A basic orientation in the US healthcare debate

August 15, 2009

By Dipankar Basu, Sanhati

There is a wide spectrum of positions in the current debate over health care reform in the US. On one end, the right end of the political spectrum, are those who argue for a “for-profit system” (something like that currently in place in the US), where health care is provided and financed through the market by the private medical-industrial complex (comprising of private health insurance corporations, pharmaceutical companies, private hospitals, and doctors); in this system health care is provided to the citizens by the medical-industrial complex as a by-product of its attempts to create and maintain profits for itself. On the other end of the spectrum, the left end of the political spectrum, are those who argue for a “single-payer system” (something like that currently in place in most other advanced capitalist countries including, UK, Canada, etc.), where health care is financed by a government or quasi-government body but provided largely by private economic agents (hospitals, etc.).

A large body of recent research into the economics of health care has generated solid evidence, both theoretical and empirical, that optimal health care cannot be provided by a market-based, for-profit system. In a 2006 article for the New York Review of Books, Paul Krugman and Robin Wells succinctly summarizes this literature. Reviewing three books on the economics of health care, Krugman and Wells outline the simple reason why private sector health care will not work: adverse selection. Adverse selection arises when the workings of the market leads to a patently sub-optimal social outcome. Here is how adverse selection works in the private health insurance market:

“… imagine an insurer who offered policies to anyone, with the annual premium set to cover the average person’s health care expenses, plus the administrative costs of running the insurance company. Who would sign up? The answer, unfortunately, is that the insurer’s customers wouldn’t be a representative sample of the population. Healthy people, with little reason to expect high medical bills, would probably shun policies priced to reflect the average person’s health costs. On the other hand, unhealthy people would find the policies very attractive.

You can see where this is going. The insurance company would quickly find that because its clientele was tilted toward those with high medical costs, its actual costs per customer were much higher than those of the average member of the population. So it would have to raise premiums to cover those higher costs. However, this would disproportionately drive off its healthier customers, leaving it with an even less healthy customer base, requiring a further rise in premiums, and so on.

Insurance companies deal with these problems, to some extent, by carefully screening applicants to identify those with a high risk of needing expensive treatment, and either rejecting such applicants or charging them higher premiums. But such screening is itself expensive. Furthermore, it tends to screen out exactly those who most need insurance.” (Krugman and Wells, 2006).

The only sensible and historically tested way to solve the problem of adverse selection in the health care industry is to go for single-payer health care. And it is precisely the single-payer health care system that has been very carefully excluded from the current debate on health care reform in the US. Though Barack Obama, before winning the US Presidential election, had on occasion displayed public support for a single-payer system, his current proposal is only a half-way house between for-profit and single-payer systems. His proposal, to simplify matters, consists of the following two elements: (1) regulation of the medical-industrial complex in various ways to ensure proper coverage for most Americans, and (2) a “public option”, i.e., a quasi-government insurance agency to compete with private insurance corporations so as to reduce costs of health care. As is obvious, private insurance corporations are dead against the “public option” and it will, in all probability, be dropped.

This highlights a point that Marxists like Paul Sweezy and Paul Baran had made several decades ago about the monopoly capitalist system: to properly understand the dynamics of the system we need to move beyond economics and towards political economy, i.e., we need to incorporate the political dimension into the analysis from the very beginning. In their seminal study of the US socio-economic system, MONOPOLY CAPITAL, Sweezy and Baran had pointed out that every attempt at serious “reform” of any aspect of the system would ultimately and inevitably lead to a conflict with some fraction of the ruling class; “reform” would reduce the revenue, profits and political power of some fraction of the ruling class and would therefore be opposed tooth and nail. Only a politically conscious mass upsurge can ensure any genuine reform of the system. This analysis, now about five decades old, still rings true in the current context of the health care reform in the US today.


Selected article on the basics of the single-payer system:

This article, although a bit dated and from 2003, sets out in very simple terms the benefits of the “single-payer” national health program. It gives a basic grounding amidst the fiery debate over healthcare in the United States. – Ed.

By Marcia Angell, M. D. Senior Lecturer, Department of Social Medicine, Harvard Medical School. Former Editor-in-Chief, New England Journal of Medicine

We are here today to introduce a national health insurance program. Such a program is no longer optional; it’s necessary.

