Health emergency: universal health care could be crafted to save the nation money and give insurers a major role. (Life/Health: Universal Health Care).

Proponents have long portrayed universal health care as a moral imperative. Costs of ambitious plans, however, have tempered public enthusiasm, most recently in last November's referendum in Oregon.

But now a perfect storm besetting the nation's health-care system is causing some leaders to rethink their views and conclude that insuring the nation's 41 million-plus without coverage could actually lower the costs of treating them and save the nation's health-care infrastructure from financial collapse.

Simmering health-care problems started to boil about three years ago when a managed-care revolt and burgeoning legislative mandates ended a period of quiescence in medical cost inflation. Double-digit price increases returned when the nation could least afford them. They coincided with the beginning of the equity bear market, the economic downturn, huge budget deficits at the state and national levels, rising unemployment, higher medical-malpractice liabilities, and new public spending to fight terrorism. The economic storm has caused a rise in the number of Americans without health insurance, and it has come at a time when baby boomers will soon need much more health care, not to mention help in retirement.

"The problem we face is not just the uninsured, but the collapse of the system that provides care to the 84% of us who have insurance," said Brian R. Kiepper, director of the Center for Practical Health Reform. "What we need to do is figure out a way to make this system work. I give us another 18 months to make decisions before the whole system collapses." Others said a collapse is not imminent.

Health care in the United States comprises about 14% of gross domestic product with anticipated expenditures this year of $1.5 trillion, or more than $5,000 per person. While the system leaves millions uninsured, it affords them access to care that is often inefficient, costly and unevenly provided. Taxpayers foot the bill through Medicare, Medicaid, other health-related subsidies and what Bruce Bodaken calls a "hidden tax" on the private health-care system.

"Some say we can't afford to cover the uninsured, but the fact of the matter is we already pay for them," Bodaken, chairman and chief executive officer of Blue Shield of California, said in a Dec. 3, 2002 speech urging health-system reform in that state. Bodaken said a family of four pays more on average each year to cover the costs of others than for its own health care. Moreover, private insurance premiums paid by employers and individuals are "higher than necessary because they subsidize other unfunded or underfunded care," he said. "Doctors and hospitals charge higher rates to private insurers to compensate for the inadequate payments they receive from Medicare and especially Medicaid, as well as to subsidize the safety net that provides uncompensated care in emergency rooms, community clinics and elsewhere."

Tom Epstein, vice president of public affairs at Blue Shield of California, said his company is planning this spring to quantify the effect on private insurance premiums. That working American families pay more for the health care of others than for themselves "is probably not generally known," Epstein said. "I would think if families knew, and in particular, if businesses knew, they would become stronger advocates for universal coverage."

It is these costs, both apparent and invisible, that are part of the threat to the existence of the system by pushing health care beyond what those paying into the system can afford--and by pushing more into the ranks of uninsured at an estimated rate of 300,000 for every 1% increase in health-insurance costs. Klepper said health-care costs over the past 20 years have risen more than twice the rate of inflation, but that the increases of recent years are the ones straining the system. Last year, they rose at eight times the rate of inflation, and this year, they are rising at 11 times, he said.

Out of the Emergency Rooms

Advocates say that some form of basic universal health insurance might be more expensive in the short term, but hold out the possibility it could save money over the long haul. Epstein said universal care would funnel the currently uninsured in need of primary care into treatment venues less expensive than emergency rooms. Preventive care could lessen the need for more costly interventions later, provide less costly disease management to people with chronic illnesses, and promote healthier lifestyles. Universal coverage also would require more people to pay into the system, particularly the young and healthy who currently decline coverage offered by their employers.

"You want some basic level of coverage everyone has," Klepper said in talking about solutions. Those not eligible for private plans would pay into a basic government plan that would be available on a sliding-scale, means-tested basis and that would be monitored and subsidized, he said. "Everybody would be on the hook to some degree, and everybody would have to pay something," he said.

Epstein observed that people paying into the system would have more incentive to find ways to reduce costs, such as through the incentives provided by emerging consumer-driven health plans.

While support for a single-payer system remains small, more interest in insurance for the uninsured is surfacing. Among current proposals is the Health Insurance Association of America's InsureUSA, which would fund insurance for the uninsured through tax credits or subsidies. But HJAA President Dr. Donald Young disagreed that the situation is dire. He estimated that the nation now spends only about $35 billion to pay for health care for the uninsured, and most is from public subsidies rather than from a hidden tax on private insurance. He said per-person spending on the uninsured is roughly half that of fully insureds, "so I believe we need new additional money in the system," preferably from stable, broad-based funding sources. Affordability is the main reason people lack health coverage, he said.

InsureUSA proposes extending the safety net for Americans living below the federal poverty level, giving help to the working poor to buy their own coverage, and guaranteeing access to coverage for uninsurable people through broad-based funding for state high-risk pools. It also calls for encouraging greater coverage for individuals and small businesses through enhanced tax incentives and for extending and enhancing Archer Medical Savings Accounts, tax-deferred investment accounts similar in many respects to an Individual Retirement Account and used in conjunction with a qualified high-deductible health plan.

