Saturday, August 8, 2009

Health Scare

With great trepidation I shall attempt to organize thoughts on health care reform while Congress is in recess, having not yet passed a bill. I have certainly had considerable evolution in my view of this issue over the last several years. In my college days, I advocated a single-payer national health insurance plan, similar to the Canadian model; a position antithetical to the stated purpose of this blog (the promotion of limited government). I was persuaded by the theoretical cost savings of covering everyone and preventing chronic disease from becoming more expensive to treat when not prevented or treated early. I also, at the time, agreed with the moral imperative to make sure every American had access to health care - nearly acknowledging that health care is a right. Observing the Canadian health care system by observing care my Canadian relatives have received, I do think it is a good system. However, there are serious limitations to it that should not be overlooked. What is missing from debate in Washington these days is any sort of serious discussions of pros and cons; rather each side would rather engage in hyperbolic rhetoric. The left pretends that reform will cost nothing, either in terms of financial cost or a loss of things that are good about the current U.S. system. The right pretends that this is, "socialized medicine," and that health care in Canada is similar to a third world country. Neither side is being honest with the American people. Honesty requires the left to make a case that there is a moral imperative to extend health insurance coverage to more (or all) Americans and not to allow one-sixth of the population to remain uncovered; but that that will come at certain costs. Honesty requires the right to admit that health care will be pretty good for all of us under a government plan, but to question whether covering the extra people is worth the losses in terms of innovation in health care and the proliferation of health care resources that prevents shortages and queues; and to ask whether there aren't better ways to expand coverage (if not quite providing universal coverage) without asking the 85% of Americans with coverage to give up some of what they have. Most importantly, honesty requires acknowledging that this debate is more about how to cover Americans than it is about controlling health care costs (something the administration claims is the reason a bill must be passed) and to recognize that this is a health insurance problem, not a health care crisis. If we persist in discussing this issue on the terms that it is not about a commodity called health insurance, but rather that it is about a right to health care, then there will be no room for honest debate.


As I have reflected about the nature of rights, I have changed my view since those college days. Rights are innate; they are things everyone possesses naturally. They can be taken away, forcibly, but without extrinsic force, an individual possesses them. life, liberty, free speech, freedom of conscience/religion are all clear examples of rights. Commodities are things one acquires and has a right to in as much as one has legitimately acquired them Hence the concept of property rights and ownership. It seems to me that health care, a service provided by practitioners in return for payment, therefore is a commodity. It is a very basic one, a very necessary one, and one in which it still might be reasonable to provide for all as a matter of public policy, but that does not make it a right. Calling it a right ends all debate. If it is a right, then there can be no argument over whether or not society needs to provide it to everyone. Not only that, if it is a right, everyone is entitled to an equal amount of it; just as everyone is has the same ability to speak freely, assemble freely, or worship freely. If health care is a right, physicians and nurses are obligated to provide it, with or without payment for services. We treat no other good or service this way. Even food and housing, more basic needs than health care, are commodities for which payment is expected and for which there is accepted disparity between what one person can afford compared to another. The wealthy person lives in a mansion and eats fillet mignon, the less well off person rents and apartment and brings home KFC. I think we can have a discussion about what role government can or should play in providing coverage for people or expanding access for people, but we have to understand that we are talking about the commodity of health insurance coverage, not a God-given right.


Before proceeding, it is important to come to terms with what we are actually talking about. For the sake of simplicity I'd like to limit discussion to three different models that I have some familiarity with: 1) the United States, the country in which I live and practice medicine; 2) Canada, the country in which most of my extended family lives; and 3) the United Kingdom, the country where most of my wife's extended family lives. The models of health care delivery are quite different in these three countries. Since World War II, the United States has moved from a system of fee-for-service (doctors and hospitals charge patient's directly for the service they render) to a system of third party payers. For most, the third party payer is a private insurance company, for some (the very poor that get Medicaid, the elderly that receive Medicare, or congressmen) it is the government, and some are uninsured. Rationing of resources in this system is first by income (those who can afford coverage or have coverage as an employment benefit) and secondly by insurance companies, who are, for many Americans, the final arbiters of what is covered and what is not. Like the United States, Canada has a third party payer system. The difference is only a single third party payer, the government. Hospitals and doctors are still owned privately and collect fees for service, but reimbursement rates for doctors and hospitals are set by the single payer, the government. The Canadian system is what the U.S. would be like if everyone had Medicare. The United Kingdom, on the other hand, has a true system of socialized medicine. The government owns hospitals and health care resources and most physicians work for the government. Not only does the government regulate the payment of health care professionals, it also regulates how health care resources are distributed. The UK system, therefore, is analogous to the VA medical system in the U.S.