Americans have the most expensive health care system in the world. We spend about twice as much per person as other developed nations, and that gap is growing. That’s not because we are sicker or more demanding (Canadians, for example, see their doctors more often and spend more time in the hospital). And it’s not because we get better results. By the usual measures of health (life expectancy, infant mortality, immunization rates), we do worse than most other developed countries. Furthermore, we are the only developed nation that does not provide comprehensive health care to all its citizens. Some 42 million Americans are uninsured — disproportionately the sick, the poor, and minorities — and most of the rest of us are underinsured. In sum, our health care system is outrageously expensive, yet inadequate. Why? The only plausible explanation is that there’s something about our system — about the way we finance and deliver health care — that’s enormously inefficient. The failures of the system were partly masked during the economic boom of the 1990’s, but now they stand starkly exposed. There is no question that with the deepening recession and rising unemployment, in the words of John Breaux, “The system is collapsing around us.”

The underlying problem is that we treat health care like a market commodity instead of a social service. Health care is targeted not to medical need, but to the ability to pay. Markets are good for many things, but they are not a good way to distribute health care. To understand what’s happening, let’s look at how the health care market works.
Most Americans receive tax-free health benefits from their employers, who pay insurers a portion of the premiums for health coverage. But not all employers offer benefits, and when they do, the benefits may not be comprehensive. It’s; entirely voluntary. When employers are competing for workers, they offer good benefits; when unemployment rises, they drop them.

The insurers with whom employers do business are mostly investor-owned, for-profit managed care businesses. They try to keep premiums down and profits up by stinting on medical services. In fact, the best way for insurers to compete is by not insuring high-risk patients at all; limiting the coverage of those they do insure (for example, by excluding expensive services, such as heart transplantation); and by passing costs back to patients by denying claims or as deductibles and co-payments. We are the only nation in the world with a health care system based on dodging sick people. These practices add greatly to overhead costs because they require a mountain of paperwork. They also require creative marketing to attract the affluent and healthy and avoid the poor and sick. Not surprisingly, the U. S. has by far the highest overhead costs in the world.

It’s instructive to follow the health care dollar as it wends its way from employers toward the doctors and nurses and hospitals that actually provide medical services. First, private insurers regularly skim off the top a substantial fraction of the premiums — anywhere from 10 to 25 percent — for their administrative costs, marketing, and profits. The remainder is then passed along a veritable gauntlet of satellite businesses that feed on the health care industry, including brokers to cut deals, disease-management and utilization review companies, drug-management companies, legal services, marketing consultants, billing agencies, information management firms, and so on and so on. Their function is often to limit services in one way or another. They, too, take a cut, including enough for their own administrative costs, marketing, and profits. I would estimate that no more than 50 cents of the health care dollar actually reaches the providers — who themselves face high overhead costs in dealing with multiple insurers.

What are the signs of the imminent collapse of this system? Private health insurance premiums are now rising at an unsustainable rate of about 13 percent per year, and as much as 25 percent in some areas of the country. Coverage is shrinking, as more employers decide to cap their contributions to health insurance and workers find they cannot pay their rapidly growing share. And finally, with the rise in unemployment, more people are losing what limited coverage they had. This is not a system that can be tinkered with. It needs to change.

The program we are introducing today is the very soul of simplicity and efficiency, compared with our private health care system. It is a single-payer system, that is, health care funds would be distributed by a single, public entity, so that health care could be coordinated to eliminate both gaps and overlap. In many ways, our program would be tantamount to extending Medicare to the entire population. Medicare is, after all, a government-financed single-payer system embedded within our private, market-based system. It’s by far the most efficient part of our health-care system, with overhead costs of less than 3 percent, and it covers virtually everyone over the age of 65, not just some of them. Medicare is not perfect, but it is by far the most popular part of the U. S. health care system, and in my opinion its problems would be relatively easy to remedy — but that is another subject.

What are the usual objections to the sort of national program we are calling for today? They are mostly based on a number of myths.

Myth #1 is that we can’t afford a national health care system, and if we try it, we will have to ration care. My answer is that we can’t afford not to have a national health care system. A single-payer system would be far more efficient, since it would eliminate excess administrative costs, profits, cost-shifting and unnecessary duplication. Furthermore, it would permit the establishment of an overall budget and the fair and rational distribution of resources. We should remember that we now pay for health care in multiple ways — through our paychecks, the prices of goods and services, taxes at all levels of government, and out-of-pocket. It makes more sense to pay just once.

