The Journal Times Online - Racine, Wisconsin

By Simon Johnson and James Kwak
Tuesday, September 1, 2009 8:29 AM

"Moderate" opponents of health-care reform like to say that we cannot afford it, particularly in the midst of a recession that has widened the deficit with both reduced tax revenue and the fiscal stimulus package. This was the argument advanced by Sen. Joe Lieberman on TV a week ago and repeated by Michael Gerson in this newspaper: "Obama's massive spending, intended to stabilize the economy, also drained the Treasury, making it more difficult to propose major new expenditures."

But what does this mean?

The major cost of reform, generally estimated at about $1 trillion over 10 years, is subsidies to help poor and middle-class people buy health insurance. (The subsidies phase out at 300 to 400 percent of the poverty level, depending on the proposal.) There are two ways to look at whether we can afford this.

The first is to take the perspective of the country as a whole. Our economic well-being is generally determined by the amount of goods and services that we consume; transfers of money between us have no impact on that total. (Trade with the rest of the world is relatively insignificant when it comes to health care.) So the relevant question is whether our economy should be producing $100 billion more of health insurance each year so that virtually everyone in the country can be covered. The trade-off is either consuming less of other goods and services or investing less in future growth.

Seen from this perspective, the question vanishes: Of course we can afford it. The $100 billion doesn't disappear; it flows to insurance companies, then health-care providers -- and they are people, too. The relevant question is whether this is a productive use of resources. A strict free-market argument is that only unregulated markets produce optimal resource allocation, because then prices settle at levels at which all choices maximize welfare; that is, if someone isn't buying health insurance, that's because it's worth less to him than the other things he can buy with the money.

But it's hard to argue that 46 million people want to have exactly zero health insurance. This market failed for several reasons. One is when some people buy insurance and others do not, insurers assume that the buyers are sick and price them accordingly -- and then the healthy cannot afford coverage. This market failure also has a cost: Uninsured people under-consume preventative services, thereby increasing their long-term health-care costs, many of which will eventually be borne by the system -- Medicare, if by no one else.

So in addition to the obvious moral case for reform -- $100 billion per year is a small price to pay to ensure that everyone has access to health care -- there is an economic case to be made. Our aggregate welfare would be increased if, instead of people over 400 percent of the poverty line buying more of whatever it is they buy, some of that money went to pay for basic health insurance for those below that level. The $100 billion in question is about 0.7 percent of our annual GDP and far less than the annual cost of the Bush tax cuts.

The second basic way to answer this question is from the perspective of the federal government, and here things seem to be trickier. At a time when the recession has boosted estimates of short-term budget deficits, the idea that the government cannot afford reform seems plausible. But that argument has two fatal flaws.

First, as Ezra Klein has pointed out, health-care reform isn't a "major new expenditure" to begin with. The net cost of the reform bill isn't $1 trillion over 10 years, because all versions of the bill attempt to offset that cost, either through new taxes or through spending reductions. The net cost of the House bill is about $200 billion (and could be zero with a change that Klein points out), and the net cost of the Senate "Gang of Six" bill is expected to be about zero. Even $200 billion over 10 years is a rounding error when it comes to the federal deficit.

Second, the size of the current deficit doesn't itself make any given initiative a good or a bad idea. People who like to say that the government has to be run like a private company often forget this. If a company has a lot of debt as well as a great new product innovation, then it makes perfect sense to borrow more money to capitalize on that innovation. The current amount of debt affects spending decisions in only two ways: It may increase the cost of capital, which makes a new project somewhat more expensive, and it increases the risk of bankruptcy.

The federal government faces versions of these constraints. If investors believe that the government will not be able to pay back its debts without inflating them away (printing more money), they will demand a higher interest rate on Treasurys, increasing the cost of capital. Major additions to the national debt will increase the risk that we reach a point where our ability to borrow money is compromised.

However, the real long-term risk to national solvency is . . . health-care costs. According to Congressional Budget Office projections, the long-term change in the government's fiscal situation is entirely due to growth in Medicare and Medicaid spending. From an investor's perspective, the primary risk is that the government will do nothing; in that case, Medicare costs will explode the budget within our children's lifetimes. Insofar as long-term budget imbalances are a threat, and insofar as that threat has been increased by the recession, the argument for health-care reform is only strengthened. This is why all versions of the bill include measures to reduce the growth rate of health-care costs. There may be disagreements about how best to reduce costs, but that's where the debate should be, not over whether we can "afford" reform.