With that in mind, let's move on to what is actually being discussed in Washington. First of all, no one, and I mean no one, is promoting actual socialized medicine in the UK model in which the government would take complete, or near complete ownership, of the industry (as it has with the financial and automotive industries); employ the doctors and dictate to them how to practice; and directly ration the allocation of resources. You would never know it based on the rhetoric of some on the right, but such charges are deliberate scare tactics. Furthermore, many private insurance companies ration care to a far greater degree than government programs, such as Medicare.

Most on the left advocate a Canadian-style single payer system. This system has the advantage of providing a high level of health care to everyone (universal coverage). There are still legitimate reasons to be wary, however. First, it would represent a large expansion of federal government and a very expensive new entitlement. Secondly, it would amount to a government takeover of the health insurance industry which is of dubious constitutionality. Finally, the Canadian experience is a classic example of how government price setting creates shortages. Doctor's fees in Canada are set by the federal government and as a consequence, many doctors have left Canada. Canada ranks 24th out of 28 industrialized nations in doctors per 1,000 population (source: Canada has 2.1 doctors per 1,000 population compared to 2.4 in the U.S. (source: At one point in the mid-90's, Canada was losing 400,000 doctors per year, about one in nine Canadian medical graduates leave the country and 80% of doctors that leave go to the United States (source:

In the United States, by contrast, medicine is very profitable. This profitability has driven innovation and created cutting edge, high quality treatments, that while expensive, save lives ( Furthermore, U.S. hospitals can reinvest the money they earn into buying new equipment and offering more services. The small (250-bed), non-profit hospital in downtown Baltimore at which I work, in the seven years I have been, on the medical staff; has expanded the Emergency Department; built a new outpatient cancer/women's health center, with its own operating rooms; bought a second MRI scanner and then replaced the first one with a newer scanner; added a third CT scanner; and is in the process of building a new, larger, hospital! The single payer system in Canada is responsible for the relative scarcity of health care resources (compared to the U.S.) that can create queues and long waits for treatments.

However, the single-payer system is not even what is on the table in now in Washington. Since the President has been deliberately vague and there is no actual bill yet from Congress, it is hard to discuss specifics, but we can discuss the general proposal that the President has talked about. The general plan is to require employers with payrolls over $500,000 to provide employees with health insurance or pay and 8% tax payroll tax. Those not covered by employer provided insurance can opt into a public, government funded plan, that would function like the single payer system in Canada. In addition health insurance would become portable so a person can keep their insurance if they lose their job and there would be restrictions on denying coverage due to pre-existing conditions. The selling points of the plan are that everyone would have access to coverage and that people who like their current insurance coverage would, ostensibly, get to keep it.

But, the public option is a Trojan horse. Many employers may find an 8% payroll tax cheaper than what they pay in health insurance premiums for their employees and subsequently drop their coverage, forcing their employees into the public plan. Former Speaker of the House Newt Gingrich and former Vermont Governor Howard Dean debated this issue on the August 9, 2009 broadcast of ABC's This Week (In my opinion, both Speaker Gingrich and Governor Dean are men of substance and worth listening to, whether one agrees with them or not). Speaker Gingrich cited a study that suggested as many as 130 million Americans would lose their current coverage under the plan (as currently crafted in the bill that passed in the House). Dr. Dean dismissed that study as one funded by the health insurance industry, but acknowledged that the Congressional Budget Office (CBO) estimated 5-10 million Americans would lose their current coverage. This is actually an astounding admission. The administration argues that if you like your current coverage, nothing has to change; but under the bill that passed in the House, by any estimate, millions of Americans will actually be forced to change their coverage (and probably rely on the public plan). The left maintains that the public plan only provides, "more competition," for the private insurance market, which will be to the benefit of consumers. However, when one competitor can insure people at a loss (deficit spend) and also sets the rules of the competition (health care legislation and regulation), it is hardly accurate to call this competition. The public plan is a tentative first step to the gradual establishment of a single payer system, with all the advantages and drawbacks of such a system as previously described.


