Health Care Reform That Doesn’t Make You Sick

Now lets take a look at the rising cost of health care. Could it be because the Government controls 45% of it now?

Gov Program             Covering              Cost          Per Capita     Private Plan
Medicaid                     46.0 million     $295 billion        $6413.05        $1416
Indian Health            1.8 million        $3.8 billion           $2111.11          $1416
Medicare                     43 million         $295 billion           $6860.47      $4368
Military Health         9.5 million        $42 billion             $4421.06      $1416
SCHIP                         7.6 million        $8.4billion               $526.31         $996

See how much debt these programs have made

Federal Employees Health Benefits Program. Private plans because public options are not goodenough.

It covers everyone. It cuts costs. It can get through Congress. Why Universal Health Care

Vouchers is the next big idea.

Ten Principles of Universal Healthcare Vouchers:

1. Universality: Every American under 65 years of age would receive a voucher that would

guarantee and pay for basic health services from a qualified insurance company or health


2. Free Choice of Health Plan: Individuals and families would choose which basic insurance

program or health plan they wanted among several alternatives.

3. Freedom to Purchase Additional Services: Americans who wanted to purchase additional

services or amenities, such as wider choices of hospitals and specialists, or more

comprehensive mental health or dental services, could do so with their own money.

4. Funding by an Ear-Marked Value-Added Tax: Earmarking creates a direct connection between

benefit levels and the tax level, serving as a political restraint on health care inflation.

If the public wants more services to be covered in the basic plan, they must be willing to

support a tax increase.

5. Reliance on Private Delivery System: This proposal does not call for government health

care and would not legislate changes to the current private delivery system. Health insurance

companies and health plans would continue to contract with physicians, hospitals,

rehabilitation facilities, pharmacies and other providers for services to the individuals who

enroll in their plans.

6. Ending Employment-based Insurance: Experience demonstrates that health insurance provided

by employers lowers wages, raises prices or reduces employment. The end of employment-based

health insurance would translate into higher wages, lower prices, and the recapture of lost

tax revenue.

7. Eliminating Medicaid and Other Means Tested Programs: Since every individual and family

would receive a voucher, there would be no need for Medicaid, the state Children’s Health

Insurance Program (S-CHIPs), or other means tested programs. Those covered by such programs

would be incorporated into the mainstream health care system without means testing.

8. Replacing Medicare over time: While no existing beneficiary would be forced to change to

the voucher system, Medicare would be phased out over time. Individuals turning 65 would

continue to be enrolled in UHV; there would be no new enrollees in Medicare.

9. Administration: Modeled on the Federal Reserve Board, management and oversight would be

the responsibility of a Federal Health Board with multiple regional boards to facilitate

implementation of programs in different geographic regions. The board would be active

contractor with health plans, defining and periodically modifying the basic benefits package,

informing Americans about their health care options, reimbursing health plans, and

undertaking data collection and research related to patient satisfaction, quality of care,

and risk and geographic adjustments for payments. The board would regularly report to

Congress on the health care system.

10. Technology and Outcomes Assessment: An independent Institute for Technology and Outcomes

Assessment would be established. Its research and database would focus on assessing the

effectiveness and value of different interventions and treatment strategies and disseminate

information concerning outcomes of treatments delivered in regular practice.

Here’s how it works.

Every household in America will receive a voucher entitling its members to enroll in a

private health plan of their choice. All plans will be required by law to guarantee the basic

features of what most Americans now receive from their insurers: doctors’ visits,

hospitalization, pharmaceuticals, and catastrophic coverage. These insurance policies will

not cover everything. Viagra and cosmetic surgery will not be included, but Americans will

still be able to purchase them and any other service or care with their own money.

Those with preexisting conditions or high medical costs will be protected because they will

have guaranteed coverage with any plan they choose. UHVs solve the problem of adverse

selection by adjusting the reimbursement value of the voucher to the differing risk levels an

insurance company absorbs by taking on different patients. So, the payment to insurers for

covering older, sicker patients will be higher than for younger, healthier Americans,

eliminating the incentive to exclude high-risk patients. Moreover, while individuals can

change health plans if they are dissatisfied, a plan will not be allowed to drop an

individual for any reason.

