The Healing of America: A Global Quest for Better, Cheaper, and Fairer Health Care

by T.R. Reid

Government and academic studies report that more than twenty thousand Americans die in the prime of life each year from medical problems that could be treated, because they can’t afford to see a doctor. On September 11, 2001, some three thousand Americans were killed by terrorists; our country has spent hundreds of billions of dollars to make sure it doesn’t happen again. But that same year, and every year since then, some twenty thousand Americans died because they couldn’t get health care. That doesn’t happen in any other developed country. Hundreds of thousands of Americans go bankrupt every year because of medical bills. That doesn’t happen in any other developed country either.

Those Americans who die or go broke because they happened to get sick represent a fundamental moral decision our country has made. Despite all the rights and privileges and entitlements that Americans enjoy today, we have never decided to provide medical care for everybody who needs it.The far-reaching health care reform that Congress passed in 2010 is designed to increase coverage substantially—but it will still leave about 23 million Americans uninsured. Even when “Obamacare” takes full effect, the American health care system will still lead to large numbers of avoidable deaths and bankruptcies among our fellow citizens. As we saw in the national debate over that bill, efforts to increase coverage tend to be derailed by arguments about “big government” or “free enterprise” or “socialism”—and the essential moral question gets lost in the shouting.

The one area where the United States unquestionably leads the world is in spending. Even countries with considerably older populations than ours, with more need for medical attention, spend much less than we do. Japan has the oldest population in the world, and the Japanese go to the doctor more than anybody—about fourteen office visits per year, compared with five for the average American. And yet Japan spends about $3,400 per person on health care each year; we burn through $7,400 per person.

The leaders of the health care industry and the medical profession, not to mention the political establishment, have a single, all-purpose response they fall back on whenever somebody suggests that the United States might usefully study foreign health care systems: “But it’s socialized medicine!”

There are two basic flaws, though, in this argument. 1. Most national health care systems are not “socialized.”As we’ll see, many foreign countries provide universal health care of high quality at reasonable cost using private doctors, private hospitals, and private insurance plans. Some countries offering universal coverage have a smaller government role than the United States does. Americans switch to government-run Medicare when they turn sixty-five; in Germany and Switzerland, seniors stick with their private insurers no matter how old they are. Even where government plays a large role, doctors’ offices are operated as private businesses. As we’ll see in chapter 7, my doctor in London, Dr. Ahmed Badat, was nobody’s socialist; he was a fiercely entrepreneurial capitalist who regularly found ways to enhance his income within the National Health Service. Many countries have privately owned hospitals, some run by charities, some for profit; Japan has more for-profit hospitals than the United States. In short, the universal health care systems in developed countries around the world are not nearly as “socialized” as the health insurance industry and the American Medical Association want you to think.

So the problem isn’t “socialism.” The real problem with those foreign health care systems is that they’re foreign. That offends the mind-set—sometimes referred to as American exceptionalism—that says our strong, wealthy, and enormously productive country is sui generis and doesn’t need to borrow any ideas from the rest of the world. Anybody who dares to say that other countries do something better than we do is likely to be labeled unpatriotic or anti-American; I’ve run into that charge myself. Of course, this is nonsense. The real patriot, the person who genuinely loves his country, or college, or company, is the person who recognizes its problems and tries to fix them. Often, the best way to solve a problem is to study what other colleges, companies, or countries have done.And

THE BISMARCK MODEL This system—found in Germany, Japan, Belgium, Switzerland, and, to a degree, in Latin America—is named for the Prussian chancellor Otto von Bismarck, who invented the welfare state as part of the unification of Germany in the nineteenth century. Despite its European heritage, the model would look familiar to Americans. In Bismarck countries, both health care providers and payers are private entities. The model uses private health insurance plans, usually financed jointly by employers and employees through payroll deduction. Unlike the U.S. health insurance industry, though, Bismarck-type plans are basically charities: They cover everybody, and they don’t make a profit. The doctor’s office is a private business, and many hospitals are privately owned. Although this is a multipayer model (Germany has more than two hundred funds), tight regulation of medical services and fees gives the system much of the cost-control clout that the single-payer Beveridge Model (see below) provides.

