the introduction of Medicare, for example. Woefully understated the actual cost by factors as large as 10 or 20 times.
Will it eliminate social and economic disparities? The National Health Service example indicates no. Why not? Because of the continuing role of culture.
Family composition makes a difference. Family values make a difference. And if that isn't enough, the distribution of health services, of facilities and personnel, varies inversely to actual clinical need. This is the law of so-called inverse need.
Where are all of the best hospitals? Where are all the best doctors? In those areas where you provide the most attractive living standards. You don't find them in rural areas. You don't find them in inner cities.
So why is it that low-income people and minorities have lower health care, more health problems? Is it because providers discriminate against them, which is an allegation? That appeared maybe two or three years ago in the New England Journal of Medicine-- subconscious bias. Or is it the fact that the providers they do go to are less highly qualified? I suspect it's more the latter than the former.
The other myth is that more health spending will stimulate the economy and have a positive effect on health status and longevity. Spending on health can have an investment component and a consumption component. And in an aging society, the consumption component far outweighs the investment component.
Will it have a positive effect on health status and longevity? Well, all of the studies indicate not so. What is the most important predictor or element in health status and longevity? What? Your parents? On a community-wide basis for populations. Not parents, but living standards. Living standards. It gets down to the economy.
That's far more important than all of the doctors and hospitals combined. Living standards. How do we maintain and improve living standards? We have to make wise investments. We have to grow the economy. We have to create good-paying jobs.
How do you do that? How much of the economy do you divert to consumption, and how much do you divert to or concentrate on investment? That is the real question. Is it not?
The third myth-- prevention generates big savings. The administration made all kinds of claims about how prevention could generate big savings. The Congressional Budget Office would not score them because the evidence was not there.
And if you look at the literature, it suggests that, aside from some immunization shots and a couple of other preventive measures, there really is no savings because of the paradox of modern medicine. What is the paradox of modern medicine? It enables more and more people to survive who previously would have died.
But what is the cost of survival? Continuing medication, health care, and living into an advanced age where the probability of coming down with chronic illness is much greater. Maybe in the short run, but in the long run, prevention does not save anything because of this paradox effect.
Fourth-- individuals get sick through no fault of their own. When I was a student at the School of Public Health at the University of Michigan, this was part of the catechism that was drummed into our heads. Anybody who thinks they're sick or feels sick deserves to see a doctor. Because they feel sick. And as a layperson, they're not in a position to validate whether they have an illness or not. Only a clinician can make that validation.
Well, that may have been more applicable in a day when the dominant pattern of diseases were acute and communicable in nature. But today, the dominant disease patterns are chronic and degenerative.
And when it comes to chronic disease, we know that 60% to 70%, based on studies, is affected by lifestyle choices that people make-- whether they choose to smoke or not, whether they drink to excess, whether they take drugs, whether they engage in unprotected, promiscuous sex, so on and so forth, all have very important consequences for health.
Health care does not fit the definition of a consumer good. Well, when it comes to Lasik surgery, all of that is private pay. One of the fastest-growing areas in clinical medicine is private pay services. Right? Plastic surgery, Lasik surgery. Ophthalmology is a great specialty. Don't have to deal with insurance companies as you would if you were in a similar specialty. Same thing true with cosmetic surgery.
How about why are hospitals getting into alternative medicine? Who pays for all these alternative treatments? The doctors offices don't provide alternative therapies. That's all private pay, isn't it?
What is the size of the private pay market, roughly? I calculated it crudely at somewhere about 30% about 20 years ago. What's Paulie's first name? Mark Paulie, now at the University of Pennsylvania, put it at about 20%.
The private pay market is substantial. And we have to ask ourselves the question-- is it unreasonable to expect that people should be expected to pay out-of-pocket for routine health care services? A lot of primary care is affordable and within reach of the vast majority of individuals and families.
Why should we cover it through a government program when resources are scarce? And we're concerned about the percentage of the gross domestic product that is getting tied up in entitlement programs and other government obligations that are hard to change.
