Wednesday, December 13, 2006
THE RISE of inequality over the past generation calls for a rethinking of tax and education policies, as earlier editorials in this series have said. But it also calls for reform of the health system. Because of a historical accident -- wage controls during World War II drove employers to compensate workers with perks such as medical insurance -- the health system is tied to corporations. This exacerbates inequality.
In most countries, rising medical costs are shouldered by taxpayers. Because tax systems are progressive, this means that the extra cost is borne by those who can afford it. But in the United States, where health spending per person has doubled since 1975 (after adjusting for inflation), the non-poor and non-elderly are expected to pay their own way. This is most clearly the case for Americans who lack a company health plan and must pay directly out of pocket. It's increasingly the case for Americans who have corporate coverage that comes with high deductibles and co-payments. But even workers who have generous, all-you-can-eat health plans end up paying indirectly, since their wages are held down to offset the cost of the plans.
This individualistic system goes a long way toward explaining the "middle-class squeeze" so frequently invoked on the campaign trail. Workers' total compensation may be rising, but health benefits gobble up an increasing share of that, so wages lag. Equally, out-of-pocket medical expenses are believed to cause at least 425,000 bankruptcies annually, and one in six working-age adults carries medical debt.
The U.S. health system distributes risk as unforgivingly as cost. Because health care comes courtesy of the human-resource policies of big companies, anyone who gets pushed out of a big company may lose coverage. According to Yale's Jacob Hacker, 82 million people, or one in three non-elderly Americans, went without health insurance at some point during the two years beginning in 2003. As more companies drop coverage, the prospect of losing health care will be a growing source of anxiety for all but the most financially secure Americans. This will reduce people's willingness to change jobs or set up their own ventures. The flexibility of the workforce, one of this nation's traditional economic trump cards, may be compromised.
HOW TO DEAL with the twin problems of insecurity and squeezed pay? The answer starts with a fix for the insurance market that serves individuals and small firms. As health insurance has grown more expensive, young and healthy individuals, or small firms that employ mainly young and healthy individuals, have chosen to go without coverage. As low-cost patients leave the insurance pool, health plans are left with older, sicker people, which forces them to raise premiums further -- which in turn drives more young and healthy workers to exit. Because of this vicious cycle, health insurance for individuals and small firms has become prohibitively expensive. Even among workers earning the median wage or higher, an astonishing 19 percent of 35- to 44-year-olds lack insurance, a near doubling of the percentage in 1979.
The best-known solution to this problem is the Massachusetts health reform, enacted earlier this year. This approach prevents healthy individuals from dropping out of the insurance pool by mandating that everyone buy coverage; it promotes affordability by subsidizing individuals who are at or below 300 percent of the poverty line; it ensures that coverage is available by allowing people to buy into the plans that are currently offered to Medicaid patients. There are other ways to achieve the same objectives. Rather than mandating individual coverage, taxpayers could cover part of the cost of insuring sick individuals, thereby driving premiums down and enticing healthier people to buy insurance. Rather than allowing individuals to buy into Medicaid, states could invite them to buy into the health plans that are offered to state employees. Whatever the precise formula, some fix for the insurance market should be adopted by all states. Or it could be done nationally by allowing people to buy into Medicare or into the health system for federal employees.
This reform would make insurance available for everyone. It should be affordable: The current system, in which 47 million go without insurance, is wasteful as well as shameful because it obstructs the use of cheap preventive medicine and funnels people into expensive emergency rooms.
But promoting universal insurance may be easier than reining in the costs that cause the middle-class pay squeeze. However strange it is that health care should have grown out of corporate compensation policies, switching to an entirely tax-financed system (euphemistically known as "single-payer") may be politically infeasible at this point. The challenge is to graft cost-cutting reforms onto the public-private jumble that is the U.S. system.
The Bush administration's approach is to turn patients into cost-conscious consumers by steering them into high-deductible plans. The idea is that when people pay out of pocket for health care, they will refuse to overpay for it; witness the dramatic fall in the price of procedures that insurance does not cover, such as Lasik eye surgery. But this approach has a cost -- it shifts more risks directly onto individuals -- and the benefit is smaller than advertised. Consumers can't be expected to start researching which doctors offer good value for the money when they face a medical emergency, and emergencies account for a large chunk of health spending. Besides, major medical events are likely to cost more than the deductibles of even high-deductible policies, so patients would still have little incentive to shop carefully for surgery and other big-ticket procedures.
SO A SHIFT to out-of-pocket spending can only discipline medical costs up to a point. A better approach is for insurers to take the lead on price discipline. Back in the 1990s, this meant health maintenance organizations crudely denying care and turning themselves into pariahs. But the cost containment of the future could be smarter and more palatable if government encouraged doctors to maintain electronic records.
Consider one cost in the system: the overuse of diagnostic tests. At present, doctors order these tests because they perceive (maybe wrongly) little medical downside to doing so; insurers resist them because they are expensive. But if detailed patient records allowed researchers to measure the benefits of doing tests on certain types of patients, this dispute could be resolved intelligently. Data on millions of cases, stripped of personal information to protect privacy, could show whether patients with herniated discs gain anything from MRIs, or whether whole-body CAT scans achieve anything. Equally, the data could show which sorts of patients benefit from a brand-new anti-inflammation drug and which will do fine on cheap ibuprofen. In this way the medical system could switch from the indiscriminate use of expensive new technology to a more targeted approach based on evidence.
The health system is a huge problem in its own right, irrespective of inequality. The United States spends almost twice as large a share of its economy on health care as do other rich countries, yet it still has lower life expectancy; it still has 47 million uninsured; and future health costs threaten crippling budget deficits. But the rise of inequality provides an extra reason to tackle the health challenge. Struggles with medical bills and fears of losing coverage are at the root of middle-class anxiety, and that anxiety creates pressure for misguided populist policies that would spread the dysfunction of the health system to the broader economy. So long as a third of the workforce lives in fear of losing access to doctors, nobody should expect the nation to believe that a rising tide is lifting all boats.
This is the eighth editorial in an occasional series on inequality. Previous editorials in the series can be found athttp://www.washingtonpost.com/inequality.