The Conscience of a Liberal

11 THE HEALTH CARE IMPERATIVE

The United States, uniquely among wealthy nations, does not guarantee basic health care to its citizens. Most discussions of health care policy, my own included, begin with facts and figures about the costs and benefits of closing that gap. I’ll get to those shortly. But let me start with a different kind of question: What do we think is the morally right thing to do?

There is a morally coherent argument against guaranteed health care, which basically comes down to saying that life may be unfair, but it’s not the job of the government to rid the world of injustice. If some people can’t afford health insurance, this argument would assert, that’s unfortunate, but the government has no business forcing other people to help them out through higher taxes. If some people inherit genes that make them vulnerable to illness, or acquire conditions at some point in their lives that make it impossible for them to get medical insurance from then on, well, there are many strokes of bad luck in life. The government can’t fix them all, and there’s no reason to single out these troubles in particular.

Obviously I don’t agree with this argument. But I’m not setting it up merely in order to knock it down. My point is, instead, that while there is a morally coherent argument against universal health care, it’s an argument you almost never hear in political debate. There are surely a significant number of conservatives who believe that the government has no right to spend taxpayers’ money helping the unlucky; the late Molly Ivins was fond of quoting a Texas legislator who asked, “Where did this idea come from that everybody deserves free education? Free medical care? Free whatever? It comes from Moscow. From Russia. It comes straight out of the pit of hell.”[1] But national politicians never say things like that in public.

The reason they don’t is, of course, that they know voters don’t agree. You’d be hard pressed to find more than a relative handful of Americans who consider it right to deny people health care because of preexisting conditions, and polls suggest as well that a large majority believe that all American citizens should be guaranteed health care regardless of income. The moral case for universal health care isn’t in dispute.

Instead the opposition to universal health care depends on the claim that doing the morally right thing isn’t possible, or at least that the cost—in taxpayer dollars, in reduced quality of care for those doing okay under our current system—would be too high. This is where the facts and figures come in. The fact is that every other advanced country manages to achieve the supposedly impossible, providing health care to all its citizens. The quality of care they provide, by any available measure, is as good as or better than ours. And they do all of this while spending much less per person on health care than we do. Health care, in other words, turns out to be an area in which doing the right thing morally is also a free lunch in economic terms. All the evidence suggests that a more just system would also be cheaper to run than our current system, and provide better care.

There’s one more important thing to realize about health care: It’s an issue Americans care about, in large part because the system we have is visibly unraveling. Polls consistently suggest that health care is, in fact, the most important domestic issue to likely voters.

Shared values; good economics; importance in voters’ eyes—all these should make health care reform a priority. And everything we know about the economics of health care indicates that the only kind of reform that will work is one that is, by any definition, liberal: It would involve government action that would reduce inequality and insecurity. Health care reform is the natural centerpiece of a new New Deal. If liberals want to show that progressive policies can create a better, more just society, this is the place to start.

Before I can get to proposals for health care reform, however, I need to talk a bit about health care economics.

If the past is any guide, during the next year half of Americans will have negligible medical expenses. Maybe they’ll buy a few bottles of aspirin, maybe they’ll have a checkup or two, but they won’t get sick, or at least not sick enough to need expensive treatment. On the other hand a minority of Americans will incur huge medical expenses—they’ll need a heart bypass operation, or dialysis, or chemotherapy. Overall 20 percent of the population will account for 80 percent of medical costs. The sickest 1 percent of the population will, on average, need more than $150,000 worth of medical care next year alone.[2]

Very few Americans can afford to pay sums that large out of pocket—especially if costly medical care goes on for years, as it often does. Modern medical care is available to middle-class Americans and their counterparts in other advanced countries only because someone else pays most of the bills if and when the need for expensive care arises.

In the United States, uniquely among wealthy nations, that “someone else” is usually a private insurance company. Everywhere else most health insurance is in effect provided by the government, and ultimately by taxpayers (although the details can be complex). Even in the United States, a taxpayer-funded insurance program—Medicare—covers everyone sixty-five and older, and another government program, Medicaid, covers some but not all of those too poor to afford private insurance. But the great majority of Americans who have health insurance get it from the private sector. That reliance on private insurance also makes the United States the only advanced country in which a large fraction of the population—about 15 percent—has no insurance at all.

A word on terminology: Opponents of government health insurance sometimes call it “socialized medicine,” but that’s misleading—it’s socialized insurance, which isn’t at all the same thing. In Canada and most European countries, the doctors are self-employed or work mainly for privately owned hospitals and clinics. Only Britain, among major nations, has actual socialized medicine, in which the government runs the hospitals and doctors are government employees.

