Healthy Bottom Lines

But now it must be killed. There is no earthly reason for employers to control not just their workers' salaries, but their health security, too. There is no justification for a health system that dissuades would-be entrepreneurs from testing their brilliance, or unhappy laborers from striking out on their own, or disgruntled workers from leaving their positions. Nor is there a compelling rationale for forcing employers to assume the moral burden of providing medical coverage, or putting the generous employer at a competitive disadvantage because his competitor offers barebones coverage, or having GM pay more for health care than steel. On every level, in every way, the employer-based system is unjust, inefficient, and unwise. No plan that preserves it should be considered acceptable.

Any plan that preserves this business model isn't worth the paper it's printed on. Many smart observers believe the only acceptable outcome is the total dissolution of private insurance, at least for basic coverage. It's hard, however, to imagine a president and filibuster-proof majority of Congress uniting to dissolve a multibillion-dollar industry that provides thousands of jobs and millions of dollars in campaign contributions.

That leaves regulation. Imposing "community rating" on the industry would end their ability to price discriminate based on age, health status, medical history, or any other variable. All applicants would pay the same premiums. Combine that with "guaranteed issue" -- where insurers can't refuse to offer coverage -- and the industry will have to compete on grounds of price and quality, not on who can best identify, discriminate against, and dissuade needy applicants.

All of these principles can be achieved through a variety of policy mechanisms, with varying levels of private involvement or public oversight. Universality can come through single-payer or individual mandates, scalability can be achieved by organizing private insurers through state agencies or opening Medicare, insurers can be eliminated or regulated, and so on. Within these boundaries, there's plenty of room for policy innovation. But outside them lies a health system where the uninsured languish, or the sick can't afford care, or the entrepreneur with an asthmatic child cannot pursue his lifelong dream. To progressives, all those outcomes are abhorrent, and so none should be allowed.

Ezra Klein is a writing fellow at The American Prospect.

Merrill Goozner

We're entering a period, like 1988-94, when everyone is for health care reform. The issue before us is what shape it will take.

Call me old school, but I believe progressives should articulate a set of health care goals, and evaluate any plan or incremental reform in light of those goals. Of course, compromise is inevitable. But it's much more likely to lean in a progressive direction if there is a strong movement articulating core principles that go beyond "universal health insurance." Indeed, many universal health insurance plans have unintended consequences that do nothing to improve the public's health, could make our overall health care system worse, and will make the payment system less fair, even if they succeed in eliminating the problem of the uninsured. I am especially concerned about individual mandate plans, whatever their shape, because they ultimately rely on some version of "consumer-driven" health care to hold down costs. This is a prescription for exacerbating the nation's public health crisis, which already has us spending 40 percent more than any other advanced industrial nation, yet delivering results that rank us 22nd out of 30 countries in the OECD.

Here's my laundry list of goals, an attempt to redefine what is meant by access, affordability, and quality, which have comprised the mantra of health care activists for generations:

Using this set of guiding principles, let's evaluate recent developments, specifically, the Bush proposal to end the inequitable tax exclusion of employer-based plans. As Robert Reich points out in his single cheer for this proposal, it is the first step on the road to ending employer-based plans entirely, which everyone seems to be for these days, including Ezra Klein. Yet Reich also calls for single-payer, which Ezra Klein says is unlikely to happen.

Has either thought through the implications of canceling the $700 billion or so paid out by private firms for their employees' health insurance? The unfairness of employer-based plans on the tax side is reversed on the expenditure side. A company that provides the same $10,000 insurance plan to every worker's family is giving a 25 percent raise to the $40,000-a-year worker, but a 10 percent raise for a $100,000 a year worker. When they are in a common risk pool, each employee is treated the same. But if employers instead started giving cash grants to employees, how likely would it be that they give equal amounts to all rather than distribute it the way they do retirement 401-k contributions, which is based on salary?