THE BEVERIDGE MODEL This arrangement is named after William Beveridge, a daring social reformer (we’ll meet him in chapter 7) who inspired Britain’s National Health Service. In this system, health care is provided and financed by the government, through tax payments. There are no medical bills; rather, medical treatment is a public service, like the fire department or the public library. In Beveridge systems, many (sometimes all) hospitals and clinics are owned by the government; some doctors are government employees, but there are also private doctors who collect their fees from the government. These systems tend to have low costs per capita, because the government, as the sole payer, controls what doctors can do and what they can charge. Countries using the Beveridge Model, or variations on it, include its birthplace, Great Britain, as well as Italy, Spain, and most of Scandinavia.

THE NATIONAL HEALTH INSURANCE MODEL This system has elements of both Bismarck and Beveridge:The providers of health care are private, but the payer is a government-run insurance program that every citizen pays into. The national, or provincial, insurance plan collects monthly premiums and pays medical bills. Since there’s no need for marketing, no expensive underwriting offices to deny claims, and no profit, these universal insurance programs tend to be cheaper and much simpler administratively than American-style private insurance. As a single payer covering everybody, the national insurance plan tends to have considerable market power to negotiate for lower prices. NHI countries also control costs by limiting the medical services they will pay for or by making patients wait to be treated. The paradigmatic NHI system is Canada’s; its universal application and its equal treatment for all satisfy Canada’s national sense of community. Australia and some newly industrialized nations, including Taiwan and South Korea, have adopted variations on the NHI model.

THE OUT-OF-POCKET MODEL Only the developed, industrialized nations—perhaps forty of the world’s two hundred countries—have any established health care payment systems. Most of the nations on the planet are too poor and too disorganized to provide any kind of mass medical care. The basic rule in such countries is simple, and brutal: The rich get medical care; the poor stay sick or die. In poor countries, the well-to-do and the well-connected, such as government officials, can usually find a doctor and pay for care, at least in the big cities. In rural regions of Africa, India, China, and South America, hundreds of millions of people go their whole lives without ever seeing a doctor. They may have access, though, to a village healer (such as the one we’ll meet in chapter 9) who practices traditional medicine using home-brewed remedies that may or may not be effective against disease.

THESE FOUR MODELS SHOULD be fairly easy for Americans to understand, because we have elements of all of them in our convoluted national health care apparatus: • For most working people under sixty-five, we’re Germany or Japan. In standard Bismarck Model fashion, the worker and the employer share the premiums for a health insurance policy. The insurer picks up most of the tab for treatment, with the patient either making a co-payment or paying a percentage. • For Native Americans, military personnel, and veterans, we’re Britain, or Cuba. The VA and much of the Pentagon’s Tri-Star system involve doctors who are government employees working in government-owned clinics and hospitals. Following the Beveridge Model, Americans in these systems never get a medical bill. The Indian Health Service also provides free care in government clinics. • For those over sixty-five, we’re Canada. U.S. Medicare is essentially a National Health Insurance scheme, with the near-universal participation and the low administrative costs that characterize such systems. Americans with end-stage renal disease, regardless of age, are also covered by Medicare; this group had enough political clout to get what it wanted from Congress, and the “dialysis community” opted for coverage under the government-run NHI system. • For the 45 million uninsured Americans, we’re Cambodia, or Burkina Faso, or rural India. These people have access to medical care if they can pay the bill out of pocket at the time of treat...

Many Americans are worried that a national health care system with universal coverage would be an expensive proposition for the United States. In fact, a better-organized system, covering everybody, would almost certainly cut our health care costs—after all, every other rich nation’s health care system is cheaper than ours. Americans also tend to believe that the private sector can run a medical system for less money than government can; all the evidence from around the world suggests the opposite.

ONE OTHER CONSTANT I found under all models is that every country on earth faces difficult problems in providing medical care to its people. Nobody’s system is perfect. There are health care horror stories in every wealthy country—and they’re true. All national health systems, even those that do their job well, are fighting a desperate battle these days against rising costs.

Bitter contention over health care and its financing is so common nowadays that the American economist Tsung-Mei Cheng has formulated, with tongue only partly in cheek, the Universal Laws of Health Care Systems: 1. “No matter how good the health care in a particular country, people will complain about it.” 2. “No matter how much money is spent on health care, the doctors and hospitals will argue that it is not enough.” 3. “The last reform always failed.”3

In any case, the big money providers earn is not the major cause of high medical spending in the United States. Most economists who study this question have concluded that lower fees and prices would save Americans something, but not much. If we cut the average American physician’s pay to European levels, and told the drug companies they can’t charge more for Lipitor in the United States than they do in the UK, there would be savings, but not nearly enough to bring our medical spending down to the levels in the rest of the developed world.

