THE MORAL-HAZARD MYTH
The bad idea behind our failed health-care system.

by MALCOLM GLADWELL
The New Yorker,August 29, 2005

Tooth decay begins, typically, when debris becomes trapped between the teeth and along the ridges and in the grooves of the molars. The food rots. It becomes colonized with bacteria. The bacteria feeds off sugars in the mouth and forms an acid that begins to eat away at the enamel of the teeth. Slowly, the bacteria works its way through to the dentin, the inner structure, and from there the cavity begins to blossom three-dimensionally, spreading inward and sideways. When the decay reaches the pulp tissue, the blood vessels, and the nerves that serve the tooth, the pain starts—an insistent throbbing. The tooth turns brown. It begins to lose its hard structure, to the point where a dentist can reach into a cavity with a hand instrument and scoop out the decay. At the base of the tooth, the bacteria mineralizes into tartar, which begins to irritate the gums. They become puffy and bright red and start to recede, leaving more and more of the tooth’s root exposed. When the infection works its way down to the bone, the structure holding the tooth in begins to collapse altogether.
Several years ago, two Harvard researchers, Susan Starr Sered and Rushika Fernandopulle, set out to interview people without health-care coverage for a book they were writing, “Uninsured in America.” They talked to as many kinds of people as they could find, collecting stories of untreated depression and struggling single mothers and chronically injured laborers—and the most common complaint they heard was about teeth. Gina, a hairdresser in Idaho, whose husband worked as a freight manager at a chain store, had “a peculiar mannerism of keeping her mouth closed even when speaking.” It turned out that she hadn’t been able to afford dental care for three years, and one of her front teeth was rotting. Daniel, a construction worker, pulled out his bad teeth with pliers. Then, there was Loretta, who worked nights at a university research center in Mississippi, and was missing most of her teeth. “They’ll break off after a while, and then you just grab a hold of them, and they work their way out,” she explained to Sered and Fernandopulle. “It hurts so bad, because the tooth aches. Then it’s a relief just to get it out of there. The hole closes up itself anyway. So it’s so much better.”
People without health insurance have bad teeth because, if you’re paying for everything out of your own pocket, going to the dentist for a checkup seems like a luxury. It isn’t, of course. The loss of teeth makes eating fresh fruits and vegetables difficult, and a diet heavy in soft, processed foods exacerbates more serious health problems, like diabetes. The pain of tooth decay leads many people to use alcohol as a salve. And those struggling to get ahead in the job market quickly find that the unsightliness of bad teeth, and the self-consciousness that results, can become a major barrier. If your teeth are bad, you’re not going to get a job as a receptionist, say, or a cashier. You’re going to be put in the back somewhere, far from the public eye. What Loretta, Gina, and Daniel understand, the two authors tell us, is that bad teeth have come to be seen as a marker of “poor parenting, low educational achievement and slow or faulty intellectual development.” They are an outward marker of caste. “Almost every time we asked interviewees what their first priority would be if the president established universal health coverage tomorrow,” Sered and Fernandopulle write, “the immediate answer was ‘my teeth.’ ”
The U. S. health-care system, according to “Uninsured in America,” has created a group of people who increasingly look different from others and suffer in ways that others do not. The leading cause of personal bankruptcy in the United States is unpaid medical bills. Half of the uninsured owe money to hospitals, and a third are being pursued by collection agencies. Children without health insurance are less likely to receive medical attention for serious injuries, for recurrent ear infections, or for asthma. Lung-cancer patients without insurance are less likely to receive surgery, chemotherapy, or radiation treatment. Heart-attack victims without health insurance are less likely to receive angioplasty. People with pneumonia who don’t have health insurance are less likely to receive X rays or consultations. The death rate in any given year for someone without health insurance is twenty-five per cent higher than for someone with insur-ance. Because the uninsured are sicker than the rest of us, they can’t get better jobs, and because they can’t get better jobs they can’t afford health insurance, and because they can’t afford health insurance they get even sicker. John, the manager of a bar in Idaho, tells Sered and Fernandopulle that as a result of various workplace injuries over the years he takes eight ibuprofen, waits two hours, then takes eight more—and tries to cadge as much prescription pain medication as he can from friends. “There are times when I should’ve gone to the doctor, but I couldn’t afford to go because I don’t have insurance,” he says. “Like when my back messed up, I should’ve gone. If I had insurance, I would’ve went, because I know I could get treatment, but when you can’t afford it you don’t go. Because the harder the hole you get into in terms of bills, then you’ll never get out. So you just say, ‘I can deal with the pain.’ ”One of the great mysteries of political life in the United States is why Americans are so devoted to their health-care system. Six times in the past century—during the First World War, during the Depression, during the Truman and Johnson Administrations, in the Senate in the nineteen-seventies, and during the Clinton years—efforts have been made to introduce some kind of universal health insurance, and each time the efforts have been rejected. Instead, the United States has opted for a makeshift system of increasing complexity and dysfunction. Americans spend $5,267 per capita on health care every year, almost two and half times the industrialized world’s median of $2,193; the extra spending comes to hundreds of billions of dollars a year. What does that extra spending buy us? Americans have fewer doctors per capita than most Western countries. We go to the doctor less than people in other Western countries. We get admitted to the hospital less frequently than people in other Western countries. We are less satisfied with our health care than our counterparts in other countries. American life expectancy is lower than the Western average. Childhood-immunization rates in the United States are lower than average. Infant-mortality rates are in the nineteenth percentile of industrialized nations. Doctors here perform more high-end medical procedures, such as coronary angioplasties, than in other countries, but most of the wealthier Western countries have more CT scanners than the United States does, and Switzerland, Japan, Austria, and Finland all have more MRI machines per capita. Nor is our system more efficient. The United States spends more than a thousand dollars per capita per year—or close to four hundred billion dollars—on health-care-related paperwork and administration, whereas Canada, for example, spends only about three hundred dollars per capita. And, of course, every other country in the industrialized world insures all its citizens; despite those extra hundreds of billions of dollars we spend each year, we leave forty-five million people without any insurance. A country that displays an almost ruthless commitment to efficiency and performance in every aspect of its economy—a country that switched to Japanese cars the moment they were more reliable, and to Chinese T-shirts the moment they were five cents cheaper—has loyally stuck with a health-care system that leaves its citizenry pulling out their teeth with pliers.