So let's say progressives would only be for ending employer-based plans if we tax employers to replace the $700 billion they pay for their workers and families' coverage. No cash grants to drive individual insurance plans allowed. How would we do it? Payroll taxes? Income taxes? And if we did that with employee matches, how would the incidence (who pays) of the new system compare to the current incidence of employer plan and individual co-pays? I find it curious that some people think moving to single-payer can't be achieved because it would be too disruptive or would engender too much opposition. Is this any more disruptive than ending employer-based plans? Insurance companies take about $200 billion a year off the top of the $1 trillion in health care expenditures they manage (these are back-of-the-envelope numbers). Ending employer-based plans requires raising $700 billion additional revenue.

Make no mistake, when the public finally starts paying attention to health care reform, they'll be pretty smart about the details. Who pays will matter. If you increase taxes, someone is going to let them know about it. Last week, I briefly attended the annual Families USA conference in Washington, where I heard liberal economist Uwe Reinhardt, a very insightful and caring man who also happens to sit on the boards of a hospital chain, an insurance company, and a medical device maker. He called for taxing the upper third of income earners in this country to raise an extra $100 billion to pay for insuring the uninsured. That's half a year's expenditure in Iraq, he said to thunderous applause from the mostly progressive grassroots health care activists in attendance. But as the applause died down, I asked myself this question: Is that any more politically saleable than eliminating the insurance industry from the equation, which would provide more than enough money to get the job done?

Progressives should not be reluctant to call for single-payer because it's "not a terribly likely outcome," to use Ezra Klein's phrase. Nor should we spend a lot of time trimming our sails in the name of political expediency. My position is that we should build a strong movement for single-payer that is simultaneously fighting for quality health care and the overall health of the American people. In those debates, we'll be taking on the drug, device, and durable equipment makers, the diagnostic testing industry, hospitals and organized medicine, as well as the tobacco industry, environmental polluters, the food industry and other drivers of poor health in American society. If we can't get up the gumption to take on the insurance industry, how will we ever generate the political will to take on the real drivers of skyrocketing health care costs?

Merrill Goozner, a Washington-based writer, is a Prospect contributing editor and director of the Integrity in Science project. His blog can be found here.

Jonathan Cohn

My thanks to Ezra for hosting this conversation. He is certainly asking the right question, though I worry whether this is actually the right time to be asking it. But more on that in a moment ...

First, let me embrace three of his principles -- and suggest a possible fourth. Progressive universality and insurance that insures, it seems to me, are a sine qua non reform. If we're not going to achieve those, why take the political risks inherent in this effort? Most serious proposals for universal health care achieve, or at least can achieve, these two goals. And while I have my preferences among them, I would be content -- indeed, more than content -- with virtually any reforms that did.

I'm also on board with scalability. Ron Pollack, the president of FamiliesUSA, distinguishes between "incremental" reforms and "sequential" reforms -- with a strong preference for the latter. And I wholeheartedly agree. Simply expanding existing programs like, say, Medicaid or the State Children's Health Insurance Program are perfectly worthy projects. But they don't necessarily move us closer to enacting a universal health program. On the other hand, enacting universal coverage for a specific age group -- like kids, for whom universal coverage is both relatively cheap and feasible politically -- effectively guarantees that the group will never go uncovered again, in the same way Medicare forever guaranteed that seniors will have coverage.

(Ironically, the group effort that FamiliesUSA recently endorsed probably doesn't meet this threshold, as Ezra noted. But that's another story.)

It is precisely because I do believe in scalability -- and sacrificing the perfect in order to achieve the good -- that I disagree with the first of Ezra's principles. I have no great love for the employer-based health insurance. I see every flaw that Ezra does and believe universal coverage would, ideally, correct them. But it's also possible to construct a working universal health care system -- one that delivers both progressive universalism and insurance that insures -- while preserving the employer-based system, or some semblance thereof. A "pay-or-play" system, for example, would preserve a large role for employers, at least initially. Again, it's not my ideal. But if I had a choice between pay-or-play and nothing, I'd choose pay-or-play in a nanosecond.

