Universal Health Care

by James Kroeger


I took an “Economics of Health Care” course in graduate school that just might have been the most enlightening economics elective I ever took. It was the term paper in particular that I found especially challenging. We were asked to “solve” the health care crisis in America, given all that we had learned about America’s health care industry and the comparative health care systems found in Canada, England, France, Germany, and Japan. The model I ended up embracing was certainly not one that I had originally thought might be among the final two contenders.

What led me to my ultimate choice was discovering that there were a couple of fundamental principles I could logically base my choice on. Indeed, I eventually realized that there was one principle above all others that the Democratic Party should be embracing and promoting as primary to all other considerations. We need to fix the incentives that drive our health care providers. I guess economists tend to focus on the importance of incentives more than most people.

Prior to the arrival of Managed Care (HMO’s), America’s health care system gave doctors a financial incentive to over-prescribe treatment. With private insurance, physicians were hardly discouraged from over-prescribing care. Recommending more tests and procedures tended to increase their incomes. Private insurers didn’t ultimately worry about this so much because they could always shift their increasing costs onto the backs of policy holders. The result? Skyrocketing increases in health care costs over several decades.

Then came Managed Care. Suddenly, the incentives for doctors were reversed. Now doctors received a fixed amount of income through their HMO contracts for services in a given time period. Under these constraints, doctors now had a financial incentive to under-prescribe treatment at a certain point. Yes, this approach did manage to slow down the growth of health care costs, but then we started to hear patients complain about receiving inadequate treatment and physicians complaining about the restrictions that were being placed on them by HMO numbers crunchers.

Total health care costs were being “brought under control”, but they were only being limited through a reduction in the quality of health care being received. Seeing this evolution in the incentives of America’s health care providers focused my attention on the need to create a system that gives primary care providers the right kind of incentives. How might it be possible to set up a health care system that gives providers a natural incentive to give patients the best care possible while not also tempting them with financial incentives to over-prescribe care? The answer is to put doctors on a salary.

If a physician gets paid a generous salary for “just being a doctor”, for “doing what a doctor does” [a certain number of hours per day] then she will not receive any extra revenue if she prescribes extra tests & procedures. Nor will she be rewarded financially for under-prescribing care. When physicians are on salary, they are freed from their concerns about financial matters and are able to fully invest themselves in the most idealistic inspirations of their calling. They can simply focus on healing people and not worry about all of the administrative headaches.

Once it became clear to me that incentives should matter more than any other variable when Americans discuss health care reform, I was led by logic to the “Socialized Medicine” model that Great Britain has embraced for over 50 years. In spite of the bad press that the National Health Service (NHS) has received in this country (by the same people who give bad press to Democrats & Liberals) it has actually proven itself to be perhaps the most efficient provider of superior health care in the free world.

In spite of roughly equal “health outcomes” (OECD), America’s private health care system costs Americans more than twice as much as the NHS costs the citizens of the UK. In 2002, UK citizens spent only about 8% of their GDP on health care ($2,160 per citizen). This compares to the approximately 15% of GDP that Americans spent on health care that year ($5,267 per citizen). While the Brits enjoy a quality of health care that is superior to that enjoyed by Americans in many respects (no insurance policy headaches, no frustrating discussions of “ability-to-pay” prior to the provision of health services, no paperwork hassles) the overall quality of their health service lags behind America’s in one important respect: they must put up with far longer waiting times for elective surgery.

What is wrong with the Socialized Medicine model practiced in the United Kingdom that causes these long waiting lists? Nothing. It is not perverse incentives or imagined “inefficiencies” that are to blame for the waiting lists; it’s the conservative legislators in Parliament who have used their influence and pressure to underfund the NHS. If the British were to decide tomorrow to start spending the same percentage of their GDP on the NHS that Americans spend on their inefficient private health care system, they would be able to dramatically reduce waiting times for those elective procedures. If you hire more doctors and build more operating rooms and support services, then you will reduce wait times. It’s just that simple.

Adopting the British model of health care provision would dramatically improve the quality of care that most Americans receive. It would be able to reap many economies of scale and eliminate much paperwork. It would also bestow a great favor on perhaps a majority of our nation’s physicians, many of whom would probably love to be freed from the headaches of being “business owners” and be allowed to simply practice medicine.

Is this something that could be done in 2008 if the Democrats win the Presidency? Probably not. We all understand the powerful lobbying efforts that would be launched to defeat it. But in the long run, staking out your ideal vision and defending it is the best approach for the Democratic Party. You don’t start off your fight for expanded health care by first proposing the compromise position that you are willing to settle for, like the Clinton Administration did.

Perhaps the best long-run strategy is to try to win over the doctors, first. Tell them that we’ll freeze their current average salary (in different markets) and then take all of the “non-medicine” burdens off of their shoulders. Then, with hopefully the support of a majority of physicians, we could take on the insurance industry. The pharmaceutical industry may be the most guilty of running up our health care costs, but it may be best to take them on last.

For more on the topic of Government bureaucratic waste vs. Private Sector efficiency, see this...


Edited December, 2005