America’s health-care mess is, in part, simply an accident of history. The fact that there have been six attempts at universal health coverage in the last century suggests that there has long been support for the idea. But politics has always got in the way. In both Europe and the United States, for example, the push for health insurance was led, in large part, by organized labor. But in Europe the unions worked through the political system, fighting for coverage for all citizens. From the start, health insurance in Europe was public and universal, and that created powerful political support for any attempt to expand benefits. In the United States, by contrast, the unions worked through the collective-bargaining system and, as a result, could win health benefits only for their own members. Health insurance here has always been private and selective, and every attempt to expand benefits has resulted in a paralyzing political battle over who would be added to insurance rolls and who ought to pay for those additions.
Policy is driven by more than politics, however. It is equally driven by ideas, and in the past few decades a particular idea has taken hold among prominent American economists which has also been a powerful impediment to the expansion of health insurance. The idea is known as “moral hazard.” Health economists in other Western nations do not share this obsession. Nor do most Americans. But moral hazard has profoundly shaped the way think tanks formulate policy and the way experts argue and the way health insurers structure their plans and the way legislation and regulations have been written. The health-care mess isn’t merely the unintentional result of political dysfunction, in other words. It is also the deliberate consequence of the way in which American policymakers have come to think about insurance.
“Moral hazard” is the term economists use to describe the fact that insurance can change the behavior of the person being insured. If your office gives you and your co-workers all the free Pepsi you want—if your employer, in effect, offers universal Pepsi insurance—you’ll drink more Pepsi than you would have otherwise. If you have a no-deductible fire-insurance policy, you may be a little less diligent in clearing the brush away from your house. The savings-and-loan crisis of the nineteen-eighties was created, in large part, by the fact that the federal government insured savings deposits of up to a hundred thousand dollars, and so the newly deregulated S. & L.s made far riskier investments than they would have otherwise. Insurance can have the paradoxical effect of producing risky and wasteful behavior. Economists spend a great deal of time thinking about such moral hazard for good reason. Insurance is an attempt to make human life safer and more secure. But, if those efforts can backfire and produce riskier behavior, providing insurance becomes a much more complicated and problematic endeavor.
In 1968, the economist Mark Pauly argued that moral hazard played an enormous role in medicine, and, as John Nyman writes in his book “The Theory of the Demand for Health Insurance,” Pauly’s paper has become the “single most influential article in the health economics literature.” Nyman, an economist at the University of Minnesota, says that the fear of moral hazard lies behind the thicket of co-payments and deductibles and utilization reviews which characterizes the American health-insurance system. Fear of moral hazard, Nyman writes, also explains “the general lack of enthusiasm by U.S. health economists for the expansion of health insurance coverage (for example, national health insurance or expanded Medicare benefits) in the U.S.”
What Nyman is saying is that when your insurance company requires that you make a twenty-dollar co-payment for a visit to the doctor, or when your plan includes an annual five-hundred-dollar or thousand-dollar deductible, it’s not simply an attempt to get you to pick up a larger share of your health costs. It is an attempt to make your use of the health-care system more efficient. Making you responsible for a share of the costs, the argument runs, will reduce moral hazard: you’ll no longer grab one of those free Pepsis when you aren’t really thirsty. That’s also why Nyman says that the notion of moral hazard is behind the “lack of enthusiasm” for expansion of health insurance. If you think of insurance as producing wasteful consumption of medical services, then the fact that there are forty-five million Americans without health insurance is no longer an immediate cause for alarm. After all, it’s not as if the uninsured never go to the doctor. They spend, on average, $934 a year on medical care. A moral-hazard theorist would say that they go to the doctor when they really have to. Those of us with private insurance, by contrast, consume $2,347 worth of health care a year. If a lot of that extra $1,413 is waste, then maybe the uninsured person is the truly efficient consumer of health care.
The moral-hazard argument makes sense, however, only if we consume health care in the same way that we consume other consumer goods, and to economists like Nyman this assumption is plainly absurd. We go to the doctor grudgingly, only because we’re sick. “Moral hazard is overblown,” the Princeton economist Uwe Reinhardt says. “You always hear that the demand for health care is unlimited. This is just not true. People who are very well insured, who are very rich, do you see them check into the hospital because it’s free? Do people really like to go to the doctor? Do they check into the hospital instead of playing golf?”
For that matter, when you have to pay for your own health care, does your consumption really become more efficient? In the late nineteen-seventies, the rand Corporation did an extensive study on the question, randomly assigning families to health plans with co-payment levels at zero per cent, twenty-five per cent, fifty per cent, or ninety-five per cent, up to six thousand dollars. As you might expect, the more that people were asked to chip in for their health care the less care they used. The problem was that they cut back equally on both frivolous care and useful care. Poor people in the high-deductible group with hypertension, for instance, didn’t do nearly as good a job of controlling their blood pressure as those in other groups, resulting in a ten-per-cent increase in the likelihood of death. As a recent Commonwealth Fund study concluded, cost sharing is “a blunt instrument.” Of course it is: how should the average consumer be expected to know beforehand what care is frivolous and what care is useful? I just went to the dermatologist to get moles checked for skin cancer. If I had had to pay a hundred per cent, or even fifty per cent, of the cost of the visit, I might not have gone. Would that have been a wise decision? I have no idea. But if one of those moles really is cancerous, that simple, inexpensive visit could save the health-care system tens of thousands of dollars (not to mention saving me a great deal of heartbreak). The focus on moral hazard suggests that the changes we make in our behavior when we have insurance are nearly always wasteful. Yet, when it comes to health care, many of the things we do only because we have insurance—like getting our moles checked, or getting our teeth cleaned regularly, or getting a mammogram or engaging in other routine preventive care—are anything but wasteful and inefficient. In fact, they are behaviors that could end up saving the health-care system a good deal of money.