Has Ezra left out anything? Maybe. My economist friends would walk out on this conversation if the word "cost" didn't get more attention. They would argue that ignoring cost is tantamount to ignoring the fundamental problem behind the unraveling of American health care.

There's a sense in which they are obviously right. If health care were not so expensive, employers and individuals wouldn't be struggling with the cost of coverage -- and governments wouldn't be struggling with the cost of the safety net. As such, the part of me that cares about good government would insist that any universal health care program have sound financing and make at least some serious effort at rationalizing what we spend.

The political realist in me, however, says that trying to solve both the cost and access problems simultaneously is begging for trouble. (Just ask the architects of the Clinton health care plan.) In fact, the only way to enact universal health care may be to "buy off" various interest groups with terms more favorable to them -- terms that inflate the price.

If so, would it be worth it? It's a tough call in the abstract. It really depends on just how much money we're talking about -- and whether the door would be open to more cost control down the road. That's basically what happened with Medicare; to move the measure through Congress, the architects gave doctors and hospitals enormous leeway when it came to billing. Naturally, they took it. And, just as naturally, the program's soaring costs eventually produced a backlash -- which is why, in the 1980s, two successive administrations (both Republican, by the way) signed off on measures to restrain the program's payouts. Today, those cost controls are the reason Medicare is generally holding down costs better than the private sector.

So I have no firm answer on whether or not cost containment is a deal-breaker. But that brings me to my final point -- on which Merrill and I seem to agree. Those of us who believe in universal health care shouldn't get too distracted by the conversation over minimum benchmarks, at least not yet. As my magazine editorialized not long ago, there is a time for compromise and that time will come soon enough. But right now, progressives should be concentrating on building public support for what they consider to be the best ideas. In so doing, they substantially increase the likelihood that a minimally acceptable system actually comes into existence.

Jonathan Cohn is a senior editor at The New Republic, a contributing editor at the Prospect, and a senior fellow at Demos. In April, HarperCollins will publish his book, Sick: The Untold Story of America's Health Care Crisis -- and the People Who Pay the Price.

Ezra is right -- it's time for progressives to begin talking about reform. The major reason that Hillary Clinton's plan blew up in her face is that she tried to conduct the discussion behind closed doors. This made it easy for the insurance industry to scare the public.

Today we need to launch a public debate that tackles a very sensitive question: how do we create a sustainable health care system that offers high-quality, necessary care to all Americans?

Ezra's proposal focuses on the second half of the equation -- universal coverage -- and, on that score, I agree with virtually all of his points. But I would add that we can't talk about covering the uninsured without addressing the next question: How do we pay for quality care, this year, next year, and the year after? How do we create a sustainable system?

On this point, I disagree with Jonathan. Even if progressives were willing to tip-toe around the elephant called "cost," those who oppose national health insurance will bring it up. Nevertheless, he is right that cost is a sticky issue. When we begin to talk about "affordable, necessary" care, many Americans hear "rationing." But the truth is that "affordable, high-quality care" is not an oxymoron. More care is not necessarily better care. In fact, more care can be dangerous to your health.

Begin by taking a good look at runaway health care inflation. Even without covering the uninsured, our national health care bill is rising far faster than either wages or the economy as a whole. GDP is growing 3 percent a year; our health care spending is growing by 6 percent.

Not all industries create escalating costs. Consider the computer industry. Over time, as more suppliers entered the field, prices fell, even while computers became more powerful and efficient.

But medical technology doesn't work that way. You can be pretty certain that this year's "Purple Pill" will be more expensive than last year's. The same can be said of everything from artificial knees to the pricey little screws used to hold them in place. The health care industry is different from other industries because consumers rarely put a lid on pricing -- even if they have "skin" in the game. Everyone is ready to pay more for the newest medical technology because we have been trained to believe that the newest is best. And when it comes to preventing disease, who wants anything less? Keep in mind that 80 percent of our health care dollars are spent on the 20 percent of the population suffering from serious chronic illnesses. Very few of those patients are interested in hunting for a "refurbished" defibrillator or a bargain-basement bypass.