Young said the nation could control health-care costs by reversing the trend toward state and federal coverage mandates and by returning to the concept of true insurance--covering events that are unexpected and costly rather than routine and discretionary. "We've made the insurance package very rich and far beyond protection from high costs and unexpected events," he said. Although the HIAA does not have a formal position on emerging consumer-driven health plans, it advocates that individuals become more careful consumers of health care through increased control over and a higher financial interest in health-care purchasing decisions. "I personally believe consumer-driven plans have a lot of potential and should be put out there," Young said.

One of the problems with advocates of single-payer plans is that they push rich plan options, Young added.

Senate Proposals

A measure that would have created a controversial single-payer health-care system in Oregon was defeated in the Nov. 5, 2002, general election by a 4-to-1 margin. Had the measure passed, the state would have been the first to provide health care to every resident, funded by current expenditures by federal, state and local governments and two new progressive taxes of as much as 11.5% for employers and 8% for individuals. The system would have included coverage for preventive care, prescription drugs, mental health services, dental and vision care, inpatient and outpatient services, alternative care and long-term care. It also would have eliminated copayments, deductibles, exclusions for pre-existing conditions and eligibility requirements.

In January, two U.S. senators, Edward Kennedy, D-Mass., and John Breaux, D-La., advanced plans for universal health care. Kennedy's would guarantee that every job in America comes with health coverage at least equal to what members of Congress and other federal workers get. It would require employers to pay 75% of the premium and for employees to pay the rest. Employers with five or fewer employees would be exempt, but would be eligible for subsidies if they offer coverage. Kennedy called on insurers and providers to use modem technology to reduce the costs of administering accounts, which he said are about $470 billion annually, or a third of all costs.

Under the Breaux plan, every American would be guaranteed access to health insurance at a group rate, and lower- and middle-income Americans could be subsidized through tax credits. States would be responsible for organizing universal purchasing pools. Individuals would be responsible and held accountable for purchasing a basic level of health insurance.

Young found it "encouraging" that Kennedy "has recognized and looked to the maintenance of the private market as well as government programs," but he said the requirement that employers pay 75% of premiums would drive many out of business. He said there is much he likes about Breaux's plan, but he is concerned about state-run universal-coverage pools. "Our experience with them to date is that they have not reduced premiums and have not worked well," he said, "I also don't like the notion his plan would dictate the benefit package employers have to offer. It would stifle innovation and take away people's choices. But we would like to work with him, and we credit him for what he's done and moving forward a plan that recognizes a mix of the government and private sector."

Governments Face New Paradigm

Health-care insurance policy is undergoing a "paradigm shift of major proportions" that cannot be fully understood without considering other major demographic factors, according to Roger M. Battistella, professor of policy analysis and management at the College of Human Ecology, Cornell University He has predicted for many years that the nation's health-care system would have to move from a defined-benefit to a defined-contribution structure, just as pension plans have.

"The changing demographic profile in this and other highly developed countries is at the root of moving toward privatization in order to limit the burden on government," he said. "The classical version of national health insurance, developed in the 1800s and the cornerstone of western European states, is an idea whose time has passed. The quest is to come up with some type of program responsive to the changed demographic and financial environment."

Privatization was behind the federal government's reform of the welfare system, Medicare, and retirement savings plans. It also has been discussed as an element of Social Security reform. The main reason is that payroll financing of benefits in advanced countries is no longer feasible because of the growing number of retirees and the shrinking number of workers, "A higher payroll tax to accommodate a deteriorating dependency ratio will meet with resistance culminating in work-ethic strain and intergenerational conflict," said Battistella. "Employers present share is already a serious drain on profits and competitiveness in global markets. General-revenue-financed schemes put a squeeze on government budgets and crowd out discretionary spending."

Among countries that have already turned to privatization for pension solutions are the United Kingdom, Chile and Singapore, he said.

Employer-provided health insurance in the United States is under heavy duress due to retiree health costs and inflationary premium increases. Both raise production costs and curb profits, said Battistella. "Cost-shifting to employees has reached a stage of diminishing return in terms of labor unrest and the rising number of low-income workers rejecting coverage," he said. "Ergo, the growing interest in consumer-driven health plans--health spending accounts and Medical Savings Accounts--and in vouchers."

But Battistella does not believe the health-care system is in dire straits, as Kiepper suggests. "There's always an element of exaggeration when you're trying to mobilize public opinion," he said. "The situation is serious, and it continues to degenerate on the surface, but if you look at the composition of the uninsured, you'll find that not all of them are poor. At least a third of them have incomes two times above the poverty line, with a substantial number five times above." Many are mid- to high-level executives out of work due to corporate downsizing. He said these may prefer to "ride it out" until they find employment. Some 40% of uninsured are 18 to 34 years old, a group typically in good health. In fact, many people move in and out of the ranks of uninsured in any given year, so the situation is not as dire as a public problem as it could be for an uninsured individual who becomes sick, he said.