Sered and Fernandopulle tell the story of Steve, a factory worker from northern Idaho, with a “grotesquelooking left hand—what looks like a bone sticks out the side.” When he was younger, he broke his hand. “The doctor wanted to operate on it,” he recalls. “And because I didn’t have insurance, well, I was like ‘I ain’t gonna have it operated on.’ The doctor said, ‘Well, I can wrap it for you with an Ace bandage.’ I said, ‘Ahh, let’s do that, then.’ ” Steve uses less health care than he would if he had insurance, but that’s not because he has defeated the scourge of moral hazard. It’s because instead of getting a broken bone fixed he put a bandage on it.At the center of the Bush Administration’s plan to address the health-insurance mess are Health Savings Accounts, and Health Savings Accounts are exactly what you would come up with if you were concerned, above all else, with minimizing moral hazard. The logic behind them was laid out in the 2004 Economic Report of the President. Americans, the report argues, have too much health insurance: typical plans cover things that they shouldn’t, creating the problem of overconsumption. Several paragraphs are then devoted to explaining the theory of moral hazard. The report turns to the subject of the uninsured, concluding that they fall into several groups. Some are foreigners who may be covered by their countries of origin. Some are people who could be covered by Medicaid but aren’t or aren’t admitting that they are. Finally, a large number “remain uninsured as a matter of choice.” The report continues, “Researchers believe that as many as one-quarter of those without health insurance had coverage available through an employer but declined the coverage. . . . Still others may remain uninsured because they are young and healthy and do not see the need for insurance.” In other words, those with health insurance are overinsured and their behavior is distorted by moral hazard. Those without health insurance use their own money to make decisions about insurance based on an assessment of their needs. The insured are wasteful. The uninsured are prudent. So what’s the solution? Make the insured a little bit more like the uninsured.
Under the Health Savings Accounts system, consumers are asked to pay for routine health care with their own money—several thousand dollars of which can be put into a tax-free account. To handle their catastrophic expenses, they then purchase a basic health-insurance package with, say, a thousand-dollar annual deductible. As President Bush explained recently, “Health Savings Accounts all aim at empowering people to make decisions for themselves, owning their own health-care plan, and at the same time bringing some demand control into the cost of health care.”
The country described in the President’s report is a very different place from the country described in “Uninsured in America.” Sered and Fernandopulle look at the billions we spend on medical care and wonder why Americans have so little insurance. The President’s report considers the same situation and worries that we have too much. Sered and Fernandopulle see the lack of insurance as a problem of poverty; a third of the uninsured, after all, have incomes below the federal poverty line. In the section on the uninsured in the President’s report, the word “poverty” is never used. In the Administration’s view, people are offered insurance but “decline the coverage” as “a matter of choice.” The uninsured in Sered and Fernandopulle’s book decline coverage, but only because they can’t afford it. Gina, for instance, works for a beauty salon that offers her a bare-bones health-insurance plan with a thousand-dollar deductible for two hundred dollars a month. What’s her total income? Nine hundred dollars a month. She could “choose” to accept health insurance, but only if she chose to stop buying food or paying the rent.
The biggest difference between the two accounts, though, has to do with how each views the function of insurance. Gina, Steve, and Loretta are ill, and need insurance to cover the costs of getting better. In their eyes, insurance is meant to help equalize financial risk between the healthy and the sick. In the insurance business, this model of coverage is known as “social insurance,” and historically it was the way health coverage was conceived. If you were sixty and had heart disease and diabetes, you didn’t pay substantially more for coverage than a perfectly healthy twenty-five-year-old. Under social insurance, the twenty-five-year-old agrees to pay thousands of dollars in premiums even though he didn’t go to the doctor at all in the previous year, because he wants to make sure that someone else will subsidize his health care if he ever comes down with heart disease or diabetes. Canada and Germany and Japan and all the other industrialized nations with universal health care follow the social-insurance model. Medicare, too, is based on the social-insurance model, and, when Americans with Medicare report themselves to be happier with virtually every aspect of their insurance coverage than people with private insurance (as they do, repeatedly and overwhelmingly), they are referring to the social aspect of their insurance. They aren’t getting better care. But they are getting something just as valuable: the security of being insulated against the financial shock of serious illness.
There is another way to organize insurance, however, and that is to make it actuarial. Car insurance, for instance, is actuarial. How much you pay is in large part a function of your individual situation and history: someone who drives a sports car and has received twenty speeding tickets in the past two years pays a much higher annual premium than a soccer mom with a minivan. In recent years, the private insurance industry in the United States has been moving toward the actuarial model, with profound consequences. The triumph of the actuarial model over the social-insurance model is the reason that companies unlucky enough to employ older, high-cost employees—like United Airlines—have run into such financial difficulty. It’s the reason that automakers are increasingly moving their operations to Canada. It’s the reason that small businesses that have one or two employees with serious illnesses suddenly face unmanageably high health-insurance premiums, and it’s the reason that, in many states, people suffering from a potentially high-cost medical condition can’t get anyone to insure them at all.
Health Savings Accounts represent the final, irrevocable step in the actuarial direction. If you are preoccupied with moral hazard, then you want people to pay for care with their own money, and, when you do that, the sick inevitably end up paying more than the healthy. And when you make people choose an insurance plan that fits their individual needs, those with significant medical problems will choose expensive health plans that cover lots of things, while those with few health problems will choose cheaper, bare-bones plans. The more expensive the comprehensive plans become, and the less expensive the bare-bones plans become, the more the very sick will cluster together at one end of the insurance spectrum, and the more the well will cluster together at the low-cost end. The days when the healthy twenty-five-year-old subsidizes the sixty-year-old with heart disease or diabetes are coming to an end. “The main effect of putting more of it on the consumer is to reduce the social redistributive element of insurance,” the Stanford economist Victor Fuchs says. Health Savings Accounts are not a variant of universal health care. In their governing assumptions, they are the antithesis of universal health care.
The issue about what to do with the health-care system is sometimes presented as a technical argument about the merits of one kind of coverage over another or as an ideological argument about socialized versus private medicine. It is, instead, about a few very simple questions. Do you think that this kind of redistribution of risk is a good idea? Do you think that people whose genes predispose them to depression or cancer, or whose poverty complicates asthma or diabetes, or who get hit by a drunk driver, or who have to keep their mouths closed because their teeth are rotting ought to bear a greater share of the costs of their health care than those of us who are lucky enough to escape such misfortunes? In the rest of the industrialized world, it is assumed that the more equally and widely the burdens of illness are shared, the better off the population as a whole is likely to be. The reason the United States has forty-five million people without coverage is that its health-care policy is in the hands of people who disagree, and who regard health insurance not as the solution but as the problem.

