Prime Time Replay:

Economist Uwe Reinhardt
on the economics of healthcare


MsgId: *infinities(72)
Date: Sun Oct 19 21:50:48 EDT 1997
From: Melanie_Menagh At: 204.164.64.204

One of the most challenging and controversial issues facing the United States is health care. How can we provide adequate health care for all citizens? How can we pay for it? Tonite, we are honored to have with us Uwe Reinhardt, James Madison Professor of Political Economy at Princeton University's Woodrow Wilson School of Public and International Affairs. Professor Reinhardt is one of the country's leading experts on the economics of health care. This evening we will try to better understand the complex, sometimes confounding, business of taking care of America.

Professor Reinhardt, good evening and welcome.

MsgId: *infinities(74)
Date: Sun Oct 19 21:53:31 EDT 1997
From: Uwe_Reinhart At: 207.172.73.242

Ready when you are. :)
MsgId: *infinities(75)
Date: Sun Oct 19 21:56:57 EDT 1997
From: Melanie_Menagh At: 204.164.64.204

The headline on the front page of today's New York Times says, "Analysts expect health premiiums to rise sharply." After several years of controlling health-care costs, insurance rates are set to go up again -- from 5 to 30 percent. Is this just corporate greed, or are insurance companies starting to feel the pinch again?
MsgId: *infinities(76)
Date: Sun Oct 19 21:59:57 EDT 1997
From: Uwe_Reinhardt At: 207.172.73.242

It's not really so much corporate greed as the HMOs are feeling the pinch of rising medical costs and in the NY Times it says the reasons are new technology and the aging of the population. But those are bogus issues -- surely the aging of the population is a short issue that will not affect long term health care for long. The real issue is that the HMOs have so broadened their networks of doctors and hospitals that they have lost some market power over these providers. Therefore, the provider can raise their fees without fear of punishment.
MsgId: *infinities(77)
Date: Sun Oct 19 22:04:53 EDT 1997
From: Melanie_Menagh At: 204.164.64.204

Many in the insurance industry have used the "spectre" of socialized medicine as a threat of what might happen if government has too much say in health care. Nowadays, many Americans have the problems of socialized medicine (i.e., lack of choice of doctors, denial of treatment) without the benefits (i.e., lower costs, universal coverage). Would you comment on this?
MsgId: *infinities(78)
Date: Sun Oct 19 22:08:43 EDT 1997
From: Uwe_Reinhardt At: 207.172.73.242

Yeah, the word "socialized medicine" is really very much misused. Socialized medicine means the government owns the health-care delivery system, like the hospitals and the clinics, as they do in England, but what Canada, for example, does not have socialized medicine, but socialized insurance. Every American corporation also has socialized insurance, which means healthy people are forced to pay for sick people and that's what socialized insurance means.

So when the insurance industry complains about socialized insurance, are they complaining about a system under which healthy people subsidize sick people, is that their complaint? Or are they complaining about government-operated insurance such as Medicare, Medicaid, or the Canadian system? If they believe the American people don't like government-operated insurance, then they have to explain how come Medicare is so popular. My bottom line is that Americans are completely confused about the term socialized medicine.

MsgId: *infinities(80)
Date: Sun Oct 19 22:12:00 EDT 1997
From: Melanie_Menagh At: 204.164.64.204

What do you feel are some of Americans' most prominent misconceptions regarding socialized medicine? What do you think has contributed to their fears about socialized medicine--a lack of education, or misinformation on the part of interests that want to maintain the status quo?
MsgId: *infinities(81)
Date: Sun Oct 19 22:16:00 EDT 1997
From: Uwe_Reinhardt At: 207.172.73.242

Well, the most prominent fear is that socialized medicine will lead to rationing of health care. But what Americans may not realize is that markets ration health care as well. They are just different ways of rationing health care. Under the socialized insurance systems, usually the rationing takes place by means other than price barriers -- you ration through the queue, or you ration simply by not making certain things available. For example, by not introducing a certain technology. Under rationing by markets, you use price and household income to ration, which means that people with low incomes will get less health care than people with high incomes, just as they get less living space than get higher income people.