The President has insisted that Congress find funding for health care reform (the buzz word is, "deficit neutral") and that it control health care costs, which have been growing faster than inflation. Such a plan can hardly be deficit neutral. The creation of a public health insurance plan would create a new entitlement that would commit our government to ever escalating spending. Covering more people, for longer if the universal (or near universal) coverage increases life expectancy can only cost the tax payers a lot of money. Currently, Medicare spending is one of the largest pieces of the federal budget. In short, it will be expensive and in the absence of tax increases on everyone, it is hard to see how it would be deficit neutral. In fact, the CBO declared that the current plan that passed in the House was not (source: But, would it control costs?

According to the World Health Organization (WHO), the United States spends about 15% of its Gross Domestic Product (GDP) on health care. By contrast, Canada spends about 10% of GDP on health care. Canada also spends less per capita on health care. Proponents of government reform, particularly single payer reform, point to these statistics and argue that Canadians get just as much service (or nearly so) for less. However, these statistics ignore the fact that health care costs have been spiraling out of control in Canada as well. Health care spending in Canada has also been increasing faster than inflation and hit a record high last year, causing some in Canada to question whether the Canadian system is sustainable (source:

In his book, Free to Choose, Nobel prize-winning economist Milton Friedman discusses government spending and this discussion, indirectly, explains why no third-party payer system, whether public or private, can control costs. According to Friedman, there are four types of spending: 1) you can spend your own money on your self, in which case you have incentives to both spend as little as possible and to get the most value for your money, 2)you can spend your money on someone else, in which case you have still have an incentive to spend as little as possible, but not necessarily to get the best value for your money, 3) you can spend someone else's money on you, in which case you still have an incentive to get the best value, but not necessarily to spend as little as possible, and 4) you can spend someone else's money on yet someone else, in which case you don't have an incentive to either get the best value or spend the smallest amount possible. Third party health payments, particularly government ones, are category 4. Private payments may be category 2, but even this is not much of check on costs because the consumer of health services is not paying directly and as treatments become more advanced, they will become more expensive. A government insurance plan will do little to limit the escalation of health care cost, it will merely shift the cost from the private sector to our heavily indebted federal government.

In the final analysis, there are only two ways to control costs. The first is to ration care (as private insurance companies do to varying degrees) as in the British model. In Britain, the government is not only the third-party payer, it is the allocator of health care resources. For example, in the United States, having end stage renal disease makes one automatically eligible for medical disability and Medicare and Medicare covers the cost of dialysis treatments. In other words, the United States has made a policy decision that no American should die because of a lack of access to kidney dialysis. In Britain, your eligibility for dialysis is determined based on your age and other medical comorbidities. This type of government rationing does control costs, but most Americans would find this unacceptable. The second way to control costs is not to have third party payers at all, but rather have the actual consumers of health care foot the bill (a true fee-for-service system). Then health care spending would by Type 1 and patient's would have greater incentive to take better care of themselves and get the best value for their money. Furthermore, in a true market system (which the private health insurance is not, for a variety of reasons), costs cannot rise higher than the market will bear or higher than than capacity of consumers to pay. If they do and no one can afford the service, those that provide the service will go out of business. A market system would give an incentive to doctors to charge a little as possible, to keep patients, rather than to charge as much as possible to a third party payer. However a true free market, fee-for-service, system does nothing to expand coverage and rations care solely based on one's ability to pay, an outcome many also find unacceptable.


Getting beyond the scare tactics, then, the real debate is not between socialized medicine and free market medicine, neither of which are actually on the table; it is not between rationing, which will happen with either private insurances or a government plan and unlimited coverage; and it is not, despite all the President's disingenuous rhetoric, about controlling health care costs (although perhaps it should be). The debate is about how to expand health insurance coverage for the 47 million Americans who do not have it, whether it is a proper role for federal government to expand coverage, how to pay for such coverage, and how much is reasonable to ask the vast majority of Americans with coverage to sacrifice to provide such coverage.

