William Hsiao PhD, Professor of Economics Harvard T.H. Chan School of Public Health
Health economist William Hsiao PhD lays out two stark choices on healthcare reform facing Americans:
- should health insurance continue being treated as a market-driven commercial product, or should it be changed to a government-regulated social good?
- if Americans opt for change, should they alter the system quickly in a few years or slowly over decades?
In the February issue of Foreign Affairs, Professor Hsiao makes the case the healthcare market has failed – “Americans pay more and get less.” But he questions whether Americans currently have enough political will to undertake more than small incremental steps toward transforming it.
He acknowledges that changing to a single-payer approach would radically cut administrative costs, extend coverage to all, strengthen fraud control, and spread actuarial risk more evenly. He also acknowledges that doing so would reduce the overall national spending on healthcare and would relieve households from the financial threats of escalating premiums and illness.
But, he writes, the single-payer approach would encounter both public fear of major change as well as resistance from powerful interest groups like the American Medical Association, American Hospital Association, insurance companies, and pharmaceutical firms. “Although Americans have begun to take a more favorable view of single-payer systems in recent years, it’s far from clear that the idea has enough popular support to clear such hurdles.”
He cites Canada and Taiwan as examples of rapid comprehensive reform undertaken in 1968 and 1995, respectively. He notes that these two systems have kept annual per-capita spending at $4,974 in Canada and $1,430 in Taiwan, compared with over $10,000 annually for Americans. And he notes that both countries enjoy longer life expectancy and lower infant mortality than the U.S.
But he questions whether such a radical approach is politically possible in the U.S. His admonitions should not be ignored, since he is a renowned international expert on healthcare financing and social insurance, with long-standing tenure at Harvard’s Chan School of Public Health. Also, he is no stranger to healthcare politics as the prime architect of Medicare’s resource-based relative-value pricing schema.
The German Alternative
Professor Hsiao suggests another model – Germany.
Germany’s first “sickness funds” were created in 1883 by Chancellor von Bismarck (see my YouTube video, “Brief History of U.S. Healthcare”). Then, after World War I, the Reichstag mandated universal coverage for all citizens. In the 1990s, chaotic coverage packages were standardized by law. Since then, the hybrid regulated market consolidated down to just 115 insurers currently, all now using required uniform claims procedures. Administrative costs are low, drug costs are controlled, per-capita spending is $5,728, and life expectancy and infant mortality are better than in the U.S.
Professor Hsiao argues that an incremental approach like Germany’s is more politically feasible in the U.S. For example, implementing a uniform system of records and payments could streamline claims processing and improve control of duplication and fraud. He favors allowing a monopsony of insurers to collectively bargain on drug prices. Measures like these would predictably save $200 to $300 billion dollars annually, a comparatively small but worthwhile step.
Meanwhile, he favors state-level or federal-level risk pools and regional health budgets to cover the uninsured and underinsured. These measures would require modest tax increases along the way, but would sidestep the politically problematic issue of abolishing private health insurance.
Professor Hsiao astutely frames the question of healthcare reform as a debate over “the perfect and the good.” He implies that doing nothing is not an option. But he also astutely notes that the clash between public sentiment and the vested interests will drive the political power dynamic. Will Americans’ escalating pocketbook costs prevail over their fear of change and their tolerance for non-costworthy spending in the current system?
This blog has predicted that rising pocketbook pain will push Americans to their political tipping point. Time will tell.
See action steps to consider
Title: Professor William Hsiao, K.T. Li Research Professor of Economics, Harvard T.H. Chan School of Public Health
Source: Harvard T.H. Chan School of Public Health
Copyright: The President and Fellows of Harvard College, 2020 (Used with permission)