Many reforms in China have used the U.S. as a model. China must therefore seriously review the problems the U.S. is experiencing in the health care sector in order to take preventative measures against the occurrence of a crisis here at home.
The U.S. is now engaged in a huge debate concerning health care reform. When President Obama came to office, he petitioned the nation on the subject of new health care reform policies and, in these recent months, all of the U.S. media has given its full focus on health care reform discussions.
China’s reforms, whether socio-economic or cultural, large or small, have all been modeled after the U.S. Many state officials and scholars say we must mention the experiences undergone by the U.S. However, it seems that health care is an exception to this trend. When it comes to health care, the lesson we can learn from the U.S. goes beyond mere experience. In fact, China’s new health care reform process comes out ahead of the U.S.
The problems that have arisen in the U.S. health care system are borne of many social and economic factors. Even though many reforms in China use the U.S. as a model, given recent problems, perhaps we must consider in advance how to avoid future problems.
Why does the U.S. need health care reform?
In the U.S., doctor shortages and medical expenses are equally problematic.
First of all, the U.S. health care system is among the most expensive in the world. Health care costs take up 17 percent of the country’s GDP. Every year, costs exceed two trillion dollars, far exceeding costs reached by all of the world’s other countries. However it is the only developed country that has not managed to insure all of its population. There are currently 50 million people in the U.S. who have no health insurance (these are mostly people aged 65 and under who do not meet the criteria for coverage for the poor and are not covered by company health insurance). These individuals are still facing unsatisfactory medical service quality. Costs are simply not commensurable with results. There are three major problems plaguing the medical system: little coverage, inefficiency and high overhead costs.
Secondly, the high costs make health care unaffordable even for those insured by companies, as well as for the elderly and the poor. Although they have insurance, individuals must also pay premiums. The study of health care economics has long shown that after obtaining health insurance, health service costs rise. To meet rising costs, insurance companies either increase premiums or cut down on coverage. In short, increasing personal coverage causes people to carry a greater cost burden. The U.S. media calls this a “spiraling” rise in health care costs. Obama has used his mother (who died of cancer) as an example: many patients have coverage, but in the final stages of their lives they constantly have to worry about insurance companies using any small pretense to refuse coverage. Furthermore, they must worry about not being able to afford many of their medical treatments.
Low efficiency principally occurs at the level of doctors and treatment facilities. Currently, doctors in the U.S. spend the bulk of their time and energy dealing with health insurers, treatment authorization and lawsuits. The drawbacks of the current medical reimbursement system and worries over facing lawsuits have encouraged doctors to carry out unnecessary check-ups, diagnoses and treatments.
Even more seriously, the U.S. health care burden has become a barrier to the stability and continued development of the country’s economy. Health care is now the greatest financial expense that the U.S. wishes to tackle. Expenses are higher than education and defense. Elderly health care insurance and poor health care insurance constitute the biggest burden on U.S. finances. All previous sessions of government have dealt with this headache. Most insurers are employers who are legally required to provide insurance to employees. This has also become a heavy burden on U.S. businesses, and it is even thought to be the number one source of damage to American business competitiveness.
Before the recent economic crisis, Ford, GM, and others large American businesses had difficulty going forward due to the burden of health care. Obama appealed to the nation: if the U.S. health care system still did not undergo reform, it would pull down the whole nation. He set health care reform as an objective: it would be the new foundation of the future of continued economic development in the U.S. Thus, we can see the high level of strategic importance that the Obama administration has placed on health care reform.
How to reform U.S. health care.
To build a universal healthcare system is a dream for the U.S., in particular that of the Democratic Party. Many economists and health experts have also devoted their efforts to promoting this. Obama’s presidency and the grave economic crisis that he faced appeared to give the U.S. a good opportunity for reform.
When Obama advocated his health care plan, its objectives were mostly the same as those of China, and two were identical: large-scale coverage and low costs. The ultimate goal was to give all Americans the chance to afford health insurance.
Vast coverage and low overhead means not only extending the number of people who will be covered, but also extending coverage. At the same time, better information technology can help control the upwardly spiraling costs of the U.S. health care system.
Obama has pointed out that health care reform means building a new health care system, one that provides a good environment for doctor specialization and has the lowest costs possible for the best possible health care for all Americans. This kind of system can take the pressure off of businesses, release new vitality into the economy, create new jobs, increase salaries, and bring up to ten billion dollars worth of extra growth in the economy, making both the health care system and the economy stronger.