According to Myth #2, innovative technologies would be scarce under a single-payer system, we would have long waiting lists for operations and procedures, and in general, medical care would be threadbare and less available. This misconception is based on the fact that there are indeed waits for elective procedures in some countries with national health systems, such as the U. K. and Canada. But that’s because they spend far less on health care than we do. (The U. K. spends about a third of what we do per person.) If they were to put the same amount of money as we do into their systems, there would be no waits and all their citizens would have immediate access to all the care they need. For them, the problem is not the system; it’s the money. For us, it’s not the money; it’s the system.

Myth #3 is that a single-payer system amounts to socialized medicine, which would subject doctors and other providers to onerous, bureaucratic regulations. But in fact, although a national program would be publicly funded, providers would not work for the government. That’s currently the case with Medicare, which is publicly funded, but privately delivered.

As for onerous regulations, nothing could be more onerous both to patients and providers than the multiple, intrusive regulations imposed on them by the private insurance industry. Indeed, many doctors who once opposed a single-payer system are now coming to see it as a far preferable option.

Myth #4 says that the government can’t do anything right. Some Americans like to say that, without thinking of all the ways in which government functions very well indeed, and without considering the alternatives. I would not want to see, for example, the NIH, the National Park Service, or the IRS privatized. We should remember that the government is elected by the public and we are responsible for it. An investor-owned insurance company reports to its owners, not to the public.

Some people say that a single-payer system is a good idea, but politically unrealistic. That is a self-fulfilling prophecy. In my opinion, the medical profession and the public would be enthusiastic about a single-payer system if the facts were known and the myths dispelled. Yes, there would be powerful special interests opposing it and I don’t underestimate them, but with courageous leadership, such as Representative Conyers is providing, and the support of the medical profession and public, I believe there is nothing unrealistic about a National Health Insurance Program.

I want to mention one final and very important reason for enacting a national health program. We live in a country that tolerates enormous disparities in income, material possessions, and social privilege. That may be an inevitable consequence of a free market economy. But those disparities should not extend to denying some of our citizens certain essential services because of their income or social status. One of those services is health care. Others are education, clean water and air, equal justice, and protection from crime, all of which we already acknowledge are public responsibilities. We need to acknowledge the same thing for health care. Providing these essential services to all Americans, regardless of who they are, helps ensure that we remain a cohesive and optimistic country. It says that when it comes to vital needs, we are one community, not 280 million individuals competing with one another. In seeking to ensure adequate health care for all our citizens, we have an opportunity today to reassert that we are indeed a single nation.


Further resources:


(Paul Krugman and Robin Wells gives a nice introduction to the economics of the health care crisis in the US.)

(Physicians for a National Health Program has been long arguing for a single-payer system; here is a nice summary of the arguments for a single-payer system for the US)

(Following the debate in the media often requires familiarity with terms that are used by participants in the debate. What are HMOs? What are PPOs? What are POS plans? All these and other terms relevant for the health care system in the US is explained in these two articles; the first one focuses on HMOs.)

(Currently there are several proposals floating around, one by a committee in the House of Representatives, two by committess in the Senate, one by the White House and one by the medical-industrial complex; this page compares these proposals on several important issues.)

(This article provides some history of previous attempts to reform the health care system in the US starting with Roosevelth in 1912.)


(A nice hard-hitting piece on health care reform with some back-of-the-envelope calculations showing why a single-payer system will not cost more than the current health care system and yet cover all citizens.)

(This article demonstrates how Obama’s health care reform plan is gradually accepting the logic of for-profit helath care.)

(Arianna Huffington’s post: talks about three ways in which Obama’s plan is militating against any meaningful reform, (1) giving up the right of Medicare to bargain for lower prices of medicines, (2) giving up the public option, and (3) not focusing on any preventative steps.)

(Weekend edition, August 14-16, 2009: hard-hitting expose of the Obama plan)

(A Salon post on the health care debate; this dicusses a recent OECD study on the US health care system and why the private, market-based solutions will not work.)

(Robert Greenwald’s Brave New Films, which has produced hard-hitting documentaries like “Outfoxed,” “Wal-Mart: The High Cost of Low Price,” and the newly released “Rethink Afghanistan,” has started a campaign to publicize health insurance industry profits and to counter the industry’s campaign against reform.)


(Economic Policy Institute, a progressive think-tank based in Washington D. C., page on health care in the US; provides useful information and analysis.)

(The Salon page on the US health care reform.)

(Times Topics: The New York Times page on the Health Care Reform debate in the US)