So how does the U.S. health care system, with its unique reliance on private insurance, stack up against the systems of other advanced countries? Table 7 tells the story. It shows how much different countries spend per person on health care, and compares that spending with average life expectancy, the simplest measure of how well the health care system is functioning. The United States spends almost twice as much on health care per person as Canada, France, and Germany, almost two and a half times as much as Britain—yet our life expectancy is at the bottom of the pack.

These numbers are so stark, and such a refutation of the conventional wisdom that the private sector is more efficient than the public sector, that some politicians, pundits, and economists simply deny them. Our health care system is “the best in the world,” says Republican presidential candidate Rudy Giuliani—except that the World Health Organization actually rates it as number 37.[3] Europeans face huge hidden costs from delays and from inconvenient or uncomfortable service, says Tyler Cowen, a conservative economist—except that cross-national surveys say that even the British have better overall access to health care than Americans do: they wait longer for discretionary surgery than we do, but they find it easier to see a doctor on short notice, especially after hours or on weekends. And the Germans and French have no significant delays of any kind.[4]

We hear endlessly that Canadians have to wait longer than Americans for hip replacements, which is true. But that’s a peculiar example to choose, because most hip replacements in America are paid for by Medicare. Now, Medicare is a government program, although it’s not clear if everyone knows that—health policy experts often repeat the story of how former Senator John Breaux was accosted by a constituent who urged him not to let the government get its hands on Medicare. The point, however, is that the hip-replacement gap is a comparison of two government insurance systems, with the U.S. system more lavishly funded. It has nothing to do with the alleged virtues of private enterprise.

More seriously, there is some question about the extent to which the American lifestyle drives up health care expenses. Ezra Klein of The American Prospect calls it the “but-we-eat-more-cheeseburgers” doctrine, and it’s true that Americans are more prone to obesity than Europeans, which in turn tends to raise medical costs, especially for chronic conditions like diabetes. Attempts to crunch the numbers, however, suggest that different lifestyles, and the diseases to which they make us prone, aren’t enough to explain more than a small fraction of the cost gap between the United States and everyone else. A study by McKinsey Global Institute estimates that the difference in disease mix between the United States and other advanced countries accounts for less than $25 billion in annual treatment costs, or less than $100 of the roughly $3,000 per person extra the United States spends on health care each year.[5]

There’s one more thing you should know: although America spends much more on health care than anyone else, this doesn’t seem to buy significantly more care. By measures such as the number of doctors per 100,000 people, the average number of doctors’ visits, the number of days spent in the hospital, the quantity of prescription drugs we consume, and so on, American health care does not stand out from health care in other rich countries.[6] We’re off the charts in terms of what we pay for care, but only in the middle of the pack in terms of what we actually get for our money.

All of this tells us that the U.S. health care system is wildly inefficient. But how does a can-do country, at the cutting edge of technology in many fields, manage to have such an inefficient health care system? The main answer is that we’ve stumbled into a system in which large sums of money are spent not on providing health care, but on denying it.

Possibly the best way to understand the U.S. health care mess is to look at the difference between what we—by which I mean the great majority of Americans—want our system to do, and what the system, as it currently works, gives the main players an incentive to do.

As I’ve argued, there’s a near-consensus that all Americans should receive basic health care. Those who believe otherwise keep their beliefs private, because saying that it’s okay to deny care to someone because he or she was born poor, or with the wrong genes, is politically unacceptable. Private insurance companies, however, don’t make money by paying for health care. They make money by collecting premiums while not paying for health care, to the extent that they can get away with it. Indeed, in the health insurance industry actual payments for care, such as paying the cost of a major operation, are literally referred to as “medical losses.”

Insurance companies try to hold down those unfortunate medical losses in two principal ways. One is through “risk selection,” otherwise known, rather obscurely, as “underwriting.” Both are euphemistic terms for refusing to sell insurance to people who are likely to need it—or charging them a very high price. When they can, insurers carefully screen applicants for indications that they are likely to need expensive care—family history, nature of employment, and, above all, preexisting conditions. Any indication that an applicant is more likely than average to have high medical costs, and any chance of affordable insurance goes out the window.

If someone who makes it through the process of risk selection nonetheless needs care, there’s a second line of defense: Insurers look for ways not to pay. They pick through the patient’s medical history to see if they can claim that there was some preexisting condition he or she failed to disclose, invalidating the insurance. More important in most cases, they challenge the claims submitted by doctors and hospitals, trying to find reasons why the treatment offered wasn’t their responsibility.