Presently, the reform bill drafted by the Obama administration comprises several aspects. For instance, the government must strictly supervise insurance companies’ modus operandi, not allowing insurance companies to “skim the cream off the top.” The original meaning of this term is to “skim the cream off cow’s milk.” However, in this case, it means that insurance companies tend to sell policies to healthy people, or those who are young or have an elevated income. This creates difficult conditions for elderly, sick and low-income people. Obama’s health care reform plan intends to prohibit this kind of strategy. Insurance companies must accept all applicants and cannot demand higher fees from applicants who have a history of illness or a medical condition. Moreover, the bill also proposes to put a stop to the policy of reducing coverage and insurance companies will have to get their lowest benefits package approved by the federal government.
Also, the federal government must provide an allowance to help non-wealthy individuals buy insurance and give low-income individuals the same insurance as poor people.
In order to lessen the cost burden of health insurance for the elderly, Obama has proposed a necessary reform of payment methods, which will replace the customary method of covering costs according to service items and quantities with one calculated according to value.
Why doesn’t the U.S. create a public hospital system?
With regards to Chinese health care reform, I would like to emphasize the following: achieving universal health care can only solve half the current problems. The real long-term challenge is to manage health care costs by means of an appropriate service system. Thus, public hospitals must become the principal force behind the health service system. This is a real necessity, as well as a historical choice. So people may ask: why don’t Americans build public hospitals?
Indeed some have suggested it, such as last year’s Nobel Prize-winning economist Paul Krugman. Back in 2006, Paul Krugman and Robin Wells co-authored the article “The Health Care Crisis and What to Do About It,” published in the New York Review of Books. They believe that because private insurance companies and private hospitals are principal health care providers, it is costs rather than value that have increased, leading to a lack of efficiency in the U.S. health care system. How it is possible that a system developed on market principles is considered inefficient? The writers first compare the U.S. with Canada and France, explaining that public health insurance is more effective than its private counterpart. Also, these countries manage costs more effectively. The writers then analyzed health insurance for U.S. veterans, showing that the government’s direct provision of health care more effectively manages costs.
Judging from the logic and evidence of this analysis, the conclusion is already clear – cutting up the system is not as good as keeping it together, private health insurance is not as good as government provided insurance, and a government insurance system is not as good as a public hospital system.
Were this kind of view to arise in China, I reckon it would be classified as lacking the common sense of economic study and economic planning. However, Krugman is a Nobel Prize-winning economist, afterall, so one cannot say that it lacks the common sense of an economist. Economics is a discipline of study from the real world, and we must use the facts of experience to speak about things. We must remain flexible; we cannot just study hypotheses and ideas from a book and use them as a standard.
However, the question still lingers: why has the U.S. not evolved a public hospital system? Krugman has brought up two important reasons. One is because the government faces several interest groups, particularly insurers, pharmaceutical companies and members of doctors’ associations. The other reason is because the U..S is influenced by free market ideology. An analysis shows that these two reasons are the source of the chronic problems facing U.S. health reform.
In addition to this, the U.S. has never encountered the opportunity to build public hospitals. Historically speaking, the first nations to build public hospitals, such as the USSR, England, and other countries, were in the process of reform or emerging from war. There were many things that needed to be rebuilt, and public hospitals reshaped the function of government in recreating the image of the country and the spirit of the people. The U.S. has never experienced this kind of destruction of war, and consequently has never experience such urgent demand.
Why does the U.S. dread government?
Although the push for U.S. health care reform appears to have excellent timing, the real drive forward is currently facing several huge difficulties. Controversy still surrounds the issue, and from June up until today, Obama has attempted on many occasions to drum up support and discussion on his new health care bill. According to a New York Times analysis, the focal point of the controversy is concentrated into two aspects. One is the enormous question of how much money must be spent on health care reform. The second is in order to construct a government-run health care plan to cover those who presently have no insurance, will the U.S. “free market” system of values have to change?
The U.S. Congressional Budget Office early on estimated this health reform plan would require one billion U.S. dollars. Before long this was rattling the nerves of tax payers still reeling from the economic crisis. It was met with substantial obstacles, since business owners would have to pay more insurance fees or incur tax increases. Afterwards, the plan underwent some adjustment and was pared down to 20 million dollars. However, the Republican Party and American Medical Association still wouldn’t buy into it.
On the surface, the controversy stems from the economic viability of this plan. “Vast coverage, low costs.” To use an old Chinese proverb, it’s like “getting the horse to run yet not eat grass,” so inevitably people are skeptical. However, Krugman maintains confidence in Obama: “Either you don’t do it at all or you achieve two things at once.” The biggest difference is Obama’s plan for universal coverage and proposing to create a government-run health care insurance plan. This has stirred up U.S. citizens bent on defending free market system ideology, along with special interest groups, particularly those related to insurance companies. These are the obstacles in the way of the health care bill.
What role do special interest groups play?
More than ideology is the threat of special interest groups. Every social group has their own reasonable interest, so not all can be called special interest groups. So-called special interest groups represent a small portion of the population, but have a large impact on government policy. They capitalize on influential government policies and make supreme efforts to defend policies that produce benefits for themselves, yet which violate society.
