Princeton economist Uwe Reinhardt is well known as one of the bluntest—and wittiest—critics of U.S. Healthcare. Last week, we both spoke at a conference organized by Princeton’s Policy Research Institute on “Access to Universal Health Care: New Jersey, the Nation and the Globe. As usual, I learned something from Professor Reinhardt.
Earlier this year, New Jersey Governor Jon Corzine received a somewhat startling letter from Princeton economist Uwe Reinhardt. The missive was appended to a report from the “New Jersey Commission on Rationalizing Health Care Resources,” a Commission that Corzine had asked Reinhardt to chair.In the letter, Reinhardt expresses “some personal observations on the inconsistent expectations Americans have of their health system,” describing “these inconsistencies” as “a form of cognitive dissonance.” Reinhardt goes on to explain that, in his view, these inconsistencies reflect “certain deeply ingrained traits in American culture that stand in the way of a rational health care system.”He concludes: “In short, Governor Corzine, in my professional view, the extraordinarily expensive, often excellent just as often dysfunctional, confused and confusing American health system is a faithful reflection of the minds and souls making up America’s body politic.”After reading the letter, Governor Corzine had one question: “You’re not going to publish this in the report, are you?”
In fact, the letter did appear at the front of the report. And last week, at a conference on “Access to Universal Health Care: New Jersey, the Nation and the Globe” sponsored by Princeton’s Policy Research Institute, Reinhardt circulated said letter. It served as a good companion to Reinhardt’s speech, which compared what we euphemistically call our health care “system” to systems in other parts of the world.
Reinhardt began his talk by considering the fact that, in the U.S. insurance is often tied to one’s job. “No one –in his wildest dreams—Drunk!!—would design a health care system based on employment,” Reinhardt declared, barely containing his outrage at such a truly bone-headed idea. After all, the unintended–but inevitable– consequence of an employer-based system is this: if you lose your job, you also lose your health insurance—at exactly the worst possible time.
In his letter to Corzine, the Princeton economist elaborates: “the reluctance of Americans to countenance government financing of health care outright…has led them instead to prefer inherently temporary private health insurance tied to a particular job with a particular company (and then to look helplessly for rescue by federal or state governments, when, in their 50s and early 60s, they may find themselves structured out of their jobs and the health insurance that came with it and unable to afford coverage in the private insurance market for individuals). When,” he asks, “will it dawn on the American voter that, in an age of fierce global competition and ever novel disruptive technology, any individual American corporation is a fragile institution and, at best, a highly unreliable source of health insurance…?” This is especially true for those forced into early retirement.
Reinhardt is right. A great many Americans do not want “Big Government” interfering with their health care. Unless they lose their insurance and then they expect “their government” to bail them out.
In theory, our government will come to your rescue if you’re poor enough, offering Medicaid and SCHIP to millions of families and children who simply do not have the money to purchase their own health insurance. We take care of our poor—or at least that is what we like to tell ourselves.
In fact, Reinhardt points out, a 2008 brief by the National Institute for Health Care Management Foundation reveals that 12 million Americans who are uninsured are eligible for public programs—but are not enrolled. Of these, more than half are children.
Why aren’t they enrolled? In many cases, the application process is filled with roadblocks which can include 14-page application forms.
“And this is deliberate,” Reinhardt added, quoting a Harvard economist who has suggested that “the way to manage entitlement programs is to harass people.”
The problem, Reinhardt explains in his letter to Corzine, is that we are of two minds about providing care for the poor. While “many Americans do believe that health care is a social good that should be available to all socio-economic classes on roughly equal terms…just as many other Americans believe that health care is essentially a private consumer good—like clothes, food and shelter—whose procurement and financing is primarily the individual’s responsibility, and they routinely (and quite incorrectly) deride the former school of thought as ‘socialists.’”
The way we pay health care providers who take Medicaid patients illustrates just how conflicted we are. Doctors who treat these patients are paid much less then they would be if they were treading Medicare patients. In other words “Americans tell providers that the value of their work is lower when applied to uninsured patients or to patients insured by Medicaid.” Reinhardt observes. As a result, Medicaid patients often have difficulty finding a provider. A 2007 study published by the Commonwealth Fund reports that when Community Health Centers (CHCs) try to refer Medicaid patients to a specialist for “high tech services,” 16 percent of those patients “never” or “rarely” are able to obtain access. When it comes to Medicaid patients referred by CHCs for hospital admission, nearly 12 percent find the door blocked.
This is the legacy of racism. As Henry J. Aaron and Jeanne M. Lambrew point out in Reforming Medicare: Options, Tradeoffs and Opportunities, Southern Congressmen refused to vote for the 1965 legislation that created both Medicare and Medicaid if physicians and hospitals were going to be paid as much to treat the poor as they were paid when treating the elderly. These Congressmen wanted to preserve medical apartheid. (Most Southerners over the age of 65 were white: a combination of poverty and a lack of healthcare ensured that few African-Americans lived that long.) Ultimately President Johnson had no choice but to cave to the legislators’ demands. What is both shameful and startling is that forty-three years later, this wrong still has not been righted.
But, as Reinhardt notes in his letter, our feelings are confused on this issue. Thus, even while signally to providers that we don’t value their work as highly when they are treating the poor, we don’t want to make the distinction explicit.
“A ‘rational’ health system responsive to this powerful economic signal [of lower pay for Medicaid providers] would be openly two-tiered,” Reinhardt writes in his letter to Corzine, “with bare-boned facilities devoted strictly to Medicaid patients and the uninsured…and much more luxurious, better equipped and better staffed facilities for commercially insured patients whose insurers are willing to pay higher fees.”