Insurers don’t do all this because they’re evil people. They do it because the structure of the system leaves them little choice. A nice insurance company, one that didn’t try to screen out costly clients and didn’t look for ways to avoid paying for care, would attract mainly high-risk clients, leaving it stuck with all the expenses other insurers were trying to avoid, and would quickly go out of business. If the people doing all this aren’t evil, however, the consequences are. Remember, there’s an almost universal belief that everyone should have adequate health care, which means having adequate insurance—but the way our system works, millions of people are denied insurance or offered it only at unaffordable prices. At the same time insurance companies spend huge sums screening applicants and fighting over payment. And health care providers, including doctors and hospitals, spend huge sums dealing and fighting with insurance companies to get paid. There’s a whole industry known as “denial management”: Companies that help doctors argue with insurance companies when payment is denied.

None of these costs arise in a universal health care system in which the government acts as insurer. If everyone is entitled to health insurance, there’s no need to screen people to eliminate high-risk clients. If a government agency provides insurance, there’s no need to fight over who pays for a medical procedure: If it’s a covered procedure the government pays. As a result government health insurance programs are much less bureaucratic and spend much less on administration than do private insurers. For example, Medicare spends only about 2 percent of its funds on administration; for private insurers the figure is about 15 percent. McKinsey Global estimates that in 2003 the extra administrative costs of the U.S. health insurance industry, as compared with the costs of the government insurance programs in other countries, ran to $84 billion.

And that literally isn’t the half of it. As the McKinsey report acknowledges, “This total does not include the additional administrative burden of the multipayor structure and insurance products on hospitals and outpatient centers…. Nor does it include the extra costs incurred by employers because of the need for robust human resources departments to administer health care benefits.”[7] One widely cited comparison of the U.S. and Canadian systems that tried to estimate these other costs concluded that in the United States total administrative cost—including both the costs of insurers and those of health care providers—accounts for 31 percent of health spending, compared with less than 17 percent in Canada. That would amount to around $300 billion in excess costs, or about a third of the difference between U.S. and Canadian spending.[8]

Where did the rest of the money go? Unlike other advanced countries, the United States doesn’t have a centralized agency bargaining with pharmaceutical companies over drug prices. As a result America actually uses fewer drugs per person than the average foreign country but pays far more, adding $100 billion or more to the overall cost of health care. There are also a variety of subtler inefficiencies in the U.S. system, such as perverse financial incentives that have led to a proliferation of outpatient CT scan facilities where the expensive equipment gets relatively little use.

Finally U.S. physicians are paid more than their counterparts in other countries. This isn’t, however, a large source of the difference in costs compared with administration, drugs, and other problems. The authors of that study comparing U.S. and Canadian administrative costs estimate that higher U.S. physicians’ salaries account for only about 2 percent of the difference in overall costs.

There’s one more terrible defect I should mention in the U.S. system: Insurers have little incentive to pay for preventive care, even when it would save large amounts in future medical costs. The most notorious example is diabetes, where insurers often won’t pay for treatment that might control the disease in its early stages but will pay for the foot amputations that are all too often a consequence of diabetes that gets out of control. This may seem perverse, but consider the incentives to the insurer: The insurer bears the cost when it pays for preventive care, but it’s unlikely to reap the benefits since people often switch insurers, or go from private insurance to Medicare when they reach sixty-five. So medical care that costs money now but saves money in the future may not be worth it from an individual insurance company’s perspective. By contrast, universal systems, which cover everyone for life, have a strong incentive to pay for preventive care.

So far I’ve made the U.S. system sound like a nightmare, which it is for many people. Nonetheless about 85 percent of Americans do have health insurance, and most of them receive decent care. Why does the system work even that well?

Part of the answer is that even in America the government plays a crucial role in providing health coverage. In 2005, 80 million Americans were covered by government programs, mostly Medicare and Medicaid plus other programs such as veterans’ health care. This was less than the 198 million covered by private health insurance—but because both programs are largely devoted to the elderly, who have much higher medical costs than younger people, the government actually pays for more medical care than do private insurers. In 2004 government programs paid for 44 percent of health care in America, while private insurance paid for only 36 percent; most of the rest was out-of-pocket spending, which exists everywhere.

The rest of the reason why the American system works as well as it does is that the great majority of Americans who do have private health insurance get it through their employers. This is partly the result of history—during World War II companies weren’t allowed to raise wages to compete for workers, so many offered health benefits instead. It’s also in large part the result of a special tax advantage: Health benefits, unlike salary, aren’t subject to income or payroll taxes. In order to get this tax advantage, however, an employer has to offer the same health plan to all its employees, regardless of their health history. Employment-based coverage, then, mitigates to some extent the problem of insurers screening out those who really need insurance. Also, large employers to some extent stand up for their employees’ rights to treatment.