Seniors currently enrolled in Medicare will see no change. All of that program’s current

obligations will be fulfilled. But there will be no new enrollees into Medicare. Americans

who have yet to turn 65 will simply continue with their voucher-paid coverage, keeping the

same choice of plans that they enjoyed throughout their lives. Medicare, with the regressive

payroll tax that financed it, and its calamitous fiscal future, will over time be completely

replaced by the voucher system. Americans will no longer have to wait for retirement before

they are guaranteed reliable health insurance. And because every American will be covered

regardless of their income, Medicaid will also be eliminated.

When it comes time to go to the doctor, Americans will see little difference. Just as today,

different doctors may choose to accept or not accept different insurance plans. But unlike

today, when most employees have no choice of insurance company, people will have greater

freedom to choose a plan that suits them best. For their part, doctors will see little change

in how they care for their patients. But rather than spending time and energy fighting with

insurance company bureaucracies, doctors will have the information, infrastructure, and

incentives to deliver the best proven cares to their patients, and know they will be

reimbursed. Moreover, because everyone will be covered, doctors and hospitals will no longer

have to absorb the cost of “charity care” for uninsured patients who lack the means to pay.

The greatest change will be found not in the doctor’s office, but in the workplace.

Employer-based insurance, with all its inefficiencies and inequities will disappear. Workers

will have the freedom to switch jobs, try self-employment, or drop down to part-time work

without losing health coverage. Not only will “job lock” disappear, but so will “wedlock”

when men and women stay in marriages they would rather be out of because of health-insurance

needs. Employers will also be free to hire workers without considering how much they may add

to the health-insurance bill.

Small businesses and their employees would gain especially from UHVs. Small firms are often

stuck with premiums that run 20 percent higher per employee than large businesses. With UHVs,

all employees will be covered and all employers will be on equal footing.

The role of health insurers will be significantly changed by UHV. What too many patients find

these days is large insurance companies eager to offset risk and cost by refusing to insure

patients with pre-existing conditions or other serious needs. These at-risk patients can

still find coverage, but often only through boutique insurance companies that fill tiny

niches and require sky-high copays for the sickest of consumers. The new system changes all

of this in two important ways. First, because all Americans will be guaranteed coverage in

the plan of their choice, the hundreds of smaller insurers will probably fade away. The

result will be a significantly consolidated, streamlined, and more efficient industry;

economies of scale will lower administrative costs.

The system will be administered by a new board modeled after the Federal Reserve Board. The

Federal Health Board (FHB) will have regional boards to facilitate implementation of programs

in different areas. It will contract with health plans, define and periodically update the

basic required benefits package, inform Americans about their health-care options, reimburse

health plans, and collect data and research related to patient satisfaction, quality of care,

and risk and geographic adjustments for payments. Since many of these activities are

currently done by state health agencies and insurance companies, creating the FHB will still

mean a reduction in government bureaucracy.

The FHB will regularly report to Congress on the health-care system to ensure that the

program is politically accountable. However, like the Federal Reserve, its board will have

long-term appointments so that it is insulated from politics. The Federal Reserve Board has

proven itself remarkably adept at resisting political pressures; that same insulation will be

essential for the FHB so that it can issue decisions on what new drugs or treatments to

require insurers to cover without being influenced by congressmen who may receive campaign

contributions from health-care companies.

Shop and pay

While UHV will be more efficient than today’s health-care system, it will not be free. Unlike

past health-reform proposals, which have added the cost of a new health-care system to the

total federal budget and proposed financing it through income and corporate taxes, we propose

that UHV be financed by a dedicated Value Added Tax (VAT). Because consumers ultimately pay a

slightly higher price for the taxed good, a VAT is essentially a hidden tax. Some of the tax

might be absorbed by producers, but in the end, we can expect goods and services to be 8 to

10 percent higher than they are now.

The VAT is efficient, easy to administer, spreads the tax burden broadly, and encourages

savings. Still, financing health care with a VAT poses political vulnerability for the UHV

plan. Conservatives may argue that the VAT is a “money machine” that raises money too easily

because the tax is hidden. But there are reasons to think that this argument won’t be

definitive. Polls show that many Americans are willing to accept higher taxes in exchange for

guaranteed health care. Moreover, conservatives themselves, hoping to install a VAT in place

of the income tax have promoted its virtues.