Other articles by Malcolm Gladwell are available at www.gladwell.com.

 

One Nation, Uninsured
By PAUL KRUGMAN
New York Times, June 13, 2005

Harry Truman tried to create a national health insurance system. Public opinion was initially on his side: Jill Quadagno's book "One Nation, Uninsured" tells us that in 1945, 75 percent of Americans favored national health insurance. If Truman had succeeded, universal coverage for everyone, not just the elderly, would today be an accepted part of the social contract.

But Truman failed. Special interests, especially the American Medical Association and Southern politicians who feared that national insurance would lead to racially integrated hospitals, triumphed. Sixty years later, the patchwork system that evolved in the absence of national health insurance is unraveling. The cost of health care is exploding, the number of uninsured is growing, and corporations that still provide employee coverage are groaning under the strain. So the time will soon be ripe for another try at universal coverage. Public opinion is already favorable: a 2003 Pew poll found that 72 percent of Americans favored government-guaranteed health insurance for all.

But special interests will, once again, stand in the way. And the big debate among would-be reformers is how to deal with those interests, especially the insurance companies. These companies played a secondary role in Truman's failure but have since become a seemingly invincible lobby. Let's ignore those who believe that private medical accounts - basically tax shelters for the healthy and wealthy - can solve our health care problems through the magic of the marketplace. The intellectually serious debate is between those who believe that the government should simply provide basic health insurance for everyone and those proposing a more complex, indirect approach that preserves a central role for private health insurance companies.

A system in which the government provides universal health insurance is often referred to as "single payer," but I like Ted Kennedy's slogan "Medicare for all." It reminds voters that America already has a highly successful, popular single-payer program, albeit only for the elderly. It shows that we're talking about government insurance, not government-provided health care. And it makes it clear that like Medicare (but unlike Canada's system), a U.S. national health insurance system would allow individuals with the means and inclination to buy their own medical care.

The great advantage of universal, government-provided health insurance is lower costs. Canada's government-run insurance system has much less bureaucracy and much lower administrative costs than our largely private system. Medicare has much lower administrative costs than private insurance. The reason is that single-payer systems don't devote large resources to screening out high-risk clients or charging them higher fees. The savings from a single-payer system would probably exceed $200 billion a year, far more than the cost of covering all of those now uninsured.

Nonetheless, most reform proposals out there - even proposals from liberal groups like the Century Foundation and the Center for American Progress - reject a simple single-payer approach. Instead, they call for some combination of mandates and subsidies to help everyone buy insurance from private insurers.

Some people, not all of them right-wingers, fear that a single-payer system would hurt innovation. But the main reason these proposals give private insurers a big role is the belief that the insurers must be appeased. That belief is rooted in recent history. Bill Clinton's health care plan failed in large part because of a dishonest but devastating lobbying and advertising campaign financed by the health insurance industry - remember Harry and Louise? And the lesson many people took from that defeat is that any future health care proposal must buy off the insurance lobby.

But I think that's the wrong lesson. The Clinton plan actually preserved a big role for private insurers; the industry attacked it all the same. And the plan's complexity, which was largely a result of attempts to placate interest groups, made it hard to sell to the public. So I would argue that good economics is also good politics: reformers will do best with a straightforward single-payer plan, which offers maximum savings and, unlike the Clinton plan, can easily be explained.

We need to do this one right. If reform fails again, we'll be on the way to a radically unequal society, in which all but the most affluent Americans face the constant risk of financial ruin and even premature death because they can't pay their medical bills.
E-mail: krugman@nytimes.com

An Urgent Case For Fixing Health Care
By David S. Broder
Washington Post
Sunday, May 29, 2005

Nothing is more likely to be overlooked than news that breaks on a day when something totally unexpected occurs. That is exactly what happened last week when Senate negotiators struck the last-minute deal that averted a showdown vote over the "nuclear option" on judicial filibusters.
Earlier that day, the National Coalition on Health Care released a report on the potential savings to business, individuals and government from comprehensive reform of the beleaguered medical-insurance-hospital system.