The amount of the federal budget that is discretionary is continuing to shrink. Entitlement programs, together with debt service, now take about half of the federal budget. Defense and homeland security takes maybe another 20% to 25%. Then there are other fixed obligations, like to retired civil servants, military personnel, so on and so forth.
So for every dollar that the federal government collects in revenues, only about-- some people would say less than 20%-- about 15% is available. In the interest of getting the economy under better control, the president said he's going to put a lid, but cap spending on discretionary services at 5% next year, next several years.
But what does that come out to? That amounts to about less than 1% of the federal budget. It's inconsequential. These entitlement programs are getting to be a major, major issue.
Now, some people say, well, let's cut defense. Is that a prudent thing to do given the world we live in today? And cutting defense can be sufficient? Is that going to free up enough resources so that we can relax about the amount of money we pump into health care and other entitlement programs? Unlikely.
Medical malpractice and essential safeguard against bad medicine-- this argument goes on. The lawyers say that the doctors are exaggerating, because very few of them get sued. And when they do get sued, most of them win anyway, so on and so forth. And we really need this as a safeguard, because we have to make an example of doctors who practice bad medicine.
Well, how are you going to make any improvements in quality in the health sector if people are constantly afraid that they're going to get sued and their reputations smeared by allegations in the press? Is this going to encourage doctors to go on and say to the CEO or the medical chief of staff, I screwed up.
And he's going to say, well, let's have a seminar. Let's discuss this. Let's see if we can't introduce some system properties. Well, everybody would be' afraid of leaving a paper trail that some clever lawyer would grasp.
I don't think we're going to make much progress on the quality front unless we can really come to grips with malpractice litigation. It's now a serious obstacle to quality improvement.
The US needs to follow the example of Canada and other social welfare states. Well, what is that example? The Canadian government, when they introduced-- I'll say national health insurance-- in the late '60s, early '70s, it promised to pay, if I recall-- somebody in the audience correct me if I'm wrong-- 75% of the costs, and the provinces were going to pay 25%.
Well, in the '80s and '90s, the federal government was under severe economic strain. They had difficulty balancing their budgets. They shifted more and more of the cost to the provinces. Today, the province of Ontario-- 50% of their operating budget goes to health care.
What's going on in Europe? People are striking because the government wants to change, make changes in social security and in the health care programs so they can balance their budgets. Why do they want to balance their budgets? Why can't they just continue to borrow money? Why does the party have to end?
Well, so much of the money is owned by foreigners. Can we continue to rely on the Chinese, and Middle Eastern oil-producing states, and Japan to finance our consumption habits? What happens if they become worried? They're going to demand a higher rate of return on the treasury bonds that they buy.
What's going to happen to the debt service? What are we paying-- what percentage of the budget goes to our debt service? I think I'm am a little off. I say about 9%. It's a little lower than that? It's about 9%? Could be?
Well, pretty soon we'll be in double digit range. What are the implications of that? How do you deal with that problem? Do you inflate it away? Is that going to create an environment that's conducive to long-term investment decisions? Or are people with money going to hold on to it rather than invest it in the economy?
Conclusions-- the demographic transformation compounds the problem. Too few workers to support a growing number of retirees who, moreover, are living longer. Countries having generous pensions and health programs already are in serious trouble, and struggling, as I say, to scale back promises, something that's-- the Europe example today-- Greece, France-- very difficult to do from a political standpoint.
Pay-as-you-go financing is essentially a Ponzi scheme. It's a social compact in which the younger generation, the working age population, agrees to take care of the retired population on the assumption that when they retire, the generation after them will do the same.
Now, on this point, allow me to digress for a moment. Because there's an interesting feature built into Obamacare which reverses this principle. So for the first time, the elderly are going to be subsidizing services for the non-elderly uninsured. $500 billion is going to be taken out of Medicare over a 10-year period to finance coverage for the non-elderly who are uninsured. Now, this is a reversal of that historic pattern. It'll be interesting to see how this plays out in the election.
The second conclusion-- employer-provided coverage phasing out due to legacy costs and foreign competition. You saw what happened in the case of General Motors. Before that it was the steel industry. We see it now in the airline industry. We saw it in the railroad industry.