Universal coverage would have the advantages of, potentially, a healthier population; less utilization of Emergency Services; and, in the case of government health insurance, shifting a cost burden off corporations and potentially making them more competitive with their overseas competitors. Universal coverage sounds like a noble goal, but it will come at a price. The price, as discussed above, is a loss of innovation in medicine and the potential to create a shortage of health care resources. If the American public is persuaded that what is lost in transition to a Canadian-style system is worth the moral imperative of expanding coverage, then reform with a public option will pass; if not, then it will not. But, that is the case the President should be making if he is honest with the American people, not trying to scare them into thinking their health care will become unaffordable if his plan is not passed. Likewise, the right needs to argue that the costs are not worth the gains and propose other ways to expand coverage without sacrificing the things we would all like to preserve about health care in the United States.


On thing that has not changed as I have reflected on this issue over the last two decades is that I continue to believe Canadians enjoy great health care. Health care in Canada is, arguably, second only to the United States and everyone has coverage. Such a system is nothing to be afraid of, but neither is it a panacea. It simply substitutes one set of problems for another. The single-payer system stifles innovation, contributes to shortages of resources, and shifts costs to tax payers without doing much to control them. Furthermore, I am not convinced that our federal government truly has the Constitutional authority to become such a large player in the market place (although the precedent has certainly been set with it's take over of AIG and GM). I am also not convinced of our government's ability to manage anything competently or cost-effectively. Finally, I think in the midst of recession and with federal deficits reaching unprecedented levels, and both entitlement spending and interest on the national debt accounting for an ever growing percentage of the federal budget, I do not think now is the time to contemplating any new entitlement programs. Having framed the debate, I think it is a better debate to have another day.

Despite my free market principles (and the growing phenomenon of concierge care), I am also not naive enough to believe that the genie of third party payers can be put back in the bottle. I do think there are ways to harness market forces to both reduce costs and expand coverage (although this would fall well short of universal coverage). For example, Safeway has reduced the cost of health care for its employees by 40% by providing incentives for healthy living in the form of lower premiums in return for lifestyle modification such as smoking cessation, weight loss, exercise, or meeting goal cholesterol levels (source: Senator McCain's campaign proposal to allow purchase of health insurance coverage across state lines would expand coverage by letting individuals purchase less expensive plans from other states and would provide increased competition in the health insurance industry to help drive down costs. Currently health insurance companies operate in carved out niches, protected by competition from other states and in many states a handful of insurers account for the vast majority of the insured. This lack of competition can only benefit insurance companies at the expense of health insurance consumers. In medical school I, and others, wrote a paper discussing likely changes to the health care system by 2010. We discussed a proposal in the news at that time that would allow individuals to deduct their health insurance premiums from their income taxes, the way businesses who provide health insurance do, which would help individuals who did not receive health insurance from their employer purchase individual plans. I would also favour true health savings accounts that would allow the young and the healthy, who aren't likely to require much coverage at that point in their lives, to put money away, tax free, that can be withdrawn at any time later in life for health expenses. Perhaps, for now, such modest measures will have to suffice.

Many thanks to all that I have been discussing this issue with over the last several months: lay persons, physicians, and other health professionals; residents of the U.S., Canada, and New Zealand; liberals, conservatives, and moderates; all of whom have helped me finally organize some, I hope, coherent thoughts on a topic I have wrestled with for a long time.


David said...


I enjoyed your wide-ranging discussion of the issues. I think a few points should be made or emphasized:

(1) The United States is the greatest contributor to medical innovation (currently). This is fueled, to a great degree, by the profit motive and it improves everyone's lives. If you took away the profit motive, or significantly undercut it, by limiting people's access to new drugs and technology (government rationing)- you would almost certainly do great damage to this generator of innovation.

If you did this, say, 50 years ago, then imagine all the innovations we currently would be without. One of our cardiologists said that when he started his career, the mortality associated with a heart attack was about 50%. Now it is about 5%. Imagine the British, Canadians, or mainland Europeans without those innovations.

Now project forward. There are so many diseases that need attention and could benefit from innovations - are we to destroy the system that offers the most hope of finding cures and treatments for these diseases? This discussion is not only about the here and now, but the future of medicine as well. The more government gains control over this apparatus, the more it will kill this engine and kill the hope of progress on multiple medical fronts. There is a reason we were not looking to the Soviet Union or Cuba for cancer cures! Let us stave off the dark ages of medicine.