The figures are startling -- a projected saving of anywhere from $320 billion to $1.1 trillion in the first 10 years, even while insurance coverage is extended to every American and stronger quality measures are put in place.
Were it not for its source, this would seem like pie in the sky. But the organization that sponsored the briefing is one of the largest groups in the health care field, a coalition of 90 organizations with 150 million members or employees, ranging from AARP and the AFL-CIO to Blue Shield of California and such corporate giants as AT&T, Verizon and the Principal Financial Group.
The man who ran the numbers is Kenneth Thorpe, the former top economist at the Department of Health and Human Services and now chairman of the Health Policy and Management Department of Emory University in Atlanta. Few experts command broader respect in this field.
Thorpe took the principles laid down in the coalition's blueprint for health reform -- universal coverage, cost management and improved quality -- and applied them to four "scenarios."
One built on the existing employer-financed system, supplemented by requirements for individuals to self-insure. A second envisaged expansion of Medicare, Medicaid and other public programs. A third was a new program, with a variety of insurance options modeled on the current federal employees' health benefits plan. And the fourth was a single-payer, government-financed design, similar to Canada's or Britain's.
The additional costs -- primarily caused by covering the 45 million Americans currently without health insurance -- run in the range of $75 billion a year. But the net savings -- after deducting those costs -- by the 10th year of such reforms range from $125 billion to $182 billion annually.
When everyone is insured, health problems can be dealt with at an early stage or prevented altogether, thus helping society avoid the expensive treatment that patients now find in emergency rooms or lengthy hospital stays. Universal coverage also can bring savings in administrative costs and, along with the introduction of information technology and systematic measurements of treatment outcomes, greatly increase the efficiency of health care delivery.
Underlining the advantage of systemic reform are Thorpe's calculations of the likely consequences of doing nothing to change the current system. Without fundamental change, by 2015, the United States is likely to have 54 million uninsured -- 20 percent more than today -- and be spending 19 percent of its gross domestic product on health care, compared with 15.6 percent today.
Testimony from two top executives showed that this is not just an academic exercise. George Diehr, chairman of health benefits of the California Public Employees' Retirement System (Calpers), whose $4 billion annual expenditure makes it the third-largest purchaser of health care in the nation, said that despite its bargaining power "we have been able to improve quality and control costs only at the margin." Its costs are rising 10 percent a year.
S. Gary Snodgrass, executive vice president of Exelon Corp., one of the country's largest public utilities, said health coverage for its employees and retirees is its fastest-growing expense. Between 2001 and 2004, he said, those costs rose 70 percent, forcing the company to shift more of the burden to its workers. "What I am here to tell you is that the steps we have taken are not enough" to fix "a health care delivery system that we perceive to be fundamentally broken. It will not be fixed by the incremental or piecemeal proposals that are on the table today" in Congress or the Bush administration.
More and more business leaders, academics and politicians are coming to the same conclusion. The Center for American Progress, a liberal think tank headed by former Clinton White House chief of staff John Podesta, recently outlined one approach to comprehensive health care reform. It would combine two of the scenarios tested in Thorpe's analysis, with subsidies and cost controls for insurance policies purchased by employers and individuals and an expansion of the federal employees' health care system to enroll outsiders.
When I interviewed Podesta recently, I told him that I thought that any such systemic reform would have to wait for a new administration. But Thorpe's calculations, which I had not seen at that time, make the case for action now both more urgent and more practical.

 

Op-Ed Contributor Decoding Health Insurance.By ROBIN COOK Published: May 22, 2005 Boston

NEARLY five years ago, President Bill Clinton had an all-star gathering at the White House to announce the completion of the first draft of the human genome's approximately 3.2 billion base pairs. Speaking to an audience that included eminent scientists like Dr. James Watson, who helped discover DNA, Mr. Clinton pronounced that "today we are learning the language in which God created life." Prime Minister Tony Blair of Britain chimed in via satellite, "For most of us, today's developments are too awesome to comprehend."

Turns out that Mr. Blair was right, although not quite in the way that he intended. Despite the high-flying talk and the abundant news media coverage of the announcement, the public greeted the event with vague interest, a touch of bewilderment, varying degrees of ennui - and then quickly forgot about it. This general indifference to one of science's landmark achievements has persisted even as the science and technology involved have yielded some remarkable discoveries. We now know, for example, that a vast majority of our genome is composed of repetitive nonsense sequences, and that instead of humans having the 100,000-plus genes previously predicted, we have somewhere in the neighborhood of 25,000, many of which we share with all other living things, a fact that anchors us firmly in the process of evolution (whether a creative intelligence was involved or not).

Of course, people can perhaps be forgiven for not wanting to recognize that they don't have many more genes than round worms or fruit flies - a blow to humanity's ego that's about as powerful as Copernicus's discovery that the earth revolved around the sun instead of vice versa.

As a doctor schooled to some degree in science, I believed (and still do) that decoding the human genome might be the most important milestone in the history of medical science. To borrow Mr. Clinton's metaphor, the full genome offers researchers the sequence of all the letters of the human book of life, a monumental resource despite our imperfect understanding of the book's overarching, mind-boggling complexity. As decoding gathers speed, it promises to change just about everything we know about medicine in the form of understanding, prediction, prevention, diagnosis and the treatment of disease. And in so doing, it also offers us a remarkable opportunity to solve the huge and nettlesome problem of paying for health care in the United States.