And if Americans believe they do not now ration healthcare by price, let them talk to some of the low-income Americans without any health insurance and they will learn a thing or two about rationing about market. So the point is, it's really a matter of taste, whether you want to ration by price and ability to pay or whether you want to see healthcare rationed by some other means, there's no right or wrong there.

MsgId: *infinities(83)
Date: Sun Oct 19 22:19:09 EDT 1997
From: Melanie_Menagh At: 204.164.64.204

In one of your recent articles, you talk about this subject, describing Americans' view of health care as a consumer good, versus the European view of it as a social good. Could you explain the difference between these two philosophies, and how the difference manifests itself in the way health care is provided under the two systems.
MsgId: *infinities(84)
Date: Sun Oct 19 22:23:04 EDT 1997
From: Uwe_Reinhardt At: 207.172.73.242

Yeah, if you treat a commodity as a private consumer good, you basically assume that purchasing that good is the individual household's financial responsibility and you are willing to see that commodity rationed by price and ability to pay. On the other hand, if you view the commodity as a social good, then you are saying that everyone should have access to this good on equal terms regardless of their own ability to pay for it. That's the essential difference. For example, consider the question of whether the child of a low-income waitress should have the same chance to stay healthy or of surviving a serious illness as a child of a corporate executive.

If you think the child of a poor family should have the same chance of survival as the child of a rich family, you believe health care is a social good. If you believe otherwise, then you believe health care is a consumer good.

MsgId: *infinities(87)
Date: Sun Oct 19 22:27:16 EDT 1997
From: Melanie_Menagh At: 204.164.64.204

Despite all the current problems with managed care, wasn't the old have-anything-you-want, fee-for-service model of health care excessive and wasteful?
MsgId: *infinities(88)
Date: Sun Oct 19 22:29:13 EDT 1997
From: Uwe_Reinhardt At: 207.172.73.242

It was excessive, it was wasteful, and often very dangerous. It was excessive in the sense that it paid doctors and hospitals more than actually needed to be paid to get their services and it often bought more services than were truly needed to treat a given illness. The latter could be quite dangerous to a patient's health. For example, there was evidence that far too many pacemakers were implanted in people -- far more than were really clinically warranted and that certainly could be dangerous to people's health.
MsgId: *infinities(89)
Date: Sun Oct 19 22:31:56 EDT 1997
From: Melanie_Menagh At: 204.164.64.204

Recently, a group of major providers actually petitioned Congress for more governmental oversite on the industry. What circumstances drove them to this? What do you think are realistic regulations the federal government might impose?
MsgId: *infinities(90)
Date: Sun Oct 19 22:36:03 EDT 1997
From: Uwe_Reinhardt At: 207.172.73.242

Well, I was a little puzzled by their asking for this regulation, although my hunch is that they realize, these organizations, they would have little trouble complying with these regulations while a number of their competitors really would. So this was, from an economic point of view, a smart move. But whenever you invite government into your back yard, it usually makes a bigger mess there than you had hoped it would. What government ought really to regulate and authenticate is the information consumers get about competing health plans.

Government should retrieve information from enrollees in health plans about their health care experience and make sure the information is accurate or at least, if it's a private enterprise, it should be under government regulation like the SEC which oversees the accuracy of accounting information. So government's role should be heavily more emphasized in the area of information gathering and structuring. And less so on regulating behavior. The economists say regulate information, not behavior.