Rather, the major reasons our national medical bill is so much higher than any other country’s are two things that the United States does differently from every other country: the way we manage health insurance and the complexity of our health care system.

A private health insurance plan, funded by payroll withholding, that pays doctors and hospitals directly on a fee-for-service basis—that’s the classic Bismarck Model, and it sounds very much like American-style employer-based medical insurance. But the German version of Bismarck is different in three fundamental ways: 1. First and foremost, the sickness funds are nonprofit entities; they exist to pay people’s medical bills, not to pay dividends to shareholders. Thus, they don’t have the same incentive that the U.S. insurance industry has to limit the people they cover or to deny claims; in fact, the German insurance plans are required to accept all applicants and to pay any claims submitted by a recognized doctor or hospital. They don’t have to pad their premiums to pay for a claims-review bureaucracy or to allow for profit. The result: The sickness funds have about one-third the administrative expenses that are normal in American health insurance. That makes the whole German insurance system much cheaper. 2. While insurance is purchased and paid for through payroll deduction, Germans don’t lose their coverage when they lose their jobs. Government unemployment benefits automatically cover the insurance premium, so the worker has the same insurance coverage while he looks for a new job—no matter how long it takes to find one. 3. Unlike American workers, who are restricted to the limited selection of insurance plans offered by their employers, Germans can sign up with any si...

Among health care economists, the consumer’s free choice of any insurance plan, and the resulting competition among the insurers, is one of the most admired features of the German system. “Americans tend to think that the profit motive is the only driver of competition,” Karl Lauterbach, a German economist who won a seat in the Bundestag, the national parliament, told me. “But our Krankenkassen compete because the executives earn more money, and higher prestige, if they have a larger pool of insured members. So we have universal coverage, and nobody can be turned down because of a preexisting illness.You have the required package of benefits, so the insurer can’t deny a claim for any covered treatment. And then you have this competition to attract more customers.”

In that crowded, dingy, but ever-so-polite clinic, I saw both sides of Japanese medicine. There was instant access to fine doctors, a considerable range of choice for the patients, and a private insurance system that seemed to cover just about everything. There was also a sense of a medical infrastructure that was overstretched and pinching pennies. In a sense, that makes Japanese medicine the mirror image of America. Our country spends too much on health care and gets too little in return; Japan gets lots of health care but probably spends too little to make its excellent system sustainable.

Finally, the NHS controls its budget by controlling the range of medications, tests, and procedures it will pay for. This kind of “rationing” takes place in every health care system; in the United States, such decisions are generally made in private, by insurance companies. But in Britain, with a public health care system that is a constant focus of public attention, the decisions about what treatment will be available—decisions that are literally life-and-death choices for many patients—are public. Should a ninety-four-year-old patient get a hip replacement? Should every man over fifty get a blood test for prostate cancer? Should a terminal cancer patient get the newest experimental treatment, because it just might work? Should a healthy reporter who wants to play golf again be given a total shoulder arthroplasty? The government office that answers those questions in Britain is called the National Institute for Health and Clinical Excellence. Everybody knows the outfit, though, by its acronym, NICE.

On January 1, 1947, hospital care became free at the point of service for every resident of Saskatchewan. The system worked. Partly because many new doctors were moving to the province, partly because postwar hunger for Saskatchewan’s wheat crop helped fill the provincial treasury, there proved to be enough capacity and money to meet the soaring increase in medical demand. Government-funded medicine was so popular that Tommy Douglas, the head of a radical minority party, remained premier through five elections. Beyond its success in Saskatchewan, the Douglas hospital insurance plan had a powerful “demonstration effect” across Canada: If it could work in Saskatchewan, other provinces decided they could make it work as well. The hospital insurance system was eventually adopted in every province and territory.

The most distinctive lesson we could take, though, from Canada’s health care system is the key point of the Tommy Douglas saga: Universal health care coverage doesn’t have to start at the national level. Once Douglas established free hospital care in a poor rural province and made it work, the demonstration effect drove other provinces to do the same thing. And once Douglas established his taxpayer-funded Medicare system to pay all medical bills in the province, the demonstration effect quickly turned Saskatchewan’s idea into a national health care system that covers everybody. If one of our fifty states were to try the same thing and make it work, the demonstration effect could spread across the United States. And if that were to happen, it would bear out one of Tommy Douglas’s most famous predictions:“If people see that we can provide health care to all, free at the point of service, so that any person, rich or poor, can get the medical treatment he needs—if people elsewhere see that, they’ll want it, too.”