(2) I agree with your conclusion that health care is a commodity (or a service, I prefer to say) rather than a right. I would state it more strongly. Of course health care is not a right. Calling this a right violates the very nature of rights - since a right defines a freedom of action in a social context. As you correctly point out, a right to something like health care violates the rights of others (forcing the government to take money from others and forcing those in the medical profession to offer the services).

Although I may sound like a broken record to you, the reason conservatives (and most others) cannot properly defend this point is that they accept altruism as a moral code. Thus 'need' becomes a moral claim on another's life. If you cannot reject this idea (which even I have a hard time getting out of my psyche) then you have a hard time rejecting socialized medicine.
(to be continued)

David said...

(3) I'm not sure that you mentioned a big difference between the British and Canadian systems. In Britain, you can actually be a private physician and practice your craft. In Canada, this is outlawed. I certainly view the Canadian system as much more militant, then, from this perspective.

(4) I believe the US actually has the best health care in the world. I don't trust WHO statistics. (They actually list Cuba as having lower infant mortality than in the US, for example. I have heard that if a child dies within a few hours of birth in Cuba, they don't even count it as a live birth!)

You cannot look at life expectancy in a country to evaluate health care systems - there are too many confounding variables (diet, lifesyle, obesity, genetics) You could look at cancer detection and survival (although survival may be affected by genetics too) - in which cases, the United States performs better than both Britain and Canada.

(5) Despite the US being so good, there are clearly major problems with the system. Unfortunately, those who advocate for 'single-payer' systems do not appreciate the degree to which government intrusion has already led to many of these problems.

Health care is already one of the most regulated sectors of our economy. It is very difficult to innovate (at the practitioner, hospital, level). There are stifling rules about what you can and cannot do at the local, state, and federal levels. Regulatory agencies, along with Medicare, control hospitals at every turn. Even to start a new hospital or clinic you must get permission known as a 'certificate of need'. As you pointed out, insurance companies are controlled by states, and cross-border insurance companies are rare - thus greatly limiting competition.

It is worth pointing out that health care spending, as a percentage of GDP went from 6% to 16%, rapidly, beginning with the introduction of Medicare and Medicaid in the 1960's. The government, initially and now, was a horrible purchaser, and so, ran up prices at an incredible rate. Initially, everyone loved it - patients, hospitals, and doctors - times are good when someone else is paying the bills. Medicare, essentially, has been one of the biggest drivers of health care costs in the country. This massive entitlement has allowed the government to have tremendous influence over every aspect of medicine.

If you really want to help solve underlying problems in the system, then understand that health care is not a right, do your best to de-regulate the massive regulations that hamper the industry, and slowly phase out government purchase of health care or insurance (this means, a gradual elimination of Medicare and Medicaid). It certainly means not introducing any new option of having the government get more involved in buying health care!

John said...

Hi Jim,

Nice job as usually on clarifying the national debate. Here's my two cents from a biotech/business as well as economic point of view.

Innovative products and services are generally transferable from one country to another whether it’s a health care product or a new gee-whiz financial investment (look out for those!). A well known and highly publicized example in the health care field is the selling of patented prescription drugs to different countries. The rub is the same product sells for different prices in different parts of the world. The United States generally pays more expensive prices for the same drug as other countries such as Canada (the results have been a black market for Canadian drugs in the United States, one can’t kill free trade entirely). However, if the profit motive to invent those drugs weren’t satisfied by Americans willing to pay higher prices for drugs then the rest of the world they wouldn’t exist. Now expand that example beyond prescription drugs to in-vitro diagnostics, advanced imaging equipment, basic scientific research, physician training and public health initiatives. One can rightly conclude that the United States subsidizes healthcare innovation for the rest of the World on a gross and per capita basis and therefore is also responsible for a majority of the increase in life expectancy across the world. So comparisons between different countries healthcare system per capita costs are skewed because Americans and American businesses bear the brunt of the expenses while other countries receive a discount relative to the fair market value of the innovation. So when the pundits compare healthcare systems, costs and relate it to life expectancy the comparison is flawed. As an extreme illustration, look at the supply of anti-viral drugs shipped to sub-Saharan Africa to combat AIDS. These drugs would not have existed without an immense amount of research dollars and drug development resources spent by the United States government, global health care companies, and other developed countries. As life expectancy rises in Sub-Saharan Africa due to these drugs, should the credit go to their health care system or the innovative drugs the “developed world” created?