This is why Price-Waterhouse Coopers Health Research Institute projects that by 2020, health care spending will equal 21 percent of GDP -- up from 16 percent today.

Some economists contend that this is not a problem. We are an affluent society, they say, and can afford to devote one fifth of GDP to medical care. "And why not?" they ask. "What is more important than your health?

There are two problems with this argument. First, these economists are looking at the problem from a macro-economic point of view. On paper, the nation as a whole may look wealthy enough to let health care spending climb to 21 percent of GDP. But at a micro-economic level (where you and I live), neither individuals nor their employers can afford levitating prices. And it's doubtful that the folks who make us look so affluent on paper -- the wealthiest 5 percent -- are willing to fund open-ended health care for the rest of us.

Meanwhile, employers can't keep up. Today, the average family insurance plan costs roughly $12,000. Before long, the price will rise to $13,000, then $14,000. In 2000, 69 percent of employers helped foot the bill; by 2006, just 60 percent offered some form of coverage, and even the most generous were hiking co-pays and deductibles. (We don't have to worry about whether it's a good idea to sever the tie between health care and employment: employers are voting with their feet.)

Why are premiums skyrocketing? Some of the increase goes to insurers, but their profits and overhead account for just 4.5 percent of our $2 trillion health care bill. By and large, that bill is rising on volume and price. Every year, health care providers are doing more -- more tests, more operations, and more complex procedures, using more advanced, more expensive technology, often in the final six months of life. Meanwhile, patients are seeing more specialists and popping more pills: From 1993 to 2003 the number of prescriptions purchased in the U.S. climbed by 70 percent while the population grew by only 13 percent.

But is "more" making us healthier? This is the second, most important, reason to question the benefits of health care inflation. We are not getting value for our dollars. For decades, the fact that we spend more than any other country was seen as proof that we have the best health care system in the world. But today, as Merrill notes, we know that this isn't true. We spend twice as much as Japan, yet few would argue that our health care system is twice as good.

The big, dirty secret that most reformers don't like to talk about is this: widely accepted medical research shows that one out of every three of our health care dollars is wasted on unproven, sometimes unwanted procedures, unnecessary, often redundant tests, and over-priced, new drugs and devices that, too often, are no better than the cheaper products that they have replaced.

No one likes to talk about the waste in our health care system because one person's over-treatment is someone else's income stream. Reduce the waste, and someone's ox will be gored.

But it is critical to recognize that unproven, unneeded treatments represent more than a waste of money. It's waste that poses a danger to your health. Every procedure, every pill, carries the danger of side effects. And if the procedure is unnecessary, there is, by definition, no benefit -- just risk.

The proof of such hazardous waste can be found in the more than twenty years of research done by the Dartmouth Medical School, comparing how much Medicare spends, per patient, in different parts of the country. Here's a summary of their findings: Medicare spends 60 percent more per patient in some areas than in others. And after adjusting for differences in race, age, and overall health of the community, researchers have found no medical reason to explain why patients at Manhattan's Mount Sinai, for example, spend twice as many days in the hospital as very similar patients at the Mayo Clinic in Rochester, Minnesota -- or why, during that time, Mount Sinai's patients are twice as likely to see 10 or more specialists.

No one thinks of the Mayo Clinic as discount care. But in fact, the doctors there practice more conservative medicine than health care providers in high-spending areas like Manhattan, Miami, Newark, New Jersey, or parts of Southern Texas.

When researchers asked what these high-cost regions have in common, they found one answer: more specialists and more hospital beds. Supply is driving demand. Finally -- and this is the scary part -- outcomes are no better for patients who receive more intensive, more expensive, more aggressive care. In fact, patient satisfaction is lower, and too often, mortalities are higher.

Reformers need to keep these two facts in mind: while one group of Americans (the uninsured and the underinsured) receive too little care, another group receives too much care. But here's the good news: if we focus on quality -- by cutting the waste -- we simultaneously answer the question about cost. There is plenty of money in the system to cover everyone. We just need to recognize that "plenty" is often better than "more."

