The Tiger or the Tiger?

In the tale of the lady and the tiger, a man was asked to choose one of two doors. Behind one was a beautiful bride, behind the other was a ferocious man-eating tiger. But at least the man had options.


Cut to this story about baby boomer fears that Medicare won't be there for them:

Initially, 63 percent of boomers in the poll dismissed the idea of raising the eligibility age to keep Medicare afloat financially. But when the survey forced them to choose between raising the age or cutting benefits, 59 percent said raise the age and keep the benefits.

However one feels about raising the eligibility age for Medicare, this is a misleading way of presenting the option. Suppose that I live to be 75 and that starting at 65 my Medicare benefit averages $500 per year for a total payout of $5000. If the eligibility age is raised to 70, the payout drops to $2500. That is a cut in benefits, which means that far from presenting a real choice, the poll in effect manipulates respondents into selecting an option without presenting meaningful alternatives. 


Worse, the story frames the discussion as if raising the eligibility age for Medicare benefits is the only alternative to bankrupting the system, and that's simply not the case. Rather than direct people to think narrowly, journalism should facilitate consideration of a wider, more imaginative context. That's especially important in health care; it's too bad that the media doesn't seem to have gotten the message.

The Beveridge Model

William Beveridge

Want is only one of the five giants on the road of reconstruction and in some ways the easiest to attack. The others are Disease, Ignorance, Squalor, and Idleness. 

-Social Insurance and Allied Service, a.k.a. The Beveridge Report (1942)

In 1940, Great Britain tottered on the edge of extinction. Its armies badly mauled by the Wermacht in France, its cities absorbing a ferocious shellacking from the Luftwaffe, and the United States still over a year from entering World War II, the British government in an act of supreme optimism began making plans for post-war life on the assumption that it would prevail over both Nazi Germany and the Empire of Japan.

There was little doubt that the aftermath of two world wars and an economic depression would wrought profound changes on British life. The working- and middle-class men who had fought the wars would insist on taking charge, and the heretofore dominant patricians admitted that they had a point. Prime Minister Winston Churchill appointed noted economist and social reformer Sir William Beveridge to define a paradigm for the brave new world; Beveridge's effort changed the face of Europe.

Social Insurance and Allied Service, published in 1942 and also known as the Beveridge Report, became the blueprint for the postwar British welfare state. A bestseller in its day, the report was distributed to British troops despite an aborted attempt by Churchill to suppress it until after the war. Wildly popular across the political spectrum, the post-war implementation of the Beveridge Report became a foregone conclusion.

While it focused mainly on social insurance -- what Americans think of as Social Security -- the report also articulated the right of anyone to receive health care on the basis of clinical need regardless of ability to pay, and gave rise to a health care system known as the Beveridge Model. While the term "socialized medicine" is often used carelessly and inaccurately, the Beveridge Model is in fact socialized medicine: A health care system owned and operated by government.

Today, the Beveridge Model is applied by Cuba, Denmark, Finland, Great Britain, Hong Kong, Italy, Norway, Spain, and Sweden. With the exception of Cuba, all are capitalist democracies that have decided to remove the profit motive from health care on the grounds that it compromises equity and efficiency.

While the model is implemented differently in each country, it operates on the basis of a set of one or more common characteristics:

• Health care is a human right, not a privilege
• Government ownership and operation of health care
• National government responsibility for delivery of equitable and efficient health care
• Full access to all regardless of ability to pay
• Primary care physician as gatekeeper to the rest of the system

One misconception about the Beveridge countries is that the costs of providing expansive health care for all residents have been prohibitive and bankrupting. The following table shows that Beveridge Model countries deliver health care efficiently and with great effect:

As a whole, Beveridge Model countries spend a lower percentage of GDP on health care than any other nation. Why? Because the Beveridge Model is tax-based and not insurance-based, the governments of those countries have great incentive to emphasize the biggest bang for the health care buck, that being preventive care. As a result, Beveridge Model countries tend to have robust public health programs (Finland is one of two countries to reverse the obesity epidemic plaguing the developed world) and a strong emphasis on primary care. (Seventy per cent of British doctors are PCPs as opposed to 30% in the United States.) Primary care contributes to better outcomes, increased use of preventive services, fewer hospitalizations, reductions in overall costs, fewer hospitalizations, and less use of emergency departments.