Public skepticism of such grandiose statements is understandable. After all, you might say: "Where are all the touted breakthroughs, the miracle drugs and diagnostic tests, predicted five years ago? Finding out that humans have about the same number and some of the same genes as a worm may be interesting to somebody, but it's hardly a health care revolution, much less worth the more than $3 billion that have so far been spent on decoding."

Well, the drugs are not here yet, although they are on the horizon. But that doesn't diminish the broader fact that the rapidly developing fields of genomics and bioinformatics hold enormous promise. In simple terms, genomics is the study of the flow of information in a cell orchestrated by the genome, while bioinformatics is the application of computers to make sense of the enormous amount of data coming from genomics.

Knowledge of the genome has greatly improved our ability to predict an individual's predilection for a host of diseases. Thousands upon thousands of markers have been identified throughout the genome and linked to particular mutated, deleterious genes associated with specific medical problems. The presence of these markers can be determined by placing a single drop of blood onto a particular type of slide called a microarray. Microarrays, in turn, are read automatically by laser scanners and the results, thanks to bioinformatics, can be analyzed instantly by computers armed with appropriate software and statistical data.

The importance of a rapid increase in prognostic ability is underlined by the growing understanding that every disease has a greater or lesser genetic component. Patients can now avail themselves of preventive measures or treatment even before symptoms occur. But there is a down side. First of all, we can predict more and more diseases that are associated with progressive disability and death and which have, as of yet, no treatment. Finding a marker linked to such an illness is thus the cruel equivalent of an extended death sentence. Understandably many people would not want such a test and would hardly classify having one as a positive health care breakthrough.

Another, and possibly more important, negative consequence of this new ability to predict illness is the potential for discrimination in one form or another if confidential health information is released. Unfortunately the chances of such a breach of privacy occurring, despite lip service by politicians to prevent it legislatively, are probably inevitable. Not only is microarray technology easily accessible, but for-profit private insurance companies have strong incentives to use it to protect their bottom lines by denying service, claims or even coverage.

Forum: Op-Ed Contributors
It is precisely this danger, however, that may lead to a great breakthrough: the inevitable movement to universal health care. In this dawning era of genomic medicine, the result may be that the concept of private health insurance, which is based on actuarially pooling risk within specified, fragmented groups, will become obsolete since risk cannot be pooled if it can be determined for individual policyholders. Genetically determined predilection for disease will become the modern equivalent of the "pre-existing condition" that private insurers have stringently avoided.

As a doctor I have always been against health insurance except for catastrophic care and for the very poor. It has been my experience that the doctor-patient relationship is the most personal and rewarding for both the patient and the doctor when a clear, direct fiduciary relationship exists. In such a circumstance, both individuals value the encounter more, which invariably leads to more time, more attention to potentially important details, and a higher level of patient compliance and satisfaction - all of which invariably result in a better outcome.

But with the end of pooling risk within defined groups, there is only one solution to the problem of paying for health care in the United States: to pool risk for the entire nation. (Under the rubric of health care I mean a comprehensive package that includes preventive care, acute care and catastrophic care.) Although I never thought I'd advocate a
government-sponsored, obviously non-profit, tax-supported, universal access, single-payer plan, I've changed my mind: the sooner we move to such a system, the better off we will be. Only with universal health care will we
be able to pool risk for the entire country and share what nature has dealt us; only then will there be no motivation for anyone or any organization to ferret out an individual's confidential, genetic makeup.

There are plenty of compelling arguments for a national, single-payer, universal access plan - like every developed industrialized country has one. But those arguments have so far seemed insufficient. And none of them is nearly as cogent and persuasive as the growing impact of genomics and bioinformatics. Of course, far too many wealthy stakeholders in the current system (thanks to 15 percent of our gross domestic product being thrown at health care) are eager to lobby members of Congress to keep things as they are. The basic challenge is to blast the public and their elected representatives out of their shared apathy toward what the decipherment of the human genome has brought.

The day after the White House ceremony in 2000, one letter-writer to this newspaper expressed the wish that the United States would devote the same amount of enthusiasm and resources that it had expended on the human genome
project toward the goal of "assuring access to basic medical care for all Americans." If the money spent on the genome ends up achieving that health care goal, that wish may yet come true.

Robin Cook is a medical doctor and the author, most recently, of the novel
"Marker."

 

Your Money or Your Life by DAN FROSCH [from the February 21, 2005 issue] THE NATION