The demographics catch up with them after a while. This is why the Japanese automobile manufacturers who are located in the United States have a competitive advantage-- because the average age of their labor force is 35 years of age.
So the incentives in Obamacare are such that it's a lot cheaper for employers, particularly small business, and even large business, to put workers on the exchanges rather than continue to provide coverage. For family coverage, it's now-- what-- in excess of $14,000, close to $15,000? What is it-- single coverage, $4,000 to $5,000?
What's the fine of the penalty if they go on the exchanges? $2,000 to $3,000. What's the arithmetic imply? Why would an employer want to continue to provide health insurance with all of the headaches that entails?
AUDIENCE: With all of this-- what was all this stuff that Obama just did just before this election for McDonald's and a bunch of other big corporations? He gave them a free pass on--
ROGER BATTISTELLA: Well, they asked for an exemption, and I believe-- is it official? Did they get the exemption? It looks like they're going to get the exemption.
The third conclusion-- national health insurance is an idea whose time has passed because of the reasons that we've already discussed. And the constraints on government and employer finance indicate that the goal of comprehensive, universal, free care is unrealistic in today's economy.
The post-World War II decline in household out-of-pocket spending is unlikely to continue. Households and individuals will have to assume a bigger share of health spending with allowances for ability to pay. Before Medicare and Medicaid was introduced, I think households' expenditures for-- I guess 50% of all health spending came from out of pocket. More recently, it's in the neighborhood of 5%.
Now, that's going to change. I don't think it's going to go down anymore. It's going to go up. But what is a reasonable percentage of household income that people should be expected to pay for health care? Well, I think the norm, as I see it, that's emerging is somewhere in the neighborhood of 9%.
The elderly, even with Medicare, currently spent at least 12%. That's all of the elderly. But if you break the elderly population down into segments, the over-85 segment spending is in excess of 20% out-of-pocket on health care.
Ownership of health insurance will shift from third parties to individuals. As the employers get out, a smaller and smaller role for third parties, individual coverage is the growth market.
Health insurance will adhere more closely to orthodox insurance principles and focus on unforeseeable and unwanted major expenses. This is the key concept in consumer-driven health care. Have a catastrophic coverage plan together with an HSA. And the momentum for that is already evident, and it has a considerable amount of energy behind it.
Cost containment will not succeed unless consumers are able to share in any efficiency savings. Consumer-directed health care is it an idea whose time has arrived. The failure of previous government attempts to modernize health care underscores the shortcomings of centralized planning and controls. We can say more about that in a moment.
And I think there was one more point that I wanted to make. And I don't see it there. But the point was that given the experience of other industrialized countries, it's quite clear that the time has come for us to take a more realistic look at this. Much of the drive for national health insurance has been driven by utopian, idealistic visions. Now's it's the time to get realistic. We've got to do the job. But the question is to do it in a way that is affordable and financially responsible.
And I think this is best done within the context of what politicians of the center are beginning to describe as shared responsibility. And what does shared responsibility come down to? It means people who are able to will be expected to take a greater role in providing for their health coverage and for their retirement plan.
Now, this is attacked as privatization. Privatization is going to undermine social security. And politicians or posters go around scaring the elderly community, saying they're going to take all of this away from you.
The truth of the matter is currently retired populations will be grandfathered in. They're under no threat. It's the younger generation that will have-- your generation that will have to cope with these changes.
NARRATOR: This has been a production of Cornell University, on the web at Cornell.edu.
Employer-based health insurance practiced in the United States today creates insecurity for American workers and saddles American companies with high costs that undermine their competitiveness against international firms. Few would argue the system needs serious reform, yet opinions on appropriate solutions differ widely.
In his new book, health policy expert Roger Battistella of the Dept. of Policy Analysis and Management at the Cornell College of Human Ecology warns that shortcomings inherent in a government-run insurance model would more than likely encourage over-consumption, drive up costs, and ultimately fail. Dr. Battistella argues the time has come for a pragmatic approach to health care reform based on sound market principles and greater transparency to encourage wise consumer choices that seek out good value.