Put another way, if you are for fiscal discipline, you should be for health-care reform. If our government cannot produce some kind of reform, that will only reinforce the perception that our political system is incapable of resolving our largest, most difficult problem -- and that is what will make investors think twice about investing in America.

However, the real long-term risk to national solvency is . . . health-care costs. According to Congressional Budget Office projections, the long-term change in the government's fiscal situation is entirely due to growth in Medicare and Medicaid spending.

Yes, government regulation lead to skyrocketing medical costs so the only solution must be...more government! But wait, since government involvement lead to this situation, wouldn't more interference lead to higher prices unless they completely took over the industry? And how can a government twelve trillion dollars in debt provide this kind of care to all without charging them for it? Oh, a combination of rationing and higher taxes, that's right.

If our government cannot produce some kind of reform, that will only reinforce the perception that our political system is incapable of resolving our largest, most difficult problem -- and that is what will make investors think twice about investing in America.

PEOPLE AREN'T INVESTING IN AMERICA BECAUSE THE GOVERNMENT THINKS IT CAN FINANCE EVERY VENTURE BY PRINTING MONEY OUT OF THIN AIR, THEREBY LOWERING THE PURCHASING POWER OF EVERY DOLLAR IN CIRCULATION AND MAKING ANY KIND OF RETURN ON THAT INVESTMENT EXTREMELY UNLIKELY.

Then Rob, why are you against a Swiss-type system that cuts out government entirely, only acting as a regulating body that makes basic health care needs a nonprofit industry?

5 Myths About Health Care Around the World
By T.R. Reid
Sunday, August 23, 2009

As Americans search for the cure to what ails our health-care system, we've overlooked an invaluable source of ideas and solutions: the rest of the world. All the other industrialized democracies have faced problems like ours, yet they've found ways to cover everybody -- and still spend far less than we do.

I've traveled the world from Oslo to Osaka to see how other developed democracies provide health care. Instead of dismissing these models as "socialist," we could adapt their solutions to fix our problems. To do that, we first have to dispel a few myths about health care abroad:

1. It's all socialized medicine out there.

Not so. Some countries, such as Britain, New Zealand and Cuba, do provide health care in government hospitals, with the government paying the bills. Others -- for instance, Canada and Taiwan -- rely on private-sector providers, paid for by government-run insurance. But many wealthy countries -- including Germany, the Netherlands, Japan and Switzerland -- provide universal coverage using private doctors, private hospitals and private insurance plans.

In some ways, health care is less "socialized" overseas than in the United States. Almost all Americans sign up for government insurance (Medicare) at age 65. In Germany, Switzerland and the Netherlands, seniors stick with private insurance plans for life. Meanwhile, the U.S. Department of Veterans Affairs is one of the planet's purest examples of government-run health care.

2. Overseas, care is rationed through limited choices or long lines.

Generally, no. Germans can sign up for any of the nation's 200 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 provider; you have to use the one designated for your company or your industry. But patients can go to any doctor, any hospital, any traditional healer. There are no U.S.-style limits such as "in-network" lists of doctors or "pre-authorization" for surgery. You pick any doctor, you get treatment -- and insurance has to pay.

Canadians have their choice of providers. In Austria and Germany, if a doctor diagnoses a person as "stressed," medical insurance pays for weekends at a health spa.

As for those notorious waiting lists, some countries are indeed plagued by them. Canada makes patients wait weeks or months for nonemergency care, as a way to keep costs down. But studies by the Commonwealth Fund and others report that many nations -- Germany, Britain, Austria -- outperform the United States on measures such as waiting times for appointments and for elective surgeries.

In Japan, waiting times are so short that most patients don't bother to make an appointment. One Thursday morning in Tokyo, I called the prestigious orthopedic clinic at Keio University Hospital to schedule a consultation about my aching shoulder. "Why don't you just drop by?" the receptionist said. That same afternoon, I was in the surgeon's office. Dr. Nakamichi recommended an operation. "When could we do it?" I asked. The doctor checked his computer and said, "Tomorrow would be pretty difficult. Perhaps some day next week?"

3. Foreign health-care systems are inefficient, bloated bureaucracies.

Much less so than here. It may seem to Americans that U.S.-style free enterprise -- private-sector, for-profit health insurance -- is naturally the most cost-effective way to pay for health care. But in fact, all the other payment systems are more efficient than ours.