Battistella likes the Breaux proposal. "It would compel everyone to buy health insurance," he said. "That would be a way of achieving universal coverage. It would put more money into the system, would relieve providers of a bad debt problem, would encourage individual reliance and would promote individual choice."

Identifying the Uninsured

So who really are the uninsured? According to analysis released in February by the Blue Cross and Blue Shield Association, 14 million are eligible for Medicaid and states' insurance programs for children, but they are not enrolled. Some 13 million have incomes of more than $50,000, and many have access to affordable health-care coverage. The fastest-growing income segment of the uninsured earns more than $75,000 a year.

Nearly six million adults are classified as short-term uninsured. Many are young and healthy adults who see no need for insurance or are between jobs. The remaining eight million are considered long-term uninsured.

The association called for community involvement in enrollment of the first group and for development of more innovative plans for middle-class Americans. These plans would provide "quality coverage" while reducing costs. For the short- and long-term unemployed, it calls for incentives and public grants.

Stephen Wiggins is a big supporter of universal health care, but through the existing private system. Founder and former chief executive officer of Oxford Health Plans, he said universal health care was needed when Harry Truman was president and is "overdue" now. But he added: "There is no evidence a single-payer system anywhere can accommodate the cost pressures that exist with or without universal health care. Whether government is running it or private industry, we're still left with trying to manage the cost of the coverage itself."

Since leaving Oxford in the late 1990s, Wiggins has formed five companies including HealthMarket, which sells and services consumer-driven health plans online. HealthMarket is the Southwest Airlines of the healthcare industry, he said, in that it's less expensive, provides incentives to shop, and is no-frills.

Wiggins said the best role government can play is to provide backstop, last-resort options, but to do it like the Medicare+Choice program, in which private contractors take the risk. He said Kennedy's 75%-of-premium employer requirement is too high; in HealthMarket's small-employer business, employers sign on when the responsibility comes down to about 50%.

The only way for the individual market to work is for government to relax coverage mandates so that companies can offer plans people can afford, Wiggins said. Then government must require individuals to buy insurance and provide public funding for those on the low end of the means-tested scale. The easiest way to make such plans affordable is to make coverage catastrophic only, perhaps with a $1,000 deductible that might cost an entire family $70 to $80 a month, he suggested. It would cover the important things when people really become sick. "That would mean $24,000 of a $25,000 hospital bill would be covered," he said.

Klepper said he would not want to choose between primary care and catastrophic care. "All levels of care are important," he said. "You need it all. The question is, what is the right mix?"

Projected National Health Expenditures

Health-care costs in the United States are expected to pass $1.5
trillion this year and reach $2.6 trillion by 2011.

1960
1980    245.8
        695.6
1993    887.6
      1,038.0
1997  1,093.9
      1,146.1
1999  1,210.7
      1,311.1
2001  1,424.2
      1,541.9
2003  1,666.3
      1,789.8
2005  1,919.4
      2,051.0
2007  2,186.3
      2,327.4
2009  2,477.5
      2,637.4

Source: U.S. Department of Health and Human Services, Health Care
Financing Administration, March 2001

Note: Table made from bar graph

The Uninsured in 2000

More than 60% of uninsured in the United States are younger than 35
years old. While low-income people are more likely to be uninsured,
statistically significant numbers have household incomes of more than
$50,000.

(Numbers in thousands)

                                     U.S.
                               Population  Number of    Percent
Characteristic                      Total  Uninsured  Uninsured

People
Total                             276,540     38,729       14.0

Age
Under 18 years                     72,556      8,451       11.6
18 to 24 years                     26,962      7,349       27.3
25 to 34 years                     37,440      7,926       21.2
35 to 44 years                     44,780      6,939       15.5
45 to 64 years                     61,823      7,819       12.6
65 years and over                  32,979        245        0.7

Household Income
Less than $25,000                  61,130     13,898       22.7
$25,000 to $49,000                 75,351     12,783       17.0
$50,000 to $74,999                 59,237      6,496       11.0
S75,000 or more                    80,822      5,552        6.9

Work Experience (18 years and
older)
Total                             171,006     30,033       17.6
Worked during year                140,403     22,806       16.2
Worked Full-time                  117,478     18,057       15.4
Worked Part-time                   22,925      4,749       20.7
Did not work                       30,603      7,227       23.6

Source: U.S. Census Bureau, Current Population Survey, March 2001

Contributors to Uninsured Growth By Income Level (1999-2001)

The fatest growing income segment of the uninsured is made up of people
making $75,000 or more.

Annual Income Level  Rate of Change

<$25,000                     -27.4%
$25,000-$49,999               17.6%
$50,000-$74,999               39.8%
$75,000+                        70%

Sources: U.S. Census Bureau, 2002; Blue Cross and Blue Shield
Association analysis

Note: Table made from bar graph