The True Cost of Care

A s the presidential campaign goes into full swing, the American public is likely to be bombarded with the kind of misleading clichés and false dichotomies that distort serious discussion of health care reform in this country. One of these false dichotomies is “private market versus government” health care or “private market versus socialized medicine.” Both terms mislead because their users seem not to understand precisely what the terms mean or, if they do, use them mischievously. The term “socialized medicine” in particular conveys to some an objectionably “un-American” form of government: socialism.

A major problem with the term “private market” is that the term refers not to one single thing, but to a wide range of alternative mixtures in which a government interacts with private players in the health care sector. In fact, there hardly exists a private market in which the government does not play some role. Worse, the term frequently is misused as a synonym for “competition,” which, when placed in opposition to “government,” implies that government-sponsored care is not and cannot be competitive. Yet competitive health care already thrives in heavily government-controlled health systems, like Medicare. In Medicare and in the Canadian provincial health plans as well, private and public providers of health care compete purely on quality of service for patients covered by government-run health insurance systems.

Finally, in the American vernacular the term “socialized medicine,” when it is not being confused with “socialism” outright, often is confused with “social health insurance.” But these terms are refer to very different things.

With “social insurance” a government operates or tightly regulates large risk pools to which individuals can shift the financial risks they face as individuals with premiums based on their ability to pay. Both Medicare and the Canadian government-run health plans work in this way. Typically, the sickest patients are not kept out of the pool, which includes all those who are eligible. Social insurance systems typically buy health care from a mixture of private for-profit and not-for-profit institutions. This takes place under both Medicare and Medicaid in the United States, under the single-payer, government-run provincial health plans in Canada and under Taiwan’s government-run, single-payer health insurance system. Examples of social insurance outside of health care can be seen in the principle of limited liability for corporate shareholders, which has made modern capitalism possible, in the federal government’s current bailout of Wall Street or in the federal government’s provision of disaster relief to afflicted states.

By contrast, “socialized medicine” implies that a government not only organizes the risk pools for health insurance, but also owns and operates the health-care delivery system. The National Health Service of the United Kingdom or the county-based health systems of the Scandinavian countries represent socialized medicine, as does the health system of the U.S. Department of Veteran’s Affairs. Luckily for our veterans, the V.A. is now widely regarded as being on the cutting edge of the smart use of health-information technology and quality control. A European must find it amusing to hear American politicians rant against socialized medicine while at the same time supporting the V.A. health system.

The advantages many proponents see in social insurance systems are these. First, they offer individuals financial protection over their entire lifespan. Second, they are relatively inexpensive to administer. Third, they obey the principle of solidarity, which requires that all members of society have access to needed health care on roughly equal terms. That principle is sacred in European nations, being viewed as part of the cement that forges a nation out of a group of people who happen to share a geography. It is a term not usually employed in the American debate on health policy. A pitfall inherent in these social insurance systems is that governments may underfund them.

In the United States, when private insurance is procured by an employer in the group market for health insurance, premiums tend to be community-rated over all the employees in the firm. In a sense, such group insurance may be described as private social insurance. Because that form of coverage is tied to a particular job, however, it is temporary and lost with the job. On the other hand, if private insurance is purchased by individuals in the non-group market, premiums tend to be “medically underwritten,” which means that they reflect the individual’s state of health. Such insurance, like the social insurance systems just described, usually does not provide coverage for the full life-cycle.