Single-Payer System: Is the Crystal Ball Any Clearer? March 14, 2006 Rick Mayes, Ph.D. Assistant Professor of Public Policy

2 Life’s Unavoidable Tradeoffs Individuals, families, organizations, companies, states, nations constantly strike balances between: Security and Freedom Egalitarianism and Individualism Every health care system has its strengths & weaknesses (“problems”).

3 Life’s Unavoidable Tradeoffs

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8 Health Care Spending as % of GDP, 2002 (in purchasing power parity - U.S.$) Source: OECD Data 2003

9 Why is the U.S. so Different from Other Countries?

10 Why is the U.S. so Different from Other Countries? “It’s primarily because of higher PRICES (less efficiency).”

11 The Uninsured, 15.6% of the U.S. Population (Census, 2005)

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13 Consequences: Care Postponed & Not Received

14 Extreme Consequences: Bankruptcy & Earlier Death 50% of uninsured patients have debts from previous medical care; a 1/3 rd are being pursued by collection agencies *Uninsured women with breast cancer are twice as likely to die as women with breast cancer who have health insurance. (Kaiser Commission, 2002) Men without health insurance are nearly 50% more likely to be diagnosed with colon cancer at a later, more dangerous stage than men with insurance. (Kaiser Commission, 2002) *Upwards of 750,000 families are bankrupted by medical debt each year, even though 80% of them have some form of health insurance; single largest cause of bankruptcy (Health Affairs, 2005).

15 Arnold and Sharen Dorsett with their children, Dakota, Zachery and Jessica, back. Though they had insurance, health-care costs for Zachery led the Dorsetts to file for bankruptcy this year. Nicole Bengiveno/The New York Times

16 Why no Universal Coverage in the U.S.? Popular explanations: -- it would be too expensive -- American welfare policy is too stingy -- traditional opposition by medical providers, particularly physicians (the AMA)

17 America’s “Accidental” Health Care System Critical Junctures & Tipping Points ↓ Increasing Returns ↓ Path Dependency

18 Critical Junctures & Tipping Points rare, often unpredictable, and hugely consequential for what comes after (e.g., QWERTY keyboard, VHS/Betamax, health epidemics) personal examples (e.g., college major)

19 Increasing Returns Each subsequent step after a critical juncture reinforces the initial event/decision due in part to large set-up or fixed costs (e.g., frequent flier-programs, entitlement programs: Medicare/Social Security) Momentum builds due to decreasing marginal costs and increasing benefits for continuing down the existing path. At the same time, increasing penalties and costs for exiting from the current path.

20 Path Dependency The benefits of sticking with a particular program or decision ultimately increase to the point that they virtually outweigh any dramatic departure. senior professors Vietnam Iraq

21 America’s “Accidental” Health Care System Truman and NLRB ruling in 1948 regarding collective bargaining famous GM-UAW 1948 contract

22 America’s “Accidental” Health Care System

23 One Problem with Employer-Provided Health Insurance It creates gaps!... for the unemployed and the elderly (classic market failures). Answer: build on the existing public social insurance program, Social Security… Medicare & Medicaid, 1965 Still took: (1.) the assassination of a President (JFK) (2.) a landslide Democratic victory in ‘64 (thanks to Goldwater), and (3.) a financial “deal” with the AMA and the AHA to pass Medicare.

24 One Problem With Medicare: Cost ($)

25 America’s “Accidental” Health Care System

26 Path Dependency and America’s “Accidental” Health Care System Clinton’s health reform effort in showed just how entrenched our patchwork system of health care is. Only 2 options available to Clinton: large income tax increase or employer mandate RESULT: health care in the U.S. is rationed ad hoc, person by person, child by child...

27 The Oregon Health Plan: Deliberative Rationing 1987: Death of 7-year old Coby Howard from leukemia 1989: Dr. John Kitzhaber, ER physician and President of the Oregon Senate advocated changing Medicaid 1991: “Prioritized List” of diagnoses & treatments 1994: Oregon Health Plan begins operation, adds 100, : sliding-scale premiums increased and new co-pays

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29 Two Major Developments Hindered Oregon’s Plan (1.) 2001 recession (2.) crystal-meth epidemic

30 State of U.S. Health Care System Since health insurance premiums have increased 73% ( versus 14% in general inflation and avg. wage growth ) - avg. cost of single coverage ($4,000 annually in 2005) - avg. cost of family coverage ($11,000 annually in 2005) The percent of companies offering health insurance to their workers has fallen from 69% in 2000 to 60% in 2005 ( 5.5 million working Americans have lost their coverage since 2000 )

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32 Segmentation of U.S. Health Care Increasing: CONCIERGE MEDICINE Patients like Ilse Kaplan, left, receive more personal attention from Dr. Bernard Kaminetsky in exchange for an annual fee of about $1,650.

33 Consumer-Directed Health Care & Health Savings Accounts

34 Term used to describe the paradoxical fact that insurance can change behavior of the person insured. example: employer-provided “donut” insurance or auto insurance avg. annual amount spent on medical care (by uninsured person) = $934 avg. annual amount spent on medical care (by insured person) = $2,347 Conclusion I: co-pays, deductibles, utilization reviews make patients use health care more “efficiently” (frugally, wisely, sparingly, etc.) Conclusion II: instead of expanding group health insurance, reduce it The “Moral Hazard” Argument Against Expanding Health Insurance Coverage

35 The “Moral Hazard” Argument Against Expanding Health Insurance Coverage Fallacy I: Moral-hazard argument only makes sense if we consume health care in the same way we consume donuts, car repairs or consumer goods. Fallacy II: Having to pay for your own care does not automatically make ALL of your health care consumption more “efficient.” How could it? example: wife’s appt. with dermatologist Reality: cost-sharing is a very BLUNT instrument example: RAND Corporation’s “Health Insurance Experiment” ( ) BOTTOM-LINE: health insurance is moving in the “actuarial” direction and away from the “social insurance” model w/enormous consequences to come…

36 Alternative Model?