Maggie Mahar is the author of Money-Driven Medicine: The Real Reason Health Care Costs So Much.

I appreciate Ezra's invitation to join this discussion, even though I really don't know that much about health policy. (Plus I'm still scared of Maggie Mahar's sharp critical pencil, going back to the days before she was a policy wonk, when she was one of Yale's finest English professors.)

But I do know a little about politics, and I have witnessed health policy gone wrong, so even though this is set up as explicitly a discussion of policy, there is a political analysis at the heart of it, and I want to draw that out and challenge it. What Ezra is asking us to do is to help set up progressives' initial position going into a political fight that will play out over the next two to five years.

The first level of political analysis is in the assumption that advocates of universal coverage will have a stronger hand if we can agree basically on what we want, and much more importantly, agree on what we can live with. Having witnessed 1994, I think that's astute. There are lots of reasons the Clinton plan failed, and Maggie identified one -- secrecy. But a bigger reason, I believe, is that there were only two pro-reform constituency groups at the time: single-payer advocates and supporters of an employer mandate. (And many, especially in labor, who said they could go either way.) When the White House, in its dysfunctional secrecy, came out with a plan that was neither, the attitude of those constituencies was basically, "Nice try, now you're on your own." They had not thought about what they could live with or not, and so were not in a good position to tell either the White House or Congress how to think about it once those ideal options were off the table. And so the White House had no allies at the time, though there were many who later regretted that the initiative failed.

There is a natural tendency in political advocacy to think that the best tactic is always to hold out for the ideal and let others come negotiate with you. As George Bush likes to say, "never negotiate with yourself." But this kind of policy formation is not a two-party labor negotiation; government doesn't have to negotiate with reform advocates, especially those without economic power. If reformers are intransigent, or don't send some signal about where they're willing to move and what's non-negotiable, they're effectively opting out of the negotiation.

And this is what has worried me about some of the recent gamesmanship around health care. Some, though clearly not all, of those who have been pushing for an employer mandate along the lines of Maryland's Wal-Mart bill, are playing a double game, hoping that the threat draws Wal-Mart and other big employers into a coalition in support of a solution that socializes the costs. And some, though not all, advocates of single-payer are playing the game of holding out for the max in order to negotiate down from a higher platform.

I've long thought that if you took those employer-mandate advocates who are playing a tactical game, and those single-payer advocates who are not theological about it, and put them together with those who already support a subsidized, structured insurance system such as Wyden's or Schwarzenegger's, and get them to agree on something like Ezra's bottom lines, you would have a very large coalition and much more of a sense of agreement around a narrower range of choices.

So just the idea of establishing a non-negotiable baseline is the first step of political analysis in Ezra's piece, and I think that's very sophisticated and overdue.

The second political assumption, though, is in the non-negotiables themselves. There is an assumption -- which may be right, may be wrong, but is certainly widely shared -- that taking the insurers out of the fight and making allies of employers is key to success. Jonathan Cohn makes unarguable points about the disadvantages of taking employers and the dollars they contribute -- which are well above and beyond the tax benefit they get for it -- out and replacing that money with public dollars. And of course, even with community rating and all the rest, the staggering inefficiencies of the private insurance system, as well as the other reasons health care costs too much, suck out money that could be used to widen and improve actual health care.

Ezra's non-negotiable stance on getting employers out and, implicitly, leaving insurers in, is, let's be clear, justified not so much on policy grounds as on political grounds. We have a theory that when the fight begins, we can bring a sizable portion of big business on board, and that we don't need and can avoid a fight with the insurance industry.

But that's a political alliance constructed so far only in theory. (I'm ignoring various Washington press conferences at which Wal-Mart and others pledge allegiance to the goal of universal coverage -- that's all showmanship; the test begins when there's a proposal in play.) But as a thought experiment: What if that political alliance turned out to be impossible? Big employers had a lot to gain -- in theory -- from the Clinton health plan also, and yet they defected, and not only did they defect, but the episode led to a shift in power within the business community that made it much more intransigent in general, as the more politically aggressive groups like the National Federation of Independent Business and the Business Roundtable claimed power from the more responsible and traditional Chamber of Commerce, which in turn pushed the Chamber into a tighter marriage with the Republican right. Because that marriage is still so tight, when a Republican tells big business, "stop complaining about health care, because there is no solution," to quote New Hampshire Senator John Sununu, a great many CEOs are going to do as they are told.