MsgId: *infinities(92)
Date: Sun Oct 19 22:40:27 EDT 1997
From: Melanie_Menagh At: 204.164.64.204

This approach goes to the heart of a major controversy in health care reform -- can real reform be achieved by making incremental, piecemeal changes? Or does the problem need sweeping, comprehensive reform to really get at the core of the problem?
MsgId: *infinities(93)
Date: Sun Oct 19 22:43:07 EDT 1997
From: Uwe_Reinhardt At: 207.172.73.242

Well, these are really matters of judgement, what one calls incremental. Some people, for example, I'm sure Europeans and Canadians, would consider covering the uninsured Americans as an incremental step because it's less than 20 percent and it's not that big a deal. But given American culture, that would be viewed as very bold and drastic. I believe personally that everyone should have health insurance and, if need be, subsidized, and therefore that would be considered quite bold.
MsgId: *infinities(94)
Date: Sun Oct 19 22:45:33 EDT 1997
From: Melanie_Menagh At: 204.164.64.204

Covering 20 percent of the population is a challenging proposition, logistically as well as financially. How do you think this might be accomplished?
MsgId: *infinities(95)
Date: Sun Oct 19 22:51:22 EDT 1997
From: Uwe_Reinhardt At: 207.172.73.242

Well, there is two parts. One is gathering the money, and secondly is funneling it to the people. And those are separate problems. Gathering the money -- where would the money come from? Well, right now, all employer-provided health insurance, which is really part of anyone's total compensation, is really not taxed at all. I would add the value of all employer-paid health insurance premiums on the W2 form to employee's income and have them pay taxes on it. That will probably increase available tax revenues by close to a 100 billion dollars, especially if we added Social Security taxes to that pool, on the fringe benefits. And then, this pool would be supplemented by income taxes on the uninsured themselves where you would ask them at tax time "Do you have an adequate private insurance policy" either at place of work or by yourself.

If so, you don't have to pay any tax, but if you don't, you must pay x percent of your income to a federal fail-safe income pool. And into that pool also, of course, will have ben deposited the taxes on the fringe benefits for everyone. So you would probably have a war chest of over a 120 billion dollars, which is more than enough to give health insurance to all people who are not now insured. And now, this pool of available fail-safe federal dollars, would not be administered by the federal government, rather it would be capitated to the states, by the number of uninsured in the state. The states could supplement that if they wanted to, some would have to, with their own tax funds.

And then give every uninsured a voucher that is high enough to pay them into a good HMO. And these people would be given a choice of HMO under classical managed competition. Now, not everyone would be in the failsafe system at all, many people would stay outside of it, and yet many people would be insured. Everyone contributes to that insurance according to their ability to pay.

MsgId: *infinities(98)
Date: Sun Oct 19 22:55:54 EDT 1997
From: Melanie_Menagh At: 204.164.64.204

It seems a sound plan; however, it is a bit complex and means more taxes. Is it realistic to expect leaders to sell such a plan to the American people? How might Congress convince the country this is the thing to do?
MsgId: *infinities(99)
Date: Sun Oct 19 22:59:54 EDT 1997
From: Uwe_Reinhardt At: 207.172.73.242

Well, that is, of course, the fundamental question. Do you believe that low-income Americans should have the same chance of surviving a critical illness as high-income Americans? If you believe they should, then this is the way to go and you may as well be honest about the tax and transfer. If you think it's okay to ration relief from pain and life-years by income, then, of course, you should oppose such tax and transfer schemes.

Finally, if you believe that you can have egalitarian health system in which relief from pain and the chance to survive serious illness is not rationed by income, and at the same time, not have to tax well-to-do people to subsidize the care for low-income people, if you sincerely believe that, you should quickly make an appointment with a mental health professional, because you will need it. The technical term for that mental condition would be meshugge.

MsgId: *infinities(101)
Date: Sun Oct 19 23:03:17 EDT 1997
From: Melanie_Menagh At: 204.164.64.204

We always appreciate having that insider jargon on Infinities. On that note, I would like to thank Professor Reinhardt for joining us, and for his lively, thoughtful contributions. As always, thank you also to our audience. We'll see you next Sunday.
MsgId: *infinities(102)
Date: Sun Oct 19 23:04:16 EDT 1997
From: Uwe_Reinhardt At: 207.172.73.242

It's been a pleasure and I hope that at least some people might agree with me. Thanks!


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