But the ambitious Clinton reform effort flopped; indeed, it never even came to a vote in Congress. There were several explanations for that defeat, ranging from Bill and Hilary Clinton’s political mistakes to the hidebound nature of America’s political institutions. But the most common theory about the failure of the Clinton reform plan—and of the Roosevelt, Wilson, Truman, and Nixon reform plans before it—involved the nature of health care itself. This line of analysis holds that the business of providing and paying for Americans’ medical care is so complex and involves so much money that significant change is politically hopeless. The arguments quickly focus on which interests might win and which might lose under a given plan. In the process, the basic moral question that should drive reform—do we want to give everybody access to health care?—gets swept aside.

To summarize what we’ve seen in this book, here are five common American myths about health care systems overseas: MYTH 1: “IT’S ALL SOCIALIZED MEDICINE OUT THERE.” This venerable notion has become such a commonplace in the United States that it transcends our nation’s political divide. Conservative think tanks and presidential candidates routinely declare that “European-style socialized medicine” cannot work in the capitalistic USA. On the left, producer Michael Moore made the same assumption in his satirical documentary Sicko—except Moore argued that foreign medical systems work better than ours because they’re all “socialized.” In fact, it’s not all socialized medicine out there. Most wealthy countries rely on private-sector mechanisms to provide and/or pay for health care. Indeed, some foreign health care systems are more privatized than ours.

As we’ve seen, the Beveridge Model countries (such as Britain, Spain, Italy, Cuba) do provide health care in government hospitals, with government paying the bills. This model, with government serving as both provider and payer, probably comes closest to the concept of socialized medicine that Americans have in mind. But even the Beveridge system isn’t fully socialist. The GPs in Britain, who provide most of the care, are private businesspeople—and they can be ferocious capitalists, like my stout, prosperous physician, Dr. Badat. The National Health Insurance countries (e.g., Canada, Taiwan) rely on private-sector doctors, hospitals, and labs but pay for their services through a government insurance plan. Public payment of private providers—should we call that semi-socialized medicine? The Bismarck Model countries (such as France, Germany, the Netherlands, Switzerland, Japan) offer universal coverage using private providers and private insurance plans—with government exercising various degrees of regulatory control over insurance coverage, pricing, and so on.

MYTH 2: “THEY RATION CARE WITH WAITING LISTS AND LIMITED CHOICE.” This common impression, too, runs counter to the facts. In many developed countries, people have quicker access to care and more choice than Americans do. Germans can sign up for any of the nation’s two hundred-plus private health insurance plans, a broader choice than any American has. If a German doesn’t like her insurance company, she can switch to another, with no increase in premium. The Swiss, too, can choose any insurance plan in the country. In France and Japan, you don’t get a choice of insurance company; you have to use the one designated for your company or your municipality. But you do get total choice of providers; patients can go to any doctor, any hospital, any traditional healer in the entire country. There are no American-style limits like an “in-network” list of doctors, or “preauthorization” by the insurance company. Every provider in the country is in-network and authorized.You pick the doctor, the hospital, the lab, or the spa of your choice, and insurance has to pay.

As for those notorious waiting lists, some countries are plagued by them. As we’ve seen in this book, Canada and Britain limit the number of specialists and operating rooms in the system to save money, with the result that patients wait weeks or months for nonemergency care. But other nations—Germany, France, Sweden, Denmark—perform better than the United States on standard measures such as “Waiting time to see a specialist” and “Waiting time for elective surgery.”

MYTH 3: “THEY ARE WASTEFUL SYSTEMS RUN BY BLOATED BUREAUCRACIES.” It seems natural to Americans that free enterprise and profit-driven markets are the most efficient way to provide goods and services. So it’s not surprising that Americans generally believe that that U.S.-style medicine—private-sector providers, financed by for-profit insurance—must be the most efficient way to provide health care. But this, too, turns out to be a myth. All the others systems in the developed world, public and private, are more frugal than ours. America’s for-profit health insurance companies have the highest administrative costs in the world. This is a major reason why we spend more for health care—and get less in return—than any other developed country. As we’ve seen, the estimates vary somewhat, but America’s health insurance industry spends roughly 20 cents of every dollar for nonmedical costs: paperwork, reviewing claims, marketing, profits, and so on. France’s private, but nonprofit, health insurance industry, in contrast, covers everybody but spends about 5 percent for administration. Canada’s universal insurance system, run by government bureaucrats, spends 6 percent on administration.As we learned in chapter 10,Taiwan adopted a leaner version of Canada’s National Health Insurance model for its national system. Taiwan’s government-run financing system has administrative costs under 2 percent.