As a result of these advantages, employment-based insurance has long provided a workable solution to the health care problem for many Americans—a solution that was good enough to head off demands for a fundamental overhaul of the system. But now that solution, such as it was, is breaking down.

The basic outlines of the U.S. health care system haven’t changed much since 1965, when LBJ created Medicare and Medicaid. Government insurance for the elderly and the poor; employment-based insurance for workers with good jobs at good companies; personal insurance, if you can get it, for those not lucky enough to get employment-based coverage; a scary life without insurance for a significant number of Americans. While the outlines have remained the same, however, the numbers have changed. Employment-based insurance is gradually unraveling. Medicaid has taken up some but not all of the slack. And fear of losing health insurance has come to pervade middle-class America.

The slow-motion health care crisis began in the 1980s, went into brief remission for part of the nineties, and is now back with a vengeance. The core of the crisis is the decline in employment-based insurance. As recently as 2001, 65 percent of American workers had employment-based coverage. By 2006 that was down to 59 percent, with no sign that the downward trend was coming to an end.[9] What’s driving the decline in employment-based coverage is, in turn, the rising cost of insurance: The average annual premium for family coverage was more than eleven thousand dollars in 2006, more than a quarter of the median worker’s annual earnings.[10] For lower-paid workers that’s just too much—in fact, it’s close to the total annual earnings of a full-time worker paid the minimum wage. One study found that even among “moderate income” Americans, which it defined as members of families with incomes between twenty and thirty-five thousand dollars a year, more than 40 percent were uninsured at some point over a two-year period.[11]

Why is insurance getting more expensive? The answer, perversely, is medical progress. Advances in medical technology mean that doctors can treat many previously untreatable problems, but only at great expense. Insurance companies pay for these treatments but compensate by raising premiums.

The trend of rising medical costs goes back for many decades. Table 8 shows total U.S. health care spending as a percentage of GDP since 1960; except for one brief episode, of which more later, it has been rising steadily. As long as medical costs were relatively low, however, rising spending posed little problem: Americans shouldered the financial burden, and benefited from medical progress.

By the 1980s, however, medical costs had risen to the point where insurance was becoming unaffordable for many employers. As medical costs continued to rise, employers began dropping coverage for their employees, increasing the number of people without insurance, who often fail to receive even basic care. As Robin Wells and I wrote back in 2006:

In response to new medical technology, the system-spends even more on insiders. But it compensates for higher spending on insiders, in part, by consigning more people to outsider status—robbing Peter of basic care in order to pay for Paul’s state-of-the-art treatment. Thus we have the cruel paradox that medical progress is bad for many Americans’ health.[12]

This cruel paradox was well under way in the 1980s, and it led, for a time, to a powerful movement demanding health care reform. Harris Wofford won a surprise victory in Pennsylvania’s 1991 special senatorial election, in large part by stressing the problems of health care. Bill Clinton picked up the same theme, and it helped elect him in 1992.

But Clinton’s attempt to deliver on his promise failed, and Wofford himself was defeated by Rick Santorum, a full-fledged movement conservative, in 1994. (Santorum, in turn, was defeated solidly in 2006. As I mentioned in chapter 8, he has taken refuge for the time being in a movement think tank, where he is creating a program called “America’s Enemies.”) Why did health care reform fail under Clinton, and why has its time come again?

There were a few months in 1993 when fundamental health care reform seemed unstoppable. But it failed—and the failure of the Clinton plan was followed by the Republican triumph in the 1994 election, a sequence that haunts and intimidates Democrats to this day. Fear of another debacle is one of the main factors limiting the willingness of major Democrats to commit themselves to universal health care now. The question, however, is what lessons we really should learn from 1993.

I find it helpful to divide the reasons for Clinton’s failure into three categories. First, there were the enduring obstacles to reform, which are the same now as they were then. Second, there were aspects of the situation in 1993 that are no longer relevant. Third, there were the avoidable missteps—mistakes Clinton made that don’t have to be repeated.

Let’s start with the enduring obstacles, of which the most fundamental is the implacable opposition of movement conservatives. William Kristol, in the first of a famous series of strategy memos circulated to Republicans in Congress, declared that Republicans should seek to “kill” the Clinton plan. He explained why in the Wall Street Journal: “Passage of the Clinton health care plan in any form would be disastrous. It would guarantee an unprecedented federal intrusion into the American economy. Its success would signal the rebirth of centralized welfare-state policy.”[13] He went on to argue that the plan would lead to bad results, but his main concern, clearly, was that universal health care might actually work—that it would be popular, and that it would make the case for government intervention. It’s the same logic that led to George W. Bush’s attempt to privatize Social Security: The most dangerous government programs, from a movement conservative’s point of view, are the ones that work the best and thereby legitimize the welfare state.

