View From Down Under

President Obama is finally starting to show some much needed leadership on health care reform, inviting Democratic and Republican leaders to a health care summit, and promising to publish its own version of health care legislation in advance.  Obama challenged Republicans to do the same.

Despite the rhetoric from the White House, there is little hope that a bipartisan health care reform package will emerge from the process.

The last time the Republicans put forth their health care plan it was weak, marginal, and provided little other than tort reform.  It appeared to be a hasty answer to the charge that they were just being obstructive, and fortunately the plan sank into oblivion quite quickly.

Nonetheless, Republicans have deep differences with Democrats on what health reform means.  The Republican position on health care appears to be something like this:  we should let the ‘free market’ provide health care; but don’t cut Medicare (even though several Republican proposals do exactly that); and don’t remove the tax break for employee funded insurance (which would at least attempt to create a free market); and do allow interstate insurance programs (while continuing to allow wildly different state based standards); and ‘enhance’ the free market with a combination of vouchers, savings incentives, and tax credits.

That they have been allowed to get away with this as a ‘policy’ is bemusing, to say the least.

To Democrats, health care reform means making sure all Americans, or as many as possible, have health insurance.  The rest of the Senate bill is basically trying to pay for this, with a number of pilot programs that will probably reduce costs over time but whose ultimate impact is unknown.

When you consider that most Republican voters are not opposed to expanding insurance cover (in fact it was part of John McCain’s campaign platform) yet Republican leaders passionately oppose the Senate bill, it becomes clear that what the right wing really wants is for the President to fail so they can replace him with Sarah Palin.

Let’s be clear, neither side is really proposing health care reform, and despite the rhetoric that this is an historic ideological battle, the reality is that both sides are talking about fairly minor changes to an insurance based system supplemented by government health care for the elderly and poor.

With his summit, Obama is making one last effort at appearing to be bipartisan before pushing through a health care bill.  He cannot afford to head into the next election with no health care bill passed, but also doesn’t want to be painted as part of an arrogant left wing that can’t negotiate with Republicans.

The view from down under is that it is past time for Obama to stop delegating to Congress, and time to provide clear leadership.  The promise to publish the White House plan, which will undoubtedly have support of Democratic congressional leaders, is a good first step in that it moves the plan from being a Pelosi plan or a Reid plan to being an Obama plan.

If the Republicans offer to negotiate for a better bill, the Democrats will have won the public debate and will have a comprehensive health care bill passed soon.  Of course, Republicans know this, and because of their past rhetoric their logical course of action is to continue to obfuscate, try to scare people (death panels part deux?) and do their best to block all legislation.

Which, ironically, will make the final bill much more of a left wing reform bill and therefore more likely to have real impact on both the cost and availability of health care in America.

There is no doubt the US health care system needs reform.  Costs are high relative to outcomes, outcomes are very unevenly distributed, the cost of health insurance is greater than the average mortgage.  Perverse incentives create perverse results.

But the US political system appears to have lost all capacity for meaningful reform.  The bills currently being debated are not much reform at all, and look likely to add to the overall cost and inefficiency of the system.

Part of Barack Obama’s campaign platform was comprehensive health care reform.  So after his inauguration and passing the economic stimulus package, the President called on Congress to develop a health care reform proposal to make coverage affordable to all Americans.  It seems odd that the President would not propose his own plan (like the one he campaigned on), instead of delegating that to Congress.  However, the last time a President proposed a health care reform plan (Bill & Hillary Clinton), the process was handled so poorly and the results so roundly criticized it kept health care off the legislative agenda for nearly 20 years.  Obama wants a bill passed, and the only way to do that in the current political environment is to let Congress figure out what it can pass, and sign it.

Congress responded with some grand rhetoric and then slipped back into their normal, self serving process of getting themselves re-elected.

The result will be a bill that adds more bureaucracy to the process, and does not address many of the important problems.  The current bills do nothing to control costs or improve quality.  There is plenty of data available to suggest that major reforms can improve both cost and quality.  For example, the evidence is fairly clear that a tax funded system is less expensive and with better health outcomes than an insurance funded system.  But of course that is “socialism”, despite the fact that it works well in almost every capitalist country in the world.

The only thing worse than passing this legislation is not passing it.  Reducing the number of uninsured is an important and worthwhile change, with positive flow on effects for all Americans.  If the final bill does not pass both houses of Congress, not only will millions of American continue to lack affordable medical care, but it will likely have the disastrous effect of once again pushing any health care reform out another 20 years.

The view from down under is that meaningful health care reform in the US will require one of two things to happen first: either the US political process is itself reformed; or the health care system reaches an unbearable crisis point.

The saddest thing is the amount of unnecessary human suffering that will occur before that happens.

With quite a bit of heat and very little light, the United States is involved in an amazing and sometimes amusing debate over health care reform.  At least, it would be amusing if the stakes weren’t so high. 

Before we get to the rhetoric, seems to me that the first question to ask is:  Does the US need major health care reform?  To answer that, I think we need to look at the current system in a few different ways.

Since my training is in economics, the first question I’ll ask is:  Are Americans getting value from their health care system?

From a macro perspective, the value is quite poor.  Health care spending as a percentage of GDP is extremely high in the US.  According to the OECD factbook, the US spent 15.3% of GDP on health care, while the rest of the OECD averaged 8.7%.  But cost is only one part of value.  The higher spend might be justified if the outcomes are substantially better in the US than elsewhere.  So what does the US get for all this spending?

On the one hand, individual outcomes in the US do seem to be quite good.  Outstanding health care is common,  though not universal, and if you have a serious health issue and good insurance (or deep pockets) the chances of getting some of the world’s best treatment are quite good.  But individual outcomes are not the same as value, and even that argument has embedded within it some of the problems within the system.

Trying to answer the question with data suggests the outcomes are pretty ordinary.  Life expectancy at birth in the US (2005) is 77.8 years, which is coincidentally the average of all other OECD countries.  The US ranks 26^th out of 37 OECD countries, behind Portugal but ahead of Slovenia.  So if we measure outcomes in terms of life expectancy, the US pays twice as much for the same result as other countries.  I have seen a couple of other ways of measuring outcomes, all of which suggest it is not good value.

Another question worth asking is:  Is the current system fair?  The quest for fairness seems to be innate in humans, and there are very few people who legitimately believe an unfair system is better than a fair one.  On this measure, the US system would have to get very low marks.  The cost and quality of care varies dramatically depending upon what insurance you have, a substantial percentage of the population has no insurance, and the self employed or contract workers often can only afford minimal coverage. 

The ultimate cost to Americans is high.  The majority of individual bankruptcies involve unpaid medical bills.  The cost to self insure is greater than the average mortgage.  The cost of medical care continues to grow.

Is there anyone who genuinely believes the US health care system does not need reform?