For their part, some liberals will argue that the VAT is regressive. But there is a reason

why European voters have consistently signalled their approval of VATs. When applied to

social services, VATs are decidedly progressive. Not only will it be used to fund health care

for everyone, including low-income Americans who currently have none, but the VAT is also

much more difficult for the affluent to evade than income taxes. Furthermore, the VAT can be

made even more progressive by adjusting what is taxed–necessity items such as food and

utilities that cost the poor disproportionately can be excluded from the base. Perhaps most

importantly for the long-term viability of the program, the fact that lower-income Americans

will be paying into the system will mean that it will be more difficult for conservatives to

cast the program as “welfare.”

While this is a new tax, most Americans will end up paying the same for their health care as

they do today. Some upper-middle class and upper-income Americans will pay a little more in

order to achieve the gold-plated coverage that they enjoy as subsidized coverage through

their employers, but they will gain, as all Americans will, from the security of knowing that

their insurance is guaranteed for life. This is no small benefit, and one most Americans

appear willing to pay for. According to the Kaiser Family Foundation, the fear of losing

health insurance is more prevalent than the fear of losing a job, of losing one’s life

savings in the stock market, or of being the victim of a terrorist attack or violent crime.

What will the overall cost of this program be? The easiest way to estimate that is to

multiply the cost of the typical employer-provided insurance plan by the number of Americans

who would be covered. The cost of extending the same coverage to all 250 million Americans

under 65 is $713 billion. (Since Medicare will be untouched at first, we leave it out of our

calculations.) Adjusting this figure upward 7 percent to account for the fact that the

insured and Medicaid recipients tend to be sicker than the average worker and have higher

medical expenses brings it to $763 billion.

That’s a pretty big number. But it’s no more than the $800 billion employers and the

government spend today on a health-insurance system that leaves 45 million people without any

coverage. UHV offers everyone good insurance for about the same as the current system.

How is this possible? UHVs will dramatically reduce inefficiencies in both government and

insurance bureaucracies immediately. It could save tens of billions of dollars by eliminating

for insurance companies the cost of negotiating and contracting with employers every year and

by shrinking the number of overall insurance companies and their associated administrative

costs. Meanwhile, UHVs will do away with some of the absurd inefficiencies of government

health care, one of which is Medicaid, which–with 50 separate state bureaucracies required to

operate it–currently spends tens of billions each year just to determine who is eligible for

the program. That cost disappears under the UHV plan.

In addition to the immediate savings, UHVs would help rein in future health-care costs that

threaten our economy and our government finances. Health-care inflation is driven by four


1) the economy’s underlying inflation rate

2) the aging of the population

3) increased demand for expensive treatments or tests, such as MRIs

4) new technology. The first two, which account for 40 percent of health-care inflation,

cannot be changed (unless you’re God or Alan Greenspan). Still, they alone are not powerful

enough to make health-care costs rise faster than GDP. The threat to the economy comes from

the costs associated with new technology and demand for existing technology, which account

for the remaining 60 percent of health-care inflation. UHV holds these costs down


First, because the sole source of income for the UHV system is the VAT, increasing the amount

we spend on health care will require federal action to increase the tax. If the public wants

coverage of more services they can exert pressure on Congress to do just that. But higher

taxes are a tough sell, and it would likely take significant improvement in medical care for

Congress to agree to raise the UHV budget. And if the public values these improvements, the

budget should be raised.

In addition, the FHB will moderate increases in cost due to new technologies–the most

significant driver of health-care inflation. New technologies sometimes reduce the cost of

care, such as when pharmaceuticals obviate the need for expensive surgery. More often,

however, new medicines or equipment with small or negligible benefits add wildly inflated

costs to health plans. Vioxx, Celebrex, and similar medicines are not any more effective for

younger patients than is ibuprofen, which costs a penny per pill. But the sizzle of new drugs

leads thousands to request and be prescribed them at a cost of billions of dollars.