We don’t have to speculate about whether movement conservatives will be equally implacable in their opposition to future health care reforms—they already are at the time of writing, and their arguments are even more over-the-top than they were in 1993. For example, when British authorities found that a ring of Muslim doctors employed by the National Health Service had been planning terrorist attacks, there was a coordinated effort by media outlets such as Fox News and movement conservative pundits to push the idea that national health care foments terrorism. Honest.[14]

It’s equally certain that the insurance industry will fiercely oppose reform, as it did in 1993. What most people remember about the Clinton debacle is the highly effective “Harry and Louise” ads run by the insurance lobby, which scared people into believing that the plan would deprive them of medical choice. What they probably don’t realize is that the industry’s opposition came as a surprise to the Clintons, whose plan tried to co-opt insurance companies by giving them a major role in running the system. All of the leading health care plans now on the table, as described below, similarly preserve an important role for private insurers—but now, as then, that won’t diminish the industry’s opposition. The fact is that no health care reform can succeed unless it reduces the excess administrative costs now imposed by the insurance industry—and that means forcing the industry to shrink, even if the insurers retain a role in the system. There’s really no way to buy their cooperation.

Again, we don’t have to speculate about this. The political dynamics are already visible in California, where Arnold Schwarzenegger, a modern version of an Eisenhower Republican, has proposed universal health care at the state level. Schwarzenegger’s plan would preserve the role of private insurance companies, but it would regulate them in an attempt to eliminate risk selection. And sure enough, Blue Cross of California, the state’s largest insurer, is running Harry and Louise–type ads warning that “ill-considered reforms” could damage the state’s health care.

The drug industry will also be a source of fierce opposition—and probably more so than in 1993, because drug spending is a much larger share of total medical costs today than it was fifteen years ago. Like the opposition of insurers, drug industry opposition is essentially unavoidable, because drug companies are part of the problem—U.S. health care is costly partly because we pay much more than other countries for prescription drugs, and sooner or later a universal health care system would try to bargain those prices down.

So far so bad: Some of the major sources of opposition to health care reform in the early nineties will put up equally fierce resistance today. There is, however, a fundamental sense in which the current push for reform is more durable, less likely to be undercut by events, than the push fifteen years ago.

As I pointed out in chapter 10, Bill Clinton got elected in large part because the U.S. economy was depressed. The recession of 1990–91 was followed by a long period of slow job growth, the so-called “jobless recovery,” that felt to most people like a continuing recession. And the health care crisis seemed particularly acute because people were losing jobs, and losing the health insurance that went with those jobs. The problem for health care reformers was that once the economy began to improve, so did the health insurance situation. By early 1994 William Kristol had persuaded Republicans to fight Clinton’s plan, not simply on its own merits but by claiming that there was no crisis in American health care. And as Table 9 shows, the health insurance situation was in fact improving rapidly: The percentage of Americans with employment-based insurance rose sharply in 1994, as newly employed Americans got coverage along with their jobs. Republican stalling tactics worked in large part because by the time the first year of Clinton’s presidency had ended, Americans were feeling better about the health care status quo.

That simply isn’t going to happen this time around. The early years of this decade were marked by a recession and jobless recovery similar to that of the early 1990s. The job picture began improving in 2003, however, and by 2006 the unemployment rate had fallen to levels not far above its late-nineties low. Yet the health insurance picture continued to get worse. This time there won’t be a temporary improvement in the picture that will let obstructionists deny that there’s a crisis.

There was also another factor producing temporary relief just as Clinton was trying to sell his health plan: The mid-1990s were the golden age of HMOs. The original idea behind health maintenance organizations was that traditional fee-for-service insurance, in which insurance companies pay any doctor for an allowed procedure, leads to overspending: Doctors call for any procedure that might yield medical benefits, and patients go along since someone else pays. An HMO was supposed to replace this with “managed care,” in which doctors who were part of the HMO’s network had incentives to take cost into account, leading them to forgo expensive procedures with small expected medical benefits. People would accept these limits, the theory went, because they would lead to much cheaper insurance.

The overall idea of taking cost into account in medical decisions makes a lot of sense. Britain’s National Health Service, the one example of true socialized medicine among major advanced countries, has a limited budget. The medical professionals who run the system try to make the most of this budget by rating medical procedures in terms of the medical gain per pound spent, and limiting low-gain spending. In the United States, the Veterans Health Administration, which is a sort of miniature American version of the NHS, does much the same thing. And both the NHS and the VA system do remarkably well at providing effective health care despite having very limited resources.