Five long years ago, Rose Shaffer's life seemed sweet. A nurse since the early 1970s, Shaffer had spent most of her sixty years working at various Chicago hospitals, rising through the caregiver ranks and raising three kids. Now in the twilight of her career, she'd been hired as director of nursing at a home health agency in the suburb of Lombard. The position made Shaffer proud--she knew her salary could pay off the mortgage on her house a little sooner. At the time, her cousin Barack Obama was fast becoming a rising star in the Illinois State Senate. Seven months into her new job, Shaffer suffered a heart attack, and an ambulance rushed her to Advocate South Suburban Hospital. Shaffer assumed she was automatically covered--health insurance was a given at her previous nursing jobs. She thought she'd filled out the proper forms. But she hadn't. A week later, Shaffer received a bill from Advocate for the three days she'd been hospitalized. It was for $18,000. Shortly thereafter, Advocate began sending letters to Shaffer demanding payment. Then, a summons to appear in court was tossed on her porch. Advocate was suing her. Shaffer was terrified and didn't show at her court date. She says she even received a letter from the Cook County Sheriff's Department, threatening arrest unless she appeared. Under pressure from Advocate and now behind on her mortgage payments, Shaffer filed for Chapter 13 bankruptcy in December 2002, which meant her debtors would garner a reduced portion of the money she owed. "The hospital saved my life, but now they were trying to kill me," Shaffer says. Rose Shaffer's experience has become disquietingly common. Since 2000, Harvard associate medical professors Steffie Woolhandler and David Himmelstein, along with Harvard law professor Elizabeth Warren and Ohio University sociology and anthropology professor Deborah Thorne, have been compiling data on bankruptcies in the United States. Their study, published on February 2 by the medical policy journal Health Affairs, found that between 1981 and 2001, medical-related bankruptcies increased by 2,200 percent, an astonishing explosion in a relatively short period of time. This spike far outpaced the 360 percent growth in all personal bankruptcies during roughly the same period. In addition, the study uncovered surprising information about the affected population. While poor, uninsured Americans have long been the most obvious victims of a defective healthcare system, it's the middle class that suffers most in this case, accounting for about 90 percent of all medical bankruptcies, says Warren. "The people we found to be profoundly affected are not some distant underclass. They're the very heart of the middle class," Warren says. "These are educated Americans with decent jobs, homes and families. But one stumble, and they end up in complete financial collapse, wiped out by medical bills." With so many middle-class American households potentially vulnerable, you might think politicians would seek a solution sensitive to their interests. Yet the momentum in Washington is in the opposite direction--toward bankruptcy "reform" that would make things worse for people who have been financially ruined by illness. Until twenty-five years ago, filing for bankruptcy because of debts from a medical problem was virtually unheard of. In 1981, University of Texas law professors conducting bankruptcy research noticed that a handful of the debtors they were studying could never quite pay off their medical bills, but while these bills certainly didn't help, they weren't forcing people into bankruptcy. Today, by contrast, medical-related debt is the second leading cause of personal bankruptcies, topped only by job loss. Edward Janger, a professor at Brooklyn Law School, gives two reasons for the change: First, there's been a dramatic rise in healthcare costs. In 2002 Americans paid an average of $5,440 in medical expenditures, up $419 from the previous year. A September 2004 study by Families USA found that 14.3 million Americans now hemorrhage more than a quarter of their earnings into healthcare costs. Second, the past fifteen years have seen a tremendous spike in the number of Americans who either don't have health insurance or have such skeletal coverage they might as well have none--there are currently some 45 million uninsured Americans, a jump of 10 million since 1990.
"What you're seeing in the bankruptcy numbers is a function of the fact that we have a very thin social safety net in this country in terms of health care," Janger says.
The Health Affairs study, which looked specifically at a cross section of 1,771 bankruptcies filed in 2001, concluded that the average medical debtor was a 41-year-old homeowning woman, with children and at least some education. The study also found that a majority of middle-class debtors had health insurance both when they first grew sick and at the actual time they filed, another surprise. Insurance alone, it turns out, doesn't prevent medical bankruptcy, because it is often too porous to provide a real buffer against the financial burden of a serious illness.
"A lot of people were bankrupted because of co-payments, deductibles or uncovered services, which added up to thousands of dollars in bills," says Steffie Woolhandler.
The story of Judy and Phil Specht shows how quickly livelihoods and bank accounts can collapse in the shadow of an illness, even when people initially have health insurance. It also demonstrates how medical problems, when coupled with job loss, can be particularly devastating--many debtors grappled with medical debt and income loss simultaneously, according to the Health Affairs study.
In 2001 the Spechts were living comfortably in Albuquerque, New Mexico, having worked at solid jobs there for years--Judy at a Philips semiconductor factory and Phil as a maintenance man at a retirement community. Together, the Spechts were bringing in around $40,000, which in New Mexico was enough to make the $787 monthly mortgage payment on their new home and still have a little left. Lately, Phil hadn't been feeling great--his body ached more than usual--but the Spechts both had health coverage through their jobs. In their late 50s, they were near enough retirement to taste it.
By 2002, though, Phil had grown worse, and after a series of tests, doctors diagnosed myelodysplastic syndrome, a bone-marrow disease that can cause leukemia. Phil retired and began collecting $1,080 a month in Social Security disability payments.
"I still had a good paying job with insurance that could cover us both, so I thought we'd be OK," Judy says.
But when Philips started shuttering some of its New Mexico factories three months later, Judy was laid off. She quickly found a job working at another semiconductor company, but after five months she was axed again. Now desperate, Judy took a housecleaning job at near-minimum wage. It was all she could find.
Fortunately, the Spechts only paid $50 a month for Phil's visits to University of New Mexico Hospital oncologists, thanks to UNM's charity care. But they had trouble affording the regular blood work Phil needed and the monthly $507 in prescription drug payments for both of them, climbing quickly because Judy developed high blood pressure, high cholesterol, acid reflux and an underactive thyroid--"stuff I hadn't experienced before this."
To save money, Judy chopped her blood pressure and thyroid tablets in half, took the acid-reflux medication less often than prescribed and quit her cholesterol pills altogether. "I was left with a choice of my medication or a roof over our heads."
To afford Phil's medicine, the Spechts sold their furniture, some jewelry and a camera. But by the end of 2003, $4,000 deep in medical debt and with $90,000 still left on their mortgage, the Spechts knew they couldn't hold on to their house any longer.