But in the U.S. a “citizenry which signals its preference for a class-based health system through the payment mechanism, soothes its conscience by holding physicians and hospitals to strictly egalitarian standards when it comes to the treatment of patients of all socio-economic classes.”
Since this is an unfunded mandate, many doctors reject all Medicaid patients; others take only a few. Hospitals, too, have found ways to avoid charity cases, “stabilizing the patient” who stumbles into the ER, as the law demands, but refusing to admit him as an outpatient so that he can receive the services the ER doctor recommends.
In other countries, where there is widespread agreement that equal healthcare for all is a right, our sharply tiered system is viewed as unacceptable. “If you want to kill a health care proposal, whether in Taiwan or Germany” Reinhardt told his audience last week, “all you need to say is, ‘if you do this, you’ll wind up with the U.S. system.’ It’s amazing,” he mused, “how they manage to avoid adopting ‘the best health care system in the world.’”
Why don’t we just raise fees for Medicaid providers? “We would have to pay higher taxes,” says Reinhardt. “We can’t have the Chinese temporarily pay for it” (the way China and other countries fund so much of our deficit spending by buying our bonds.)
When we try to think about health care markets and regulation, we also experience “cognitive dissonance.” For many Americans, Reinhardt notes, “it is an article of faith that private commercial markets are inherently more efficient than government will ever be. At the same time…the same Americans seem troubled and unwilling to accept for health care—and now even for mortgages—the harsh verdicts of the ‘free markets’ among which are:
(1) That a market allocates resources not to individual most in need of them, but to those who have the most money to bid high prices for them.
(2) That individuals or institutions, including hospitals, unable to fend for themselves in the competitive market’s free-for-all—among them hospitals in low-income neighborhoods—should be allowed to wither away; and
(3) That in the free-for-all of the marketplace, not only the quick-witted and better-informed, but also the morally more flexible participants often will take advantage of less quick-witted and less well-informed market participants who are naive enough to trust the morally flexible.”
Free market enthusiasts often speak as if “the market” is a benign intelligence, hovering over the marketplace to ensure that gains and losses are fairly distributed. In fact, the market is not fair—nor is it unfair. It is amoral, totally indifferent to whether individuals are getting their just desserts. The most virtuous man may lose the roll of the dice by investing too early, or too late. Often he is duped by those Reinhardt describes as “morally flexible,” truly believing that his mortgage broker has his best interests at heart. When it comes to healthcare, a seven-year-old who needs a $100,000 cancer drug may not get it; if an 89-year-old has the cash, the drug is his.
Because most Americans are unwilling to accept what Reinhardt rightly describes as “the harsh verdicts of the market,” they believe that the government should protect the weak. On the other hand, they don’t want the government to disrupt free markets which, they insist, are “efficient.” The result, says Reinhardt, is “a bewildering system of half-hearted competition and half-hearted regulation” of health care.
When it comes to health insurance, Reinhardt writes, once again “confusion reigns.” On the one hand, “many Americans decry as outright un-American the idea of mandating the individual to procure adequate health insurance coverage for at least catastrophically expensive care.” Those same youthful libertarians, however, would “bristle at the idea that…a hospital should have the right to withhold from them for want of ability to pay, costly life-saving medical interventions, should [they] be seriously injured or become critically ill…These unfunded mandates on hospitals effectively ask hospitals to provide uninsured individuals with the catastrophic health insurance they are free not to procure, at the expense of insured patients…”
“Just as inconsistently,” Reinhardt notes, many Americans believe that insurers have no right to refuse to sell insurance to individuals suffering from “pre-existing conditions.” Everyone has a right to buy insurance, they say. But many of these Americans also believe that the government has no right to insist that everyone purchase insurance. We should be able to wait until we are sick, and then buy insurance when we need it.
Of course if everyone followed this rule, only the sick would purchase insurance and it would become exorbitantly expensive. This is precisely what happened in New Jersey when, as part of the “New Jersey Individual Health Coverage Program,” the state passed legislation requiring that insurers sell policies to everyone in a given community at the same price. After the law was passed in 1993, more and more healthy individuals decided to forego insurance. They would buy it when they became ill, secure in the knowledge that insurers would have to sell it to them. As a result, Reinhardt observes, enrollment inNew Jersey’s Individual Health Coverage Program plummeted. In 1995 186,130 New Jersey citizens had been enrolled in the program; nine years later 84,968 were covered—and since so many were sick, premiums had spiraled two to three-fold.
New Jersey’s experience illustrates why we cannot insist that insurers sell policies to everyone, young or old, sick or healthy at a reasonable price—unless we also insist that everyone must join the pool by purchasing a policy. Only then will insurance be affordable.
In other words, markets need rules. But before we can draw up regulations, we have to agree on our goals. If we, as a nation, believe that health care is not a right, but a consumer good, then a multi-tier system makes sense. But we should be honest about this and say the poor deserve only so much care—and no more.
Alternatively, if we agree with the Supreme Court of Taiwan, which has ruled that healthcare is a “right”—a pure social good, to be available to all on equal term—then we all must contribute, based on our ability to pay, to a insurance pool that provide equal protection for all citizens.
Until we do this, true health care reform will remain a figment of our collective but deeply divided American imagination.
Maggie Mahar is an award winning journalist and author. A frequent contributor to THCB, her work has appeared in the New York Times, Barron’s and Institutional Investor. She is the author of “Money-Driven Medicine: The Real Reason Why Healthcare Costs So Much,” an examination of the economic forces driving the health care system. A fellow at the Century Foundation, Maggie is also the author the increasingly influential HealthBeat blog, one of our favorite health care reads, where this piece first appeared.