HMOs, however, are private organizations run by businessmen, not public agencies run by doctors. At first they seemed to deliver on their promise of cost savings: as HMOs spread in the 1990s, the long-term rise in health care costs paused, a pause clearly visible in Table 8. And during the 1990s the combination of HMO cost savings and a booming economy led to the big but temporary improvement in the health insurance picture visible in Table 9.

But in the end HMOs failed to deliver sustained savings for one simple reason: People don’t trust them. Patients in Britain’s National Health Service are, on the whole, willing to accept some rationing of health care because they understand that the national health system has a limited budget and is run by doctors trying to make the most of that budget. American HMO members are much less willing to accept rationing because they know it’s driven by accountants who are trying to maximize a corporate bottom line. Because of this distrust and dissatisfaction, HMO enrollment as a share of the total peaked in the mid-1990s, although other, milder forms of managed care continued to grow. Moreover, a public outcry and congressional hearings have forced insurers to back away from aggressive attempts to hold down costs. As a result U.S. medical costs are once again rising rapidly, and employer-based insurance is again in decline.

All this implies that the case for health care reform is less fragile now than it was in 1993. Clinton had a short window of opportunity to achieve reform, before the public’s attention shifted to other things. This time it’s hard to envision anything that would diminish the public’s sense that something must be done, and let opponents claim that there isn’t a crisis.

Yet even in 1993 Clinton might have achieved health care reform if he hadn’t made several crucial mistakes.

Much has been written about the personalities involved in the Clinton health care plan and their shortcomings. I won’t try to add to all that. Instead let me focus on two things that Clinton clearly did wrong.

First, he just didn’t get started soon enough. Matthew Holt, a health care analyst whose blog on health policy has become must reading in the field, has offered a stark comparison between Clinton’s failed attempt at reform and LBJ’s successful push for Medicare. Johnson actually signed Medicare into law on July 30, 1965, less than nine months after his victory in the 1964 election. Clinton didn’t even make his first national speech on health care until September 23, 1993.[15]

The long delay was disastrous for several reasons. By the fall of 1993 any political momentum from the 1992 election had dissipated, and the Clinton administration was already bogged down in petty issues like the role of gays in the military, as well as various fake scandals manufactured by the movement conservative echo chamber. At the same time economic recovery was undermining the demand for health care reform.

Why didn’t Clinton move sooner? Partly it was a question of priorities: His initial preoccupation was with budget issues. The creation of the Clinton health plan was also an unwieldy process, involving a huge but secretive task force whose leadership managed to alienate many natural allies. Above all, however, Clinton just wasn’t ready. Medicare emerged from years of prior discussion; Clinton came in with a near-blank slate. His presidential campaign hadn’t offered any specifics on health care reform, nor had there been a national debate on the subject to prepare the ground.

When the Clinton plan finally emerged, it turned out to have another problem: It was all too easily portrayed as a plan that would deprive Americans of medical choice.

The Clinton plan embraced the theory behind managed care, that restricting spending on expensive but medically marginal procedures would lead to huge cost savings. It was a plan for universal coverage, but it was also a plan to, in effect, channel everyone into HMOs, which would engage in “managed competition.” Opponents of the plan quickly homed in on the managed care aspect: The first and most devastating of the “Harry and Louise” ads warned that “the government may force us to choose from a few health care plans designed by government officials.”[16]

In order to avoid repeating this unfortunate history, today’s health care reformers have to avoid these mistakes. They need to hit the ground running: If and when a progressive president and a progressive congressional majority take office, they must have at least the key elements of a universal health care plan already decided and widely discussed. Thus it’s a very good thing that health care reform has become a central issue in the current presidential campaign. They’ll also need to offer a plan that reassures Americans that they will retain some choice, that those who currently have good insurance won’t be forced into something worse.

When FDR created Social Security and unemployment insurance, he was entering uncharted territory. Such programs had never existed in America, and the welfare state programs of Germany and Britain were both limited and little known in the United States. Nobody could be sure how well the New Deal’s plans to protect Americans from risk would work in practice. By contrast, universal health care has existed for decades in most of the Western world, and we already have a very good idea of what works.

Ezra Klein has produced a very good survey of health care systems in other advanced countries, and his opening paragraphs are worth quoting in full:

Consider the French system, which the World Health Organization ranked number one in the world. France maintains a basic insurance system that covers everyone, paid for out of tax receipts. This is comparable to Medicare. People are also encouraged to buy additional insurance that covers more medical expenses—comparable to the supplemental health insurance that many older Americans have on top of Medicare—and the poor receive subsidies to help them buy additional coverage, comparable to the way Medicaid helps out millions of older Americans.