Which special interest groups oppose health care reform? Let’s take a look: which special interest groups would be hurt by health care reform? If the U.S. achieves low-cost, high-coverage care, who would feel the heat?
One such entity is commercial insurance companies, as they depend on “skimming off the cream” in order make profits. They only sell insurance to those people whose incomes are high and are in good health. Achieving universal health care is bound to throw these companies calculation practices askew.
Secondly, pharmaceutical companies. Controlling costs inevitably requires making more use of cheaper, more effective and appropriate pharmaceuticals and technology. This means that the medical product industry will be subject to reduced profits.
Third, medical associations. U.S. doctors differ from China’s modestly remunerated medical professionals. In the U.S., doctors belong to a very honorable profession, and medical associations worry that health reform will hurt doctors’ interests.
A comprehensive survey of U.S. history shows that the rejection of health insurance planning has been spearheaded by commercial insurance, resulting in an malevolent pharmaceutical industry and doctors’ associations. Through agents from Congress and the government, interest groups will force the next health care reform bubble to burst.
When Truman was in office, he gave a speech to Congress four times about building a universal health care system. He appealed to the U.S. to provide health care where “everyone must shoulder the burden.” This solicited the passionate protest by U.S. doctor groups. They asserted that Truman’s plan was thoroughly “socialist.” In December of 1948, the Journal of the American Medical Association published a strongly worded editorial stating “Compulsory sickness insurance … is a variety of socialized medicine or state medicine and possesses the evils inherent in any politically controlled system. It is contrary to American tradition and is the first and most dangerous step in the direction of complete state socialism. The American Medical Association rejects any such scheme as a method of the distribution of medical care.” Floating on the tide of politics, Truman’s reform plans came up short. The American Health Association has consistently succeeded in preventing the creation of a universal health care system.
When Lyndon Johnson took office, he dedicated himself to improving the livelihood of the people, and the American people called him “the health care and education president.” However, he still did not prevail over the American Medical Association and interest groups from small and medium-sized enterprises in order to create an universal health care system for the entire nation. He settled for compromise and created health insurance for the elderly and the poor. This kind of severed system was not encouraging to Americans. Many youths looked down on sick people; one was forced to wait until 65 to obtain coverage. Studies have shown that this led to minor complaints transforming into major illnesses.
During the beginning of the ‘90s, close to 40 million U.S. residents under the age of 65 had no medical insurance. The cost of health care shot up, and in 1992 it accounted for more than 14 percent of the U.S. GDP. On average, costs greatly exceeded those of other developed countries and were twice that of West Germany and three times that of England.
In 1993, Bill Clinton came to office. One of his important bargaining chips was his electoral promise to provide significant coverage to all Americans. In February of 1993, Clinton issued his first official presidential address: the government planned to invest 175 billion dollars within four years. 37 million uninsured people would be provided with health insurance, and competition would be introduced into the area of health care management in order to strengthen cost control. Still, reform was subject to Republican Party interest group opposition right from the start. Once Hillary Clinton took control of health care reform, President Clinton’s administration received accusations from insurance company groups. They employed even weightier attack methods, accusing the government’s universal coverage plan of leading to greater fiscal pressure. This is precisely the same criticism that Obama is receiving today.
In September 1993, Clinton officially addressed Congress, bringing up the need to control health care costs. However, doctors and insurance company owners and employers were all unwilling to foot the bill for the plan. After the plan was laid out in a short number of months, the American Medical Association, insurance companies, small business alliances and other agencies spent several billions of dollars on publicity attacks against Hillary Clinton’s “big government and high taxes,” which thoroughly “violated the ethics of the American middle class.” By the summer of 1994, the Republican Party attacks and special interest group rumblings reaching a boiling point, inducing huge concern on the part of the electorate regarding the possibility of additional taxes brought on by health care reform. Thus, Hillary’s toils were irrevocably lost.
History unceasingly repeats itself, and presently Obama is facing the same kinds of difficulties. The economic crisis initially seemed to provide some momentum to U.S. health reform. However, the underlying ideology must be accepted by all and an agreement between the Obama administration and special interest groups is still a long way off. U.S. health care economics expert Harvard David Culter has expressed his concern: if Obama is the same as his predecessors, he will have no choice but to reach a compromise, and the universal health coverage dream will come to a halt.
The factors that currently obstruct the promotion of U.S. health care reform are the same that can hurt China’s health reform industry. After reading up on the controversy about China’s health care reform, I often think that the many fine words that are expressed are the same as those being issued from the U.S. Congress and special interest groups. Are we really able to learn a lesson from observing the American people? This is still a very difficult test for us to pass.
The author is a professor at the China Center for Economic Research, Peking University.
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