Why Republicans Should Back Universal Health Care

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The time for universal health insurance coverage has come. Everybody seems to know that -- except for the Republicans, all too many of whom cling to traditional denunciations of universal coverage as socialism. Senate Finance Committee Chairman Max Baucus has been holding talks with Republican lawmakers over the past week, and all signs point to opposition from the GOP.

But for the welfare of the country and their political party, Republicans should, instead, seize the lesson of Nixon's trip to China. With one brilliant foray, Nixon converted the massive threat posed by the isolated China into an asset, secured a favorable mention in history, and stripped the Democrats of a key issue. By embracing their own brand of universal health coverage, Republicans can do the same. There's a massive constituency behind the policy. Buffeted by the recession and the threat of losing their employer-provided health insurance, the American people want universal coverage. Much of the US business community wants it too. CEOs rarely say "Know what I love about my job? Buying health care." The chore is so unrewarding -- corporate buyers have failed to create effective cost or quality improvements -- that many small business CEOs simply skip it. As a result, millions distort the efficient allocation of labor in our economy by opting for jobs in dying, big companies that offer health insurance, rather than productive ones in small companies that do not. Furthermore, our employer-based health insurance system forces American businesses to pack our massive health care costs -- about 70 percent greater as a share of GDP than other countries' -- into the cost of their exports, a huge albatross in a globally competitive economy.

The Republicans can do a Nixon-goes-to-China by offering a better version of universal coverage. There is, after all, substantial concern about the Democrats' reliance on universal coverage through a government-controlled system like Medicare. Some distrust government's ability to make good on its promises. Medicare currently owes $36 trillion in services to those who paid for its use when they hit 65. Have you seen a spare $36 trillion hanging around? (For perspective, that amount is equivalent to about three years of US GDP.)

Another concern is that government will control costs by rationing health care to the sick. The government-controlled UK health care system, for example, has the lowest uptake of cancer drugs among the five biggest European economies and correspondingly low cancer survival rates. Concerns about rationing are not demagoguery. How else can a government control costs? Many experts dismiss as wishful thinking the Democrats' claims of achieving efficiency by implementing dazzling information technology and other technocratic tools. And because the truly sick constitute only 20 percent of health-care users, but account for 80 percent of health-care costs, they may as well wear a bull's eye on their backs: they are a politically vulnerable target for cost control through rationing.

Transforming the government into a monopolistic buyer of health care will also affect the supply of doctors. All too many doctors, saddled with massive educational debts, refuse to see Medicaid patients because they are pay so little. But if government were the only payer, some prospective physicians, facing the prospect of incomes totally controlled by the government, would reluctantly enter other professions.

Finally, a government-controlled system would likely impair the medically and economically important genomic sector. US venture capitalists have provided billions for research that may provide cures or even preventions for genetically linked diseases. Kiss that money -- and the important personalized medicine industry it could create -- goodbye under a system of government-controlled universal coverage. Venture capitalists will find it too risky to invest in markets where one payer controls prices.

The Republicans could instead offer a consumer-controlled universal coverage system, like that in Switzerland, in which the people, not the government, control how much they spend on health. There are no government health insurance programs. Instead, the Swiss choose from about 85 private heath insurers. Rather than being stuffed into the degrading Medicaid program, the Swiss poor shop for health insurance like everyone else, using funds transferred to them by the government. The sick are not discriminated against either -- they pay the same prices as everyone else in their demographic category. Like the US, Switzerland is a confederation of states that, as in the US, oversee the insurance system. Enforcement by the tax authorities has produced 99 percent enrollment.

This consumer-driven, universal coverage system provides excellent health care for the sick, tops the world in consumer satisfaction, and costs 40 percent less, as a percentage of GDP, than the system in the US. The Swiss could spend even less by choosing cheaper, high deductible health insurance policies, but they have opted against doing so. Swiss consumers reward insurers that offer the best value for the money. These competitive pressures cause Swiss insurers to spend only about 5 percent on general and administrative expenses, as compared to 12-15 percent in the US. And unlike Medicare, the private Swiss firms must function without incurring massive unfunded liabilities. Competition has also pushed Swiss providers to be more efficient than those in the US. Yet they remain well-compensated.

We can also learn from the mistakes made by the Swiss. For example, they pay providers for fragmented care, rather than for integrated treatments for diseases or disabilities. The Swiss sustain an inefficient hospital sector, and they aren't transparent about the cost and quality of providers.

Republicans could enact Swiss-style universal coverage by enabling employees to cash out of their employer-sponsored health insurance. (Although many view employer-sponsored health insurance as a" free" benefit, it is money that would otherwise be paid as income.) The substantial sums involved would command attention and gratitude: a 2006 cash out would have yielded $12,000 -- the average cost of employer-sponsored health insurance -- thus raising the income of joint filers who earn less than $73,000 (90 percent of all filers) by at least 16 percent. Employees could remain in with an employer's plan or use this new income to buy their own health insurance.

The Republican choice is clear. They can whine while the Democratic Congress enacts a government-controlled system, or they can embrace a Republican approach to Universal Coverage.

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Presented by

Regina Herzlinger

Regina Herzlinger is the McPherson Chair at Harvard Business School and author of Who Killed Health Care? (McGraw Hill, 2007). She was a health care adviser to John McCain's presidential campaign.
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