I would expect as innovations in medicine are deployed world wide, the median life expectancy should increase and the variance in life expectancy between different countries to narrow (it would be a nice study). What countries are willing to pay for innovation and what companies are willing to supply those innovations for is an economic and ethical debate. The bottom line is this makes the debate over the quality of different health care systems a difficult comparison at best when just focused on cost and life expectancy. One can make the argument that Canada should pay more for drugs and United States should be less, therefore lowering our overall healthcare costs and raising Canada’s (paying your fair share for innovation). That’s another debate for another day. One thing I can guarantee is if the United States stifles innovation by taking away the profit motive from innovative healthcare companies, entrepreneurs and enterprising doctors’ one can expect improvements in life expectancy to remain stagnant for a long time.

Publius said...

John and Dave - thank you both for your comments. I thought I had stressed the innovation angle enough, but I agree with both of you that that is something big that we will lose if we essentially transition to a single payer system. John, thanks for driving home what that would mean to the rest of the world. The link in the post to the Washinton Post article also makes interesting points in that regard.

To Dave's point about the UK vs. Canada. There is a tier of private physicians in the UK, but if you are in the government system, being a patient in Canada is like having Medicare while being a patient in the UK is like getting your care at the VA. Much better to have a government payer paying a private physicians (all physicians in Canada are private, there is just a single third party payer).

I agree with you, Dave, about the influence of government health entitlements on escalating costs. Moreoever, the point I was trying to make was that it is not just government third party payers, but ALL third party payers that have contributed to the escalating costs. And, as I mentioned toward the end, private health insurance companies are usually protected from competition within their states, which benefits the insurer, not the insuree (the consumer). There was a great John Stossel piece on why government health care doesn't work, but the piece rests on free market medicine as an alternative, and that is not what we have. To say this debate is between the free market and "socialized medicine," is inaccurate. Neither of those extremes is actually on the table...

John said...

Jim and David,

I agree the costs are escalating at a very high pace with the third party payer system as it exists now and there is very little competition between health insurance companies at least in Maryland. However, the shifting of the cost burden from the employer to the employee is certainly gaining momentum as insurance premiums rise. This is your classic “canary in the coal mine” as employees will not be able to afford taking the brunt of these future premium increases very long. If businesses couldn’t pass these costs directly on to the employee, the third party payer system would have already imploded the health care system. As a business owner, health insurance renewal time is the worst time of the year as premiums increase, employees feel you’re screwing them over for sharing just a small part of premium increase with them and there are really no options as far as providers. Last year I almost unionized our workforce to get access to lower health insurance premiums as we could be priced in with a bigger pool and get lower rates.
I travel the country and spend a large amount of time at major research hospitals and it’s obvious the healthcare system really over expanded over the last decade (just about every hospital has added multiple new building, new high end equipment and new services). As a matter of fact, all one has to do is turn on the radio, listen and can rapidly determine hospitals now buy the majority of ad time. I’d almost bet most of these hospitals are levered up with debt and need large year over year fee and traffic increases in the future to remain solvent, it’s seems like America’s latest bubble and no one is sure how to stop it before it blows up.

Publius said...

John - you mean government regulations cause bubbles? Say it isn't so :)

John said...

LOL-I wonder if we should give secondary education bubble status as well based on all the gov't regs and help. 529 plans, gov't insured student loans etc.

One thing is for certain, this decade is really going to fill the history books.

David said...


I'm not sure I agree with all of what is said in this piece (for example, are ER's really 'required' to admit people or to just make sure they are 'stable') but this is a good start with respect to things that need to be changed:

Publius said...

Dave and John - this article is also and interesting perspective:

john said...

I think the health care debate, lost track of what it was trying to accomplish. Was the goal universal coverage or reducing costs, let me know when you guys figure it out. I bet you it winds up this way, raising the medicare withholding for all Americans to 4%, end of reform. I'm amazed one ex-governor considered unqualified by the left and a MILF by the right utterly shattered the national debate on healthcare reform with a one-liner "death Panel" on facebook of all things. Obama just had a Dan Quayle moment.