All approaches to health care have tradeoffs, and the Beveridge Model is no exception. Welfare state values that call for a high level of social services also mean higher taxes. The emphasis on efficiency often results in less choice for patients, and broad service offerings tend to concentrate in urban areas. While doctors receive free education, have little administrative burden, and are almost never sued for malpractice, they are also salaried and earn less than their American counterparts. Equal access and the emphasis on primary care can translate into long wait times for non-acute secondary and tertiary care. Finally, the imperative to hold down costs means that the newest technologies are not easily available.

Converting the United States to the Beveridge Model -- and there's little reason to believe that the American people want this -- means eliminating the health insurance business, making virtually all physicians salaried government employees, tightening the regulatory screws on pharmaceutical companies, and establishing wholly new government bureaucracies at the federal, state, and local levels. In the absence of a complete societal breakdown, American history suggests that this degree of systemic change requires a sustained nationwide mass movement of at least 8-10 years. Given the undesirability of the former and the unlikelihood of the latter, it's most productive to think of the Beveridge Model in terms of what can be gained from it.

So while opponents of socialized medicine can rest easy, there are nonetheless lessons to be drawn from the Beveridge countries:

• The value of a national health policy to provide guidelines and direction for federal response to national health issues
• The importance of a strong public health program (at all levels of government) to preventive health and reduced costs
• The key role of primary care, again in prevention and efficient allocation of health care resources

Later, HealthMatters will look in detail at the health care systems of Beveridge Model countries.

How Much Money Do You Spend On Health Care?

The per capita annual income of the United States is $44,070. Of that, $6,174 goes to health care expenses, meaning that the average American spends 14.3% of his or her income on health care. This can come in many forms: co-pays, Medicare withholding, deductibles, out-of-pocket expenses, and tax subsidies for employer-based health insurance.

As a point of comparison, consider the averages of six of the Beveridge Model nations. (I've excluded Cuba, Hong Kong, and Norway: Cuba has a command economy and so is not comparable; Hong Kong is an outlier; and Norway's nationalized petroleum helps fund its social services.) As a group, Denmark, Finland, Great Britain, Italy, Spain, and Sweden have an average per capita income of $37,222. Of that, $3,031 goes to health care, meaning that the residents of these countries spend 8.1% of their incomes on health care (including the tax burden).

Six Bismarck Model nations (Belgium, France, Germany, Japan, Netherlands, Switzerland) have an average annual per capita income of $35,067, with $3,379 going to health care (9.6%). (Keep in mind that there are more than six Bismarck model nations.)

So, if the average American per capita expense on health care was 8.1%, as it is in Beveridge model countries, he or she would spend $3,570 on health care for a savings of $2,604 person. For a family of four, that's over $10,000 a year. For the economy as a whole, that's about $786B per year that is arguably being spent unnecessarily and unproductively.

If the average American per capita health care expense was 9.6%, as with the Bismarck model countries cited here, he or she would spend $4,230 annually for a savings of $1,944, or nearly $8,000 annually for a family of four and $583B for the economy as a whole.

Another way of looking at it is to compare per capita incomes before and after health care expenses:

United States: $44,070/$37,896

Beveridge: $37,222/$34,191

Bismarck: $35,067/$31,688

None of this is intended as an endorsement of either model. But it illustrates the impact that reducing the per capita health care expense from 14.3% to 10% would have: A family of four would have an additional $7,000 a year to save, buy food and clothes, travel, or enjoy family activities. Moreover, 10% is a completely reasonable goal: It's still higher than almost every other country in the developed world. 

