What Path to Universal Coverage?

America's health-insurance system is nearing a breakdown. Not only are nearly one-third of all Americans uninsured at some point every year, according to the Commonwealth Fund, but growing numbers of Americans who are nominally covered are seriously underinsured. When insurance fails to cover medically needed procedures, tests, or prescription drugs, citizens must choose between medical care and other necessities of life.

As many as half of all bankruptcies are filed for medical reasons, according to a Harvard study published in The New England Journal of Medicine, and more than three-quarters of those declaring bankruptcy due to medical debt had insurance at the start of their illness.

The slow and steady decline of employer-provided coverage continues, with more and more charges being shifted to employees. America's poor, young, and minority are more likely to be underinsured and to pay a disproportionate share of their incomes for the insurance they have.

Meanwhile, America's public-health resources have been sacrificed to budget cuts. Families, particularly in poor neighborhoods, are needlessly susceptible to easily prevented and treated conditions for which standard protocols are well recognized, such as asthma and diabetes. Screening, early detection, and prevention -- the most cost-effective uses of the national health dollar -- are being short changed, as are such proven successes as prenatal home nurse visits. Cost-cutting pressures have also led to a degrading of occupations such as nurse's aide and home-care worker, with wages too low to attract skilled people who see the health professions as a career.

Private insurance companies and Medicaid and Medicare have contained their own costs by reducing reimbursements to hospitals and doctors. In response, the medical profession has increasingly come to mirror the rest of the two-class society. While doctors' incomes have kept up with inflation -- on average -- that ostensible average conceals a growing divide. At one extreme, primary-care doctors face stagnant or declining incomes, increasing costs and caseloads, and time pressures. At the other extreme, some physicians have begun opting out, into what is known as "boutique medicine," setting up practices for affluent patients who can pay their own costs without insurance. This enables the fortunate doctor to earn a high income practicing conscientious, unhurried medicine, and the affluent patient to get the hands-on care that is becoming a rarity. But the vast majority of Americans cannot afford to pay out of pocket for first-class medical care.

A related symptom of the same two-class malaise is the increasing move of specialists to set up day-surgery centers, for high-reimbursement specialty procedures that do not require the full range of services of a hospital. This trend is skimming the cream from the reimbursement system, leaving community hospitals to deal with less remunerative and often more complex cases, and with dwindling resources. The cost crunch has also left the medical system as a whole with reduced funds to train the next generation of doctors and nurses.

Meanwhile, Medicare faces a looming financial crisis, with insufficient funds to meet projected needs within a decade. However, as the Brookings economist Henry Aaron has observed, the Medicare crisis must be understood as part of the general health-insurance crisis. Medicare faces a cost squeeze because too many health dollars are going to the wrong parts of the health system as a whole. By definition, a system with fragmented, mostly for-profit players is awash in inefficiency. The private drug and insurance industries are enjoying record profits. They contribute to the general misallocation of resources, while the rest of the system is squeezed.

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Nations with universal coverage spend on average about 10 percent of their gross domestic product on health care. They cover everyone, and most have better health outcomes and less disparity of class in medical care than the U.S. Our country, by contrast, spends over 16 percent of GDP, while leaving tens of millions of Americans uninsured and tens of millions more undertreated.

A number of factors have been blamed for these escalating costs -- an aging population, defensive medicine practiced in fear of lawsuits, new medical technologies, the fact that medical supply (of hospitals, doctors, procedures, and drugs) tends to generate its own demand. But every other advanced nation faces the same demographic and technological pressures, yet none faces the same trajectory of escalating costs. The reason is that other nations cover everyone, realize huge efficiencies of prevention and public health, and are able to direct care to where it is most cost-effective and not where it is most profitable.

If we fail to attain comprehensive reform, the "cost crisis" will shift more and more costs from insurers and employers onto workers and patients in the form of higher out-of-pocket charges, and onto doctors and nurses in the form a continuing speed-up. The shift to a two-class system will accelerate. Absent comprehensive reform, pressures are already intensifying to use even less efficient and more inequitable approaches, such as health savings accounts to pay for barebones, high-deductible plans, privatized Medicare, capped vouchers, and mandated individual coverage. These, in different ways, would provide more windfalls to the private insurance industry, more incentives for insurers to "cherry pick" clients based on medical risk, more differentiation of treatment by income level, and far less adequate coverage.

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Today there are not the votes in Congress to enact a true universal health-insurance system. Any progress toward universal coverage will necessarily be incremental. But the kind of incremental steps will matter immensely -- politically and programmatically -- in determining the system that we ultimately get. Will they build political coalitions for true, seamless universal health care? Or will they reinforce the fragmentation and inefficiency of the current system and the political power of the drug and insurance industries?

In the presidential campaign, the Republican candidate, John McCain, proposes more tax credits for the uninsured and a shift to strategies such as health savings accounts and high deductible individual insurance policies, which supposedly create incentives for individuals to spend their health dollars more efficiently. However, this is not where the system's inefficiency resides. McCain does not challenge the basic structure of the insurance industry.

The leading Democratic candidates have put forth proposals that would extend coverage to most Americans who are now uninsured, covering some in a "Medicare-like" system and leaving others with good employer-provided coverage. The basic approach would tax employers who fail to provide good coverage, and use the proceeds to subsidize coverage for the unemployed and for those who could not afford the costs.

The strategy, proposed and promoted by the Yale political scientist Jacob Hacker, solves the political problem of gaining the support both of Americans who like their current insurance and of those who have inadequate coverage. A recent study of the Hacker approach conducted for the Economic Policy Institute by the blue-chip firm, the Lewin Group, calculates that the net additional cost of covering everyone through this basic approach would be only about $49 billion in the first year because of the efficiencies realized, and would save the system as a whole over $1 trillion over the next decade.

Supporters of this general approach believe that it would be a big leap toward universal coverage and would ineluctably put us on a path to true universal insurance. Skeptics worry that private insurers would find ways to target younger and healthier subscribers, thus offering them more attractive insurance at a lower cost than the public plan. There is also the practical problem of just what the ideal version of such a hybrid system would look like, once the industry lobbies and Congress got through with it. And both Clinton and Obama begin with a watered down version of Hacker.

The devil, of course, is in the details. This special supplement to the Prospect looks at the question of what path we should take to universal health insurance from several perspectives. Which is most likely to lead to a system that is truly universal, efficient, and affordable? There is no more important issue this election year. These opportunities come once in a generation. If we get a progressive president with a working majority in Congress, our leaders must do this right.

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