MYTH 5: “THOSE SYSTEMS ARE TOO FOREIGN TO WORK IN THE USA.” I encountered numerous approaches to providing and paying for health care in the course of my global quest. But each of them fell into one of the four basic categories set forth in chapter 2. Far from being “foreign,” each of these systems is in use today in the United States. For veterans, active-duty military personnel, and Native Americans, we use the British model. For people over sixty-five, we’ve adopted the Canadian model (we even use the name for it that was coined by the socialist who invented the Canadian system: Medicare). For working people who get insurance through their employers, we’re a Bismarck country, like Germany or Japan. And for the tens of millions without insurance coverage, we’re just another Out-of-Pocket country. Of course the foreign models could work for Americans; they already do.

NONPROFIT FINANCING Another basic building block in the health care systems of every wealthy country—except the United States—is the principle that financing health care must be a nonprofit endeavor. There’s a crucial distinction between providing health care—what doctors, hospitals, labs, and pharmacies do—and financing health care. As we’ve seen around the world, most countries rely on free-market enterprise to provide health care—but not to pay for it. In the Beveridge Model nations and the National Health Insurance nations, health care finance is left to the government, through a mandatory national insurance scheme funded through general taxes, or through a dedicated tax just for health insurance. In the Bismarck Model, medical bills are paid by private but nonprofit insurance plans. In most countries an insurance company or sickness fund that runs a surplus at the end of the year has to redistribute that profit to the funds that lost money during that year.

The United States is the only nation that lets insurance companies extract a profit from basic health coverage. This is the explanation for Myth 4 above: Health insurance companies don’t have to be cruel to their customers if they don’t have to worry about paying dividends to investors. But insurance firms whose primary mission is to make a profit quickly realize that covering every applicant and paying every claim will eat into profits. So they deny coverage to those who need it most, reject claims by the bucketful, and search for ways to rescind coverage just when the big bills roll in. That’s why U.S. health insurance companies are loathed by their customers but loved on Wall Street. That’s why health care economists around the world say that there’s a basic conflict between the principle of health insurance and the pursuit of profit.

It may be possible to finance fair and cost-efficient health care for all through profit-making health insurance. It may be possible, but no country has ever made it work. For-profit health insurance clearly hasn’t worked in the United States, which spends more than any other country and still leaves millions without any coverage. And no other developed country wants to try it.

This realization helps us answer the question:Which problem should America tackle first? The various shortcomings of the U.S. health care system can be summarized in three words: cost, coverage, and quality. When we set out to fix our system, where should we start? At first blush, it might seem logical to go after health care costs first; once costs are under control, we could more easily afford universal coverage. But everywhere I went on my global quest, I was told that this approach gets things backward. Universal coverage has to come first. Universal coverage is an essential tool to control costs and maintain the overall quality of a nation’s health. Covering everybody in a unified system creates a powerful political dynamic for managing the cost of health care. Since the costs of medical care are rising around the world, every health care system has to find ways to limit expenses—either by limiting the procedures and medications it will pay for, or by cutting the price it pays for the procedures that are covered.

BEYOND THOSE PRACTICAL REASONS for universal coverage, of course, there’s the basic moral imperative. Does a wealthy country have an ethical obligation to provide access to health care for everybody? Do we want to live in a society that lets tens of thousands of our neighbors die each year, and hundreds of thousands face financial ruin, because they can’t afford medical care when they’re sick? This, of course, is the “first question” that Professor William Hsiao asks whenever he reviews a country’s health care system. And on this question, too, every developed country except the United States has reached the same conclusion: Everybody should have access to medical care. Having made that decision, the other nations have organized health care systems to meet that fundamental moral goal. If the United States made the same moral choice to provide universal coverage, then we, too could design a fair, efficient, and high-quality health care system for all Americans. And the principles we’ve learned from studying the other industrialized democracies will help us create that new health care system.