The Big Four

The nations of the world have coalesced around four approaches to delivering health care:

• The Beveridge Model, wherein the government owns and operates health care. Cuba, England, Hong Kong, Italy, Spain, and the four Scandinavian countries all provide health care via the this model, which is named for the British reformer who designed the parameters of Britain's welfare state. Beveridge Model systems are characterized by their commitment to public health and primary care, as well as efficiency. Also known as single payer, the Beveridge Model is the embodiment of socialized medicine
• The Bismarck Model, wherein all residents of a country are required to have health insurance and insurance companies are required to sell it to them. France, Germany, and Switzerland and most countries of western Europe operate under this model (as does Japan), named for the German chancellor who designed it in the 19th Century. Insurance can be profit, non-profit, or both (depending on the country); individual or employer driven. In any case, the insurance and health systems of Bismarck countries are tightly regulated. Bismarck Model nations often have advanced systems of health information technology.
• The National Health Insurance Model, wherein each resident pays into a government run insurance program that compensates private-sector providers. As the sole insurer, the government has a powerful negotiating role with providers and pharmaceuticals. Canada, Taiwan, and South Korea provide national health insurance.
• The Out-of-Pocket Model, wherein access to health care depends on the individual ability to pay. All undeveloped, non-industrialized countries must resort to this approach, as they have neither the resources nor the infrastructure to adopt the Beveridge, Bismarck, or NHI models.

As you can tell, the United States has a bit of all four. VA health care is government-owned and -operated (Beveridge); most Americans get insurance through employment and will soon have it mandated (Bismarck); most Americans pay into Medicare (NHI); and the uninsured and underinsured look to their own devices (Out-of-Pocket).

HealthMatters will examine each of the first three models, covering their implementations in different countries and pointing out the tradeoffs that each country makes.

One Man's Agenda 1, Honest Debate 0

In his column today, New York Times columnist David Brooks writes:

But it should be possible to strengthen the safety net while modernizing some of the Great Society structures. Paul Ryan, a Republican, and Alice Rivlin, a Democrat, have come up with a Medicare reform plan in which new enrollees would receive a fixed contribution from the government, growing a bit faster than inflation. They would apply that money against the cost of health insurance. This would make Medicare a defined contribution program and save hundreds of billions. If Obama said he was open to thinking about this sort of fundamental reform, he'd generate tremendous excitement on the right.

Medicare inflation is a Titanic burden on the health care system and on the overall economy. It must be addressed, and one way to start is with an honest presentation and not an ingenuous sales job. Unfortunately, Mr Brooks' remarks are closer to the latter.

You may well believe that the Ryan plan is the best way to curb Medicare costs: It would likely save billions of dollars, would offer the benefits of portability, would force greater consumer involvement in health care choices, and would limit the health care role of government to that of financier. If you do advocate Rep Ryan's approach, then you also know that the vouchers are scheduled to take effect in 2021 based on 2010 dollars. You are also aware that while they are indeed indexed to a rate above general inflation, they are also indexed at a rate below the higher rate of medical inflation. The idea is to provide momentum to reign in Medicare costs, but it requires elders to increasingly bear the risks of success or failure. That is the actual crux of the question about the Ryan plan: We can save billions of dollars, but who bears the cost and the risk? And is the answer to that question acceptable? What are the alternatives? Many advocates of the Ryan plan are prepared to discuss these questions honestly, but unfortunately one of the leading columnists in the country is not.

If we're to accomplish anything, we must debate health care proposals based on their actual content, not on what sounds most inviting. Mr Brooks has failed to contribute to that debate.

At What Cost Is The Right to Know?

Gina Kolata writes in the New York Times that new tests have raised an ethical dilemma for physicians: Should they notify patients who do not have Alzheimer's that they are at risk for the disease?


Ms Kolata's article implies another dilemma as well: Should the tests be performed at all?  Should we be spending hundreds of thousands of dollars on procedures and tests for a condition that has no cure, that can eventually be diagnosed without the tests, and when not everyone who receives them descends into Alzheimer's? Americans and their physicians have become addicted to the latest diagnostic technology, and yet our healthy quality of life is no better -- and in many cases worse -- than the citizens of other wealthy economies. Our costs, though, are staggering -- nearly double those of some of the same countries.


Moreover, whether by design or economic imperative, the United States has chosen to invest in secondary and tertiary care at the expense of primary care and public health. At some point, dollars spent on specialty care negatively impact the savings and improved health from the preventive medicine made possible by primary care and public health policy. Is the detection of a predisposition to early Alzheimer's worth that?