U.S. health insurance companies have the highest administrative costs in the world; they spend roughly 20 cents of every dollar for nonmedical costs, such as paperwork, reviewing claims and marketing. France's health insurance industry, in contrast, covers everybody and spends about 4 percent on administration. Canada's universal insurance system, run by government bureaucrats, spends 6 percent on administration. In Taiwan, a leaner version of the Canadian model has administrative costs of 1.5 percent; one year, this figure ballooned to 2 percent, and the opposition parties savaged the government for wasting money.

The world champion at controlling medical costs is Japan, even though its aging population is a profligate consumer of medical care. On average, the Japanese go to the doctor 15 times a year, three times the U.S. rate. They have twice as many MRI scans and X-rays. Quality is high; life expectancy and recovery rates for major diseases are better than in the United States. And yet Japan spends about $3,400 per person annually on health care; the United States spends more than $7,000.

4. Cost controls stifle innovation.

False. The United States is home to groundbreaking medical research, but so are other countries with much lower cost structures. Any American who's had a hip or knee replacement is standing on French innovation. Deep-brain stimulation to treat depression is a Canadian breakthrough. Many of the wonder drugs promoted endlessly on American television, including Viagra, come from British, Swiss or Japanese labs.

Overseas, strict cost controls actually drive innovation. In the United States, an MRI scan of the neck region costs about $1,500. In Japan, the identical scan costs $98. Under the pressure of cost controls, Japanese researchers found ways to perform the same diagnostic technique for one-fifteenth the American price. (And Japanese labs still make a profit.)

5. Health insurance has to be cruel.

Not really. American health insurance companies routinely reject applicants with a "preexisting condition" -- precisely the people most likely to need the insurers' service. They employ armies of adjusters to deny claims. If a customer is hit by a truck and faces big medical bills, the insurer's "rescission department" digs through the records looking for grounds to cancel the policy, often while the victim is still in the hospital. The companies say they have to do this stuff to survive in a tough business.

Foreign health insurance companies, in contrast, must accept all applicants, and they can't cancel as long as you pay your premiums. The plans are required to pay any claim submitted by a doctor or hospital (or health spa), usually within tight time limits. The big Swiss insurer Groupe Mutuel promises to pay all claims within five days. "Our customers love it," the group's chief executive told me. The corollary is that everyone is mandated to buy insurance, to give the plans an adequate pool of rate-payers.

The key difference is that foreign health insurance plans exist only to pay people's medical bills, not to make a profit. The United States is the only developed country that lets insurance companies profit from basic health coverage.

In many ways, foreign health-care models are not really "foreign" to America, because our crazy-quilt health-care system uses elements of all of them. For Native Americans or veterans, we're Britain: The government provides health care, funding it through general taxes, and patients get no bills. For people who get insurance through their jobs, we're Germany: Premiums are split between workers and employers, and private insurance plans pay private doctors and hospitals. For people over 65, we're Canada: Everyone pays premiums for an insurance plan run by the government, and the public plan pays private doctors and hospitals according to a set fee schedule. And for the tens of millions without insurance coverage, we're Burundi or Burma: In the world's poor nations, sick people pay out of pocket for medical care; those who can't pay stay sick or die.

This fragmentation is another reason that we spend more than anybody else and still leave millions without coverage. All the other developed countries have settled on one model for health-care delivery and finance; we've blended them all into a costly, confusing bureaucratic mess.

Which, in turn, punctures the most persistent myth of all: that America has "the finest health care" in the world. We don't. In terms of results, almost all advanced countries have better national health statistics than the United States does. In terms of finance, we force 700,000 Americans into bankruptcy each year because of medical bills. In France, the number of medical bankruptcies is zero. Britain: zero. Japan: zero. Germany: zero.

Given our remarkable medical assets -- the best-educated doctors and nurses, the most advanced hospitals, world-class research -- the United States could be, and should be, the best in the world. To get there, though, we have to be willing to learn some lessons about health-care administration from the other industrialized democracies.

Then Rob, why are you against a Swiss-type system

They haven't proposed an entirely private system. What they have proposed is the most expensive transfer of power to the federal government this country has ever seen.

You want to know what the best comparison to the US plan is? It's the Soviet Union. That's what you're advocating right now. A bankrupt country wants control of an industry that would rely on budgetary allocations to survive.

If you bring forth a completely private plan, I would consider it. But I don't trust the government to run a hot dog stand in downtown Racine. If you think putting them in charge of your health, you probably think it's a good reason because you need your head examined and once you do under your free plan you'll probably realize how bad of an idea it was in the first place.