There is nothing wrong if individuals want to spend money on marginal medicine, but weighed

against, say, universal prenatal care, the benefits simply do not justify the costs. A

nonpolitical board that could objectively assess these data will reduce the use of marginal

medicine, causing a ripple effect that sends a message to pharmaceutical, biotechnology, and

device companies: Marginal improvements that a company develops are unlikely to be covered by

the voucher program. So, why not stop developing an unending chain of Viagra rip-offs and

redirect research toward drugs that offer clear benefits to the public health?

Economic feasibility, of course, is not enough. If the history of health-care reform teaches

us anything, it is that its politics cannot be an afterthought. Looking at the hammerlock

which conservatives hold on the federal government and on the lobbyists of K Street, some

might say that the chances of a successful bipartisan overhaul of the health-care system are

next to nil. We disagree for two important reasons. First, what elevates UHVs above the ranks

of attractive yet doomed health-care reforms is the way that vouchers reshape the politics of

the issue, attracting some powerful interests that have traditionally opposed reform while

isolating and limiting the remaining opponents. To put it bluntly, it will be hard to oppose

this plan on grounds that aren’t strictly partisan. And the second reason cannot be repeated

too often: This is not 1994.

The turnaround of the attitude of business towards reform is one of the biggest changes from

1994 and the first health-care fight. Large businesses opposed Clintoncare on the theory that

managed care would keep their expenses in check. For the short term, it was a good bet.

Managed care did restrain health-care costs until 1999. Since 2000, health-care costs have

risen dramatically, breaking the backs of companies, and there are no more savings to wring

out of the current system. In 2003, business health-care spending rose 12 percent, the fifth

consecutive year of double digit rates of inflation. General Motors and Ford both had their

debt rating slashed to junk status this May in large part because of their pension and

health-care liabilities (Ford’s liability in 2004 reached $12.3 billion or 70 percent of its

market capitalization). Nearly half of 1,400 chief financial officers surveyed by Robert Half

Management Resources said they expected health care to account for the biggest increase in

their cost of doing business over the next year. Removing these costs from their balance

sheets and restoring a measure of predictability to wage and benefit costs would be

irresistible to businesses. While many CFOs might prefer to be relieved of the responsibility

for health care altogether without any tax at all, most recognize that such a retreat (to the

1920s) is unlikely to happen.

Large insurance companies–whose opposition presented a significant stumbling block to

Clintoncare–should support a UHV plan because it preserves the role of private insurers and

brings 45 million new paying customers into the industry. They should be joined on the side

of reform by doctors, who stand to benefit financially from reduced administrative costs

associated with consolidation of the industry and from the end of charity care for uninsured

patients, and who did, after all, enter their profession in order to care for the sick, not

just wealthy sick people. Governors and state legislators would put their muscle behind the

plan because it relieves them of the Medicaid costs. Even traditional liberal constituencies

that were lukewarm about Clintoncare can be expected to support this reform. The union

movement, for instance, has been forced to accept higher premiums and copays in negotiations;

if health benefits are no longer an issue, leaders will have more leeway to bargain for

higher wages and other benefits.

Certainly, the most significant opposition to UHV will come from smaller insurance companies,

whose steep profits come from insuring those Americans who are too risky for large insurers

to touch. With universal coverage, these boutique insurers will be rendered obsolete as their

customer gravitate toward the larger, most efficient firms which offer higher levels of care

for the same amount of money. While small insurers are well-funded, well-connected, and

well-organized, they will be on their own in this fight. Their old ally in the Clintoncare

fight–big business–has grown tired of paying high premiums and doesn’t see the existence of

small insurers as vital to its own survival.

When you add business, doctors, state officials, and large insurers to the column for reform,

the political scorecard looks a lot stronger than it did for Clintoncare. Even if small

insurers and no-tax conservatives put all their strength behind defeating UHVs, they would

still have to overcome a powerful coalition. The outcome certainly isn’t predetermined, but,

for the first time in a long while, the odds seem more favorable to reform.