That patients should live with uncertainty is a frightening thing. But so are the crushing health and economic burdens of overtreatment and inadequate investments in primary care and public health.

Where It All Began

Justin Kimball

In 1929, Justin Kimball, then a vice president of the Baylor University medical extensions in Dallas, reflected on a pile on unpaid hospital bills, many of them from teachers. He proposed a prepaid plan wherein for $6 a year, Dallas teachers would receive up to 21 days of hospitalization. The idea proved popular, and soon 75% of Dallas teachers were enrolled. From this modest beginning, the American health insurance business took root.

Meanwhile, the ravages of the Great Depression influenced New Deal policy makers to urge President Franklin Roosevelt to propose a national policy of guaranteed health care. But Roosevelt's attention was preoccupied with other legislative priorities and with conducting World War II. Moreover, he shied away from battles with the American Medical Association and southern segregationists, who feared that a national plan would lead to integrated hospitals.

Harry Truman, Roosevelt's successor, felt a stronger commitment to guaranteed health care and made it a central platform of his remarkable reelection campaign in 1948. But after Congress rebuffed an initial effort, Truman set health care reform aside in favor of other priorities. Still, he had proven its resonance as a political issue, so much so that the next president, Dwight Eisenhower, searched for a public-private alternative to the federal program he feared was coming.

Eisenhower could never make a public-private plan pencil out, but he did articulate a conservative alternative for health care reform. More importantly, he signed the Revenue Act of 1954, which formalized a wartime regulation making employer-provided health care expenses tax deductible. Employer-provided insurance became a cornerstone of compensation, and by the end of the decade more than 50% of Americans had health insurance coverage.

Two groups, though, did not: the elderly and the very poor. In 1962, John Kennedy sought to change that, undertaking a national crusade for Medicare legislation that was unable to surmount Congressional opposition. Kennedy lacked the legislative skills necessary to pass Medicare, but Lyndon Johnson did not. With his able guidance, Medicare/Medicaid became law in 1965.

Liberals, led by Senator Edward Kennedy, continued to pursue a single national health program for all. Seeking to blunt their momentum, Richard Nixon advocated a public-private partnership based on the emerging concept of managed care. Watergate weakened Nixon politically, and Kennedy would later regret not having allied himself with Nixon on this issue.

Kennedy's primary defeat by Jimmy Carter and Ronald Reagan's subsequent election spelled the end of the liberal push for national health insurance or a single-payer system. Bill Clinton's complex effort, which collapsed under its own weight, contemplated neither. Republicans had prepared an alternative approach based on mandates, but pulled it once it became apparent that the Clinton plan would not succeed.

The presidency of George W. Bush saw passage of Medicare Part D, which offered prescription drug coverage through a public-private mechanism. Though complex and unfunded, Part D proved popular despite its inadvertent creation of a "doughnut hole," which left uncovered a middle tier of expenditures. Meanwhile, in 2006, Massachusetts Democrats teamed with Republican governor Mitt Romney to pass a law requiring all residents to obtain state-regulated minimum coverage.

In 2009, President Barack Obama proposed what in became 2010 public law 111-148, also known as the Patient Protection and Affordable Care Act. Health Matters will review the ACA in detail; for now, it is enough to say that it stems from the public-private values originally envisioned by President Eisenhower, that it tracks closely to the Massachusetts law, and that -- ironically -- it takes advantage of policy alternatives proposed by Republicans in the 1990s.

Unfortunately, opposition to ACA concentrated on defeating political adversaries; as the war of words escalated, the quality of the discourse degenerated and the country missed a chance to debate health care reform in meaningful terms. It is not true, for example, that the ACA funds death panels, nor is it socialist. (There is a such thing as socialized medicine; the ACA isn't it.) It is also not the case that the leading conservative alternative to the ACA amounts to "get sick and die."

America needs an honest debate about health care reform: The stakes are high and the issues are so complex that it makes no sense to discard tools and alienate each other on the basis of ideology. After all, we'll all need health care eventually, and we want the health care that we get to be both affordable and good. Unfortunately, today there is no guarantee of that despite the best efforts of dedicated, highly trained doctors and nurses with access to world-class health care technology.

That must change.