So, the question back to Ezra et al is, if you had secret insider knowledge that business would not support universal coverage no matter what and that insurers would oppose it even if their role was preserved, would these still be your non-negotiables?

If you expect me to follow that by declaring, "The answer is obvious," think again, because it's not obvious. One good answer to that question is that if that's the case, it doesn't matter what our non-negotiables are: universal coverage is dead if it can't get support from at least large business and some insurers. So this is our best shot, and persistence might break down that barrier. But others might answer that if business and insurers are going to be opposed to anything anyway, why not take the moment when progressives have political power and then slam through what we want -- single-payer or an employer mandate? I think many arguments about health care are really not so much about which approach is best, but which political scenario is more likely.

My own judgment is that the former is probably more likely. I don't think we'll ever have the political power to push through single payer, and we want employers out -- eventually -- for all the pragmatic reasons Ezra mentions. Hopefully we can use that fact to leverage employers into the political alliance because we have a lot to offer them – not just lower costs, but stability. Of course, employers that had not been providing health benefits will face some kind of higher taxes without any benefit, which again sets up the scenario of an angry, hostile NFIB. But if the top corporate leadership is on board, and the whole package is presented as essential to economic growth and labor flexibility, then it's a manageable problem.

On the other hand, an immediate transition to an individualized system seems unrealistic, and also politically dangerous. Not only do you have to give up the dollars that employers are putting in, but you also lose their role in helping to navigate the choices in the system (as Bruce Vladek, former head of HCFA, once pointed out, people may say they want choices but they really want somebody in HR to tell them what to do), and you create a situation in which every single American -- covered, uncovered, worried about losing coverage, not worried -- will face a major change from whatever they've got to some other situation. Until the uncovered and the worried outnumber the contented, that's a political risk in itself. So we may need some kind of transitional role for employers, and negotiating the terms of that transition should provide some additional political leverage. The Wyden plan, which requires employers to immediately convert their health care spending into higher wages is a theoretically brilliant solution to making this transition happen, but might be impractical.

Finally, I'm also worried about the assumption that preserving a place for insurers in the process will automatically bring them on board or blunt their opposition. Ezra, Senator Wyden, and others argue that we can tame insurance companies by changing the basis on which they compete. Fair enough. But when you tell the average unimaginative insurance company CEO, who is basically accustomed to making guaranteed profits on the insurance cycle and maximizing them by selecting for risk, that you are going to completely change the business model, don't be surprised if he doesn't recognize the difference between that and putting him out of business.

I'd like to hear from a real economist on this, but I suspect that if you force insurers to compete on "price and quality" and you require a standard benefits package, there will be huge advantages to scale, and monopolistic competition will result. Which is great if your name is Blue Cross or Kaiser, perhaps not so good otherwise. (The Federal Employee Health Benefit program includes 133 insurers, but half of federal employees enroll in the Blue Cross/Blue Shield basic or standard options.)

But there's no guarantee that anyone -- insurers, employers, health providers -- will act in the way that corresponds to their economic interests, just as employers did not in 1994. Leadership, moral suasion, raw political power, and the nature of the process will all determine the political alignments when the fight begins. Those of us who want universal coverage will have to decide not just what we prefer, and not just what our bottom line is, but what we want the fight to be about. The political scientist E.E. Shattschneider once wrote that the key to understanding politics is, "When a fight breaks out, watch who joins." It will be critically important to structure the fight in such a way that employers and insurers aren't all lined up on the other side. This is a good start. Fortunately, we have at least two years before the fight really breaks out.

Mark Schmitt is a senior fellow at the New America Foundation and a columnist for the Prospect.