It’s worth noting, by the way, that the Canadian system, which is often used as an example of what universal health care in America would look like, has a feature present neither in the French system nor in Medicare: Canadians are not permitted to buy their own care in areas covered by government insurance. The rationale for this restriction is that it’s a means of holding down costs by preventing affluent Canadians from bidding away scarce medical resources. However, it clearly isn’t an essential feature of universal care. Again, older Americans covered by Medicare, like the French, are free to buy as much health care as they want over and above what the government provides.

The parallels between the French system and Medicare aren’t perfect: There are some features of the French system that don’t have counterparts in America, at least not yet. Many French hospitals are government owned, although these have to compete for patients with the private sector. France also has a strong emphasis on preventive care. The French government provides full coverage—no co-pays—for chronic conditions such as diabetes and hypertension, so that patients won’t skimp on treatment that might prevent future complications.

The key point, however, is that the French health care system, which covers everyone and is considered the best in the world, actually looks a lot like an expanded and improved version of Medicare, a familiar and popular program, extended to the whole population. An American version of the French system would cost more than the French system for a variety of reasons, including the facts that our doctors are paid more and that we’re fatter and hence more prone to some costly conditions. Overall, however, Medicare for everyone would end the problem of the uninsured, and it would almost certainly cost less than our current system, which leaves 45 million Americans without coverage.

In a world run by policy wonks, that would be the end of the story. Americans love Medicare; let’s give it to everyone. Paying for the expansion would mean higher taxes, but even Americans who currently have insurance would more than make up for that because they wouldn’t have to pay such high premiums. Problem solved! Fortunately or unfortunately, however, the world isn’t run by policy wonks. Proposals to institute a single-payer system, aka Medicare for all, face several major political roadblocks.

The roadblock one hears about most often is the implacable opposition of the insurance and drug industries to a single-payer system. Reformers should realize, however, that these interest groups will go all out against any serious health care reform. There’s no way to buy them off.

It may be possible, however, to finesse two other barriers to change: the need to raise taxes, and the public’s fear of losing choice. First, the problem of taxes: Extending Medicare or its equivalent to every American would require a lot of additional revenue, probably about 4 percent of GDP. True, these additional taxes wouldn’t represent a true financial burden on the country, since they would replace insurance premiums people already pay. Despite that fact, it would be very challenging to convince people that a large tax increase didn’t represent a true net increase in their financial burden, especially in the face of the dishonest opposition campaign such a proposal would inevitably encounter. It would also be difficult to pass tax increases of the size needed, even with a strong progressive majority.

The problem of maintaining patient choice is, in a way, similar. Medicare-type coverage would replace much of the insurance Americans already have, and they would be free to buy additional coverage. But a plan that automatically puts people into a government insurance system could easily be portrayed as a plan that deprives them of choice. The opponents of reform would do their best to promote that misunderstanding.

It’s important to bear in mind that these two problems are political objections to a single-payer system, not economic objections. In purely economic terms, single-payer is clearly the way to go. A single-payer system, with its low administrative costs and strong ability to bargain over prices, would deliver more health care, at lower cost, than the alternatives. The perfect can, however, be the enemy of the good. It’s much better to go with a reform plan that’s politically feasible and achieves some of the advantages of single-payer than to hold out for the ideal solution.

Now for the good news: Over the past few years policy analysts and politicians have been evolving an approach to health care reform that seems to be a workable compromise between economic efficiency and political realism. It involves four basic elements:

Community rating

Subsidies for low-income families

Mandated coverage

Public-private competition

I’ll begin by discussing the first three, pause to explain what they accomplish in combination, and then explain the role of the fourth.

Under community rating, insurers are prohibited from charging customers different premiums, or denying coverage altogether, based on their perceived risk of getting sick. “Pure” community rating, which is already the law in New York and Vermont, requires that insurers offer everyone policies at the same premium—end of story. Under “adjusted” community rating, which is already the law in Massachusetts, New Jersey, and elsewhere, premiums can vary by criteria such as age and geography—but not by medical history. The purpose of community rating is to prevent insurers from denying care to people with preexisting conditions and other risk factors; it’s also supposed to reduce administrative costs, because the insurance companies no longer devote large sums to identifying risky applicants and rejecting them.

Subsidies are something we already do, under Medicaid. Reform proposals call for extending these subsidies to cover many people who aren’t eligible for Medicaid but still can’t afford insurance, mainly lower-income working adults.

Mandated coverage says that you must have health insurance, just as car owners must have auto insurance. It’s intended to deal with the problem of individuals who could afford insurance but choose to take their chances instead, then end up in emergency rooms, where taxpayers often end up paying the tab, if something goes wrong. Some plans also include an employer mandate, requiring that employers buy health insurance for their employees.

