U.S. spends more on health care, gets less
A recent study found that private insurance companies spend 11.7 cents of every health care dollar on administrative costs, mainly advertising and underwriting, compared with 3.6 cents for Medicare and 1.3 cents for Canada's government-run system.
New York Times
February 17, 2004
The Health of Nations
By PAUL KRUGMAN
The Economic Report of the President, released last week, has drawn criticism on several fronts. Let me open a new one: the report's discussion of health care, which shows a remarkable indifference to the concerns of ordinary Americans — and suggests a major political opening for the Democrats.
According to a recent Gallup poll, 82 percent of Americans rank health care among their top issues. People are happy with the quality of health care, if they can afford it, but they're afraid that they might not be able to afford it. Unlike other wealthy countries, America doesn't have universal health insurance, and it's all too easy to fall through the cracks in our system. When I saw that the president's economic report devoted a whole chapter to health care, I assumed that it would make some attempt to address these public concerns.
Instead, the report pooh-poohs the problem. Although more than 40 million people lack health insurance, this doesn't matter too much because "the uninsured are a diverse and perpetually changing group." This is good news? At any given time about one in seven Americans is uninsured, which is bad enough. Because the uninsured are a "perpetually changing group," however, a much larger fraction of the population suffers periodic, terrifying spells of being uninsured, and an even larger fraction lives with the fear of losing insurance if anything goes wrong at work or at home.
The report also seems to have missed the point of health insurance. It argues that it would be a good thing if insurance companies had more information about the health prospects of clients so "policies could be tailored to different types and priced accordingly." So if insurance companies develop a new way to identify people who are likely to have kidney problems later in life, and use this information to deny such people policies that cover dialysis, that's a positive step?
Having brushed off the plight of those who, for economic or health reasons, cannot get insurance, the report turns to a criticism of health insurance in general, which it blames for excessive health care spending.
Is this really the crucial issue? It's true that the U.S. spends far more on health care than any other country, but this wouldn't be a bad thing if the spending got results. The real question is why, despite all that spending, many Americans aren't assured of the health care they need, and American life expectancy is near the bottom for advanced countries.
Where is the money going? A lot of it goes to overhead. A recent study found that private insurance companies spend 11.7 cents of every health care dollar on administrative costs, mainly advertising and underwriting, compared with 3.6 cents for Medicare and 1.3 cents for Canada's government-run system. Also, our system is very generous to drug companies and other medical suppliers, because — unlike other countries' systems — it doesn't bargain for lower prices.
The result is that American health care, which at its best is the best in the world, offers much of the population a worst-of-all-worlds combination of insecurity and high costs. And that combination is getting worse: insurance premiums are rising, and companies are becoming increasingly unwilling to offer insurance to their employees.
What would an answer to the growing health care crisis look like? It would surely involve extending coverage to those now uninsured. To keep costs down, it would crack down both on drug prices and on administrative costs. And it might well cut private insurance companies out of the loop for some, if not all, coverage.
But the administration can't offer such an answer, both because of its ideological blinders and because of its special interest ties. The Economic Report of the President has only negative things to say about efforts to hold down drug prices. It talks at length about insurance reform, but it mainly complains that we rely too much on insurance; it says nothing about either expanding coverage or reducing insurance-company overhead. Its main concrete policy suggestion is a plan for tax-deductible health savings accounts, which would be worth little or nothing to a vast majority of the uninsured.
I'll talk more about alternatives for health care in future columns. But for now, let's just note that this is an issue the public cares about — an issue the administration can't address, but a bold Democrat can.
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