And so does public sentiment. At its high point, the Clinton health-reform proposal garnered

the support of 56 percent of Americans–a not-insignificant number, but nothing like the

levels of support for universal health care today. In 2003, the Pew Research Center asked

Americans if they would support universal health care even if it meant rescinding tax cuts

passed since President Bush took office. A full 72 percent said yes, including a majority of

Republican respondents. Voters no longer view health care as a squishy liberal cause, but as

a moral and security issue. A recent Business Week cover story identified a block of voters

dubbed “Safety Netters”; Pew calls them “Pro-Government Conservatives.” Whatever the label,

the new political landscape now includes a significant segment of voters who are basically

conservative, but who believe in the benefits of a social safety net and who fear the

financial and health costs of losing access to care.

In the inevitable debate over health-care reform, there will likely be three basic choices.

First, the status quo, which promises ever-higher numbers of uninsured, endless cost

increases for business, and potential fiscal ruin for government. Next is the conservative

option, in which individuals are by and large on their own, swallowing a greater portion of

their health costs while unabated inflation makes the cost of a doctor’s visit more and more

prohibitive. But as the Social Security debate proves, any major legislation demands

bipartisan support. Conservative health-care reform has little if anything to offer

Democrats, even moderate ones. UHV, because it enhances consumer choice while offering clear

benefits to Republican constituencies such as large insurers and business, has a good chance

to draw enough Republican legislators to get over the top.

Precisely when Americans will once again look to Washington for solutions to the problem of

American health care is somewhat unclear. But what is certain is that the day will come, and

soon. Those who believe that health care is a right, not a privilege, should be prepared to

offer an answer with a chance of succeeding.

I feel this is the most appropriate health care system for the US given the system we have


This is what I would prefer the system to be.

The Singapore government spent only 1.3 percent of GDP on healthcare in 2002, whereas the

combined public and private expenditure on healthcare amounted to a low 4.3 percent of GDP.

By contrast, the United States spent 14.6 percent of its GDP on healthcare that year, up from

7 percent in 1970… Yet, indicators such as infant mortality rates or years of average healthy

life expectancy are slightly more favorable in Singapore than in the United States… It is

true that such indicators are also related to the overall living environment and not only to

healthcare spending. Nonetheless, international experts rank Singapore’s healthcare system

among the most successful in the world in terms of cost-effectiveness and community health


How does Singapore do it? Singapore is no libertarian health care paradise, but it does

self-consciously try to maintain good incentives by narrowly tailoring its departures from


The price mechanism and keen attention to incentives facing individuals are relied upon to

discourage excessive consumption and to keep waste and costs in check by requiring co-payment

by users.

The state recovers 20-100 percent of its public healthcare outlay through user fees. A

patient in a government hospital who chooses the open ward is subsidized by the government at

80 percent. Better-off patients choose more comfortable wards with lower or no government

subsidy, in a self-administered means test.

I’ve heard a lot of smart people warn that co-payments are penny-wise but pound-foolish,

because people cut back on high-benefit preventive care. Unless someone is willing to dispute

Singapore’s budgetary and health data, it looks like we’ve got strong counter-evidence to

this view: Either Singaporeans don’t skimp on preventive care when you raise the price, or

preventive care isn’t all it’s cracked up to be.More details on how Singapore’s system

works:* There are mandatory health savings accounts: “Individuals pre-save for medical

expenses through mandatory deductions from their paychecks and employer contributions… Only

approved categories of medical treatment can be paid for by deducting one’s Medisave account,

for oneself, grandparents, parents, spouse or children: consultations with private

practitioners for minor ailments must be paid from out-of-pocket cash…”

1.“The private healthcare system competes with the public healthcare, which helps contain

prices in both directions. Private medical insurance is also available.”

2.Private healthcare providers are required to publish price lists to encourage comparison


3.The government pays for “basic healthcare services… subject to tight expenditure control.”

Bottom line: The government pays 80% of “basic public healthcare services.”

4.Government plays a big role with contagious disease, and adds some paternalism on top:

“Preventing diseases such as HIV/AIDS, malaria, and tobacco-related illnesses by ensuring

good health conditions takes a high priority.”

5.The government provides optional low-cost catatrophic health insurance, plus a safety net

“subject to stringent means-testing.”

Singapore has achieved American health outcomes for about a quarter of the share of GDP the

U.S. spends. Furthermore, if Canada shows that socialized medicine can save a few percent of

GDP without hurting health, Singapore shows that the free lunch offered by greater government

control is meager compared to the free lunch offered by old-fashioned individual incentives.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s