Combining these three elements leads to a universal health care system run through private insurance companies. People who might have been denied insurance because of medical history are guaranteed access through community rating, people who might not otherwise have been able to afford insurance are helped out financially, and people who might have chosen to take their chances aren’t allowed to.

Massachusetts introduced a system along these lines in 2006. And Arnold Schwarzenegger’s plan for California is similar. Two major candidates for the Democratic nomination, John Edwards and Barack Obama, have announced related plans at the time of writing, although they both also have the fourth feature, which I’ll discuss in a moment.

Does such a system, in which universal care is achieved via private insurers, have any fundamental advantages over single-payer? In economic terms, no. In fact it’s best viewed as an attempt to simulate a single-payer system through regulation and subsidies, and the simulation will be imperfect. I once compared such plans to Rube Goldberg devices, which achieve simple goals in a complicated way. In particular, enforcing community rating and mandates requires substantial government bureaucracy. Ironically, running health care through private insurers requires more intrusive government than a simple government program would.

There are, nonetheless, political advantages to a community-rating-subsidies-and-mandates system. First and foremost, it requires much less additional revenue than single-payer, because most of the cost of insurance continues to be paid in the form of premiums from employers and individuals. All you need is enough revenue to subsidize low-income families. Reasonable estimates suggest that the revenue needed to institute a hybrid universal care system is considerably less than the revenue lost due to the Bush tax cuts, which are scheduled to expire at the end of 2010. So this kind of universal health care plan could be implemented without the need to pass a tax increase. All a Democratic president and Congress would have to do is let some of the Bush tax cuts expire, and devote the revenue gained to health care.

At the same time such a plan would allow people satisfied with their private insurance to keep it. The insurance industry would try to block reform by attacking community rating—in fact, community rating was the target of one of the “Harry and Louise” ads in 1993—but it wouldn’t be able to accuse the government of forcing people into managed care.

Although private insurance–based universal health care looks more doable than single-payer, it would forgo some of single-payer’s advantages. Administrative costs, in particular, would be higher, there would still be a multiplicity of insurers and a fight over who pays what. Is there any way to fix these problems?

That’s where the fourth element comes in. The Edwards and Obama plans allow people to stick with private insurance, but they also allow people to buy into a Medicare-type government insurance plan, at a price that reflects the actual cost to the government. Allowing a buy-in to Medicare creates competition between public and private plans. The evidence suggests that the government plans, which would have lower overhead costs because they wouldn’t devote large sums to marketing, would win that competition. When Medicare began requiring that Medicare Advantage plans—taxpayer-supported private plans for seniors—compete with traditional Medicare on an actuarially fair basis, the private plans withered away. (They began expanding again after the 2003 Medicare Modernization Act introduced large subsidies to private plans, averaging about a thousand dollars per recipient each year. But that’s another story.) If the government plans consistently out-competed private insurers, the system would evolve over time into single-payer, as private insurers lost market share. This would, however, represent choice on the part of the public, not a government edict forcing people into government programs.

If a plan along these lines is enacted, the result will be a U.S. health care system that isn’t quite like anyone else’s but somewhat resembles the German system, in which health insurance is provided by competing but heavily regulated “sickness funds.” The German system, like the French system, costs far less than ours while providing universal coverage and high-quality care. It also performs better than the U.S. system on every dimension of health care access: It’s easier to see a doctor on short notice, waits in emergency rooms are shorter, and even elective surgery involves fewer delays than it does here.[18]

There are many, many details to work out, but the important thing is that universal health care looks very doable, from an economic, fiscal, and even political point of view.

The principal reason to reform American health care is simply that it would improve the quality of life for most Americans. Under our current system tens of millions lack adequate health care, millions more have had their lives destroyed by the financial burden of medical costs, and many more who haven’t yet gone without insurance or been bankrupted by health costs live in fear that they may be next. And it’s all unnecessary: Every other wealthy country has universal coverage. Reducing the risks Americans face would be worth it even if it had a substantial cost—but in this case there would be no cost at all. Universal health care would be cheaper and better than our current fragmented system.

There is, however, another important reason for health care reform. It’s the same reason movement conservatives were so anxious to kill Clinton’s plan. That plan’s success, said Kristol, “would signal the rebirth of centralized welfare-state policy”—by which he really meant that universal health care would give new life to the New Deal idea that society should help its less fortunate members. Indeed it would—and that’s a big argument in its favor.

Universal health care could, in short, be to a new New Deal what Social Security was to the original—both a crucially important program in its own right, and a reaffirmation of the principle that we are our brothers’ keepers. Getting universal care should be the key domestic priority for modern liberals. Once they succeed there, they can turn to the broader, more difficult task of reining in American inequality.