They hired a bankruptcy lawyer and filed for Chapter 7, freeing them from debt but eviscerating their credit for seven to ten years. The bank foreclosed on their mortgage, and the Spechts moved twice before settling in a cheap apartment for people over 55. Although they now participate in a new state program that offers drug discounts to elderly New Mexicans, the Spechts still owe $1,000 in medical bills; even after filing for bankruptcy, the couple continued to rack up bills until Judy finally landed a state job that gave her health coverage. The stress of the past three years has changed the Spechts forever. Judy describes the whole process as "frightening and humiliating."
"We'd wanted to retire in that house. We were heartbroken," she says.
The nightmare lived by the Spechts and other Americans could become even more harrowing if some members of Congress have their way. For years now, a powerful coalition of banks and credit-card companies has been lobbying Congress to make it harder to file for Chapter 7 bankruptcy, which cancels personal debt, in favor of Chapter 13, which involves paying back a portion over a period of time. As the number of personal bankruptcies has surged--from approximately 718,000 in 1990 to 1.54 million in 2004--banks and credit-card companies say, they've lost billions of dollars in canceled payments.
Republicans, and some Democrats, have long been pushing a bill that would create a means test for debtors who want to file for bankruptcy, preventing anyone who makes over the median income in their home state from filing for Chapter 7, but allowing them to file for Chapter 13. The idea, proponents say, is to make debtors take better care of their money.
Although the bill has failed in years past, Iowa's GOP Senator Chuck Grassley, buoyed by Republican Congressional gains and past support from moderate Democrats like minority leader Harry Reid, recently reintroduced the legislation. "People who have the ability to repay some or all of their debt should not be able to use bankruptcy as a financial planning tool so they get out of paying their debt scot-free while honest Americans who play by the rules have to foot the bill," says Grassley's spokesperson Jill Kozeny. Kozeny also notes that medical expenses would be deductible under the means test, and that adjustments to the test would be allowed if debtors show "special circumstances."
Jim Manley, Reid's communications director, says Reid will support the legislation, which he believes will force people to "take a measure of personal responsibility" for their financial affairs. Reid and some other Democrats will insist that it contain a provision preventing abortion clinic protesters from filing for bankruptcy to avoid paying legal fines (a practice that Reid, who is antichoice, nonetheless opposes). Such a provision was added to the 2002 version of the bill in an attempt to give political cover to Democrats (including Senators Chuck Schumer and Hillary Clinton) who voted for it.
The legislation has nonetheless elicited some principled and vigorous Democratic opposition, from John Kerry, Jon Corzine, Dick Durbin and Ted Kennedy, among others. The bill's critics argue that it will squeeze the lower middle class right out of the system. This demographic, they say, might still earn above their state's median income, deductions notwithstanding, yet may not be able to afford to hire an attorney to prove through litigation that their story is exceptional.
Moreover, says Elizabeth Warren, there's a good chance many middle-class debtors wouldn't even be able to make Chapter 13 repayments. Nearly two-thirds of those who file for Chapter 13 aren't able to pay up, leaving them vulnerable to creditors for years, she notes.
"The catastrophic problems which cause families to file for bankruptcy are not properly addressed by imposing greater requirements on people trying to get a fresh start," adds Ralph Mabey, co-chair of the legislation committee for the National Bankruptcy Conference, a national collective of bankruptcy experts that opposes the legislation.
Medical debtors, as the Health Affairs study shows, are suffering real hardship, which makes it hard to believe they are simply shirking their obligations and freeloading off the system, as Republican rhetoric suggests. In the two years before filing, 22 percent of families in the study went without food, 30 percent had a utility shut off, 61 percent went without important medical care and half failed to fill a doctor's prescription.
"The bill is written against a template that everyone has overspent, including those with breast cancer, those fighting chronic illness, those who have lost children to cystic fibrosis or other terrible illnesses," says Warren. "It's like responding to a cholera outbreak by closing down the hospitals."
Whatever happens politically, the fate of medical debtors will also be shaped by several cases now winding through the courts. Last summer, law firms filed numerous lawsuits against nonprofit hospitals for overcharging uninsured patients, a practice that often contributes to bankruptcy. Attorney Richard Scruggs, who headed government lawsuits against big tobacco companies, is leading the federal effort.
On the state level, a class-action suit is pending in Illinois that involves Advocate, the source of Rose Shaffer's troubles. In November 2003 seven former patients filed the suit, charging Advocate with imposing discriminatory pricing (the number has since risen to seventeen). There is ample evidence for their claims. In March 2003 the Service Employees International Union, the nation's largest healthcare union and an adversary of Advocate in organizing campaigns, released a study on the collection practices of fifty-nine Cook County hospitals. Advocate, which operates six hospitals in the county, ranked worst. According to SEIU, Advocate charged uninsured patients 139 percent more than their insured counterparts and was three times as likely to sue as other local hospitals. A month after the report's release, Advocate announced an increase in charity care for patients who couldn't pay. But for Rose Shaffer and others, it was too late. Later that year SEIU and Barack Obama brought Shaffer to Springfield to tell her story to the State Assembly.
"Advocate fails to provide automatic charity care discounts to the poor, and as a result the uninsured are still victimized by aggressive pricing and collections tactics," says Joseph Geevarghese, director of SEIU's Hospital Accountability Project. Advocate, which says it offers among the nation's most generous charity care, filed a motion to dismiss and a counterclaim against SEIU, accusing the union of defamation. The motion was denied last November, but Advocate plans on refiling. The lawsuit will likely be tried this year.
Still, University of North Carolina associate law professor Melissa Jacoby, who testified before Congress last summer on how hospital collection practices can cause bankruptcy, doesn't think litigation on its own will right the system. "Hospitals with the most egregious practices certainly should clean up their acts," she says, "but millions of people will still experience medical-related financial problems and their consequences, including debt collection and bankruptcy."
Jay Westbrook, a University of Texas law professor who co-wrote the 1981 bankruptcy study, believes bankruptcy patterns are an indicator of other social problems--high unemployment, rising divorce rates (people often file for bankruptcy after a divorce) and, in this case, a crumbling healthcare system. "Bankruptcy occurs when there is a crisis. That's what it's there for," Westbrook says.
A study by the Center for Studying Health System Change shows that 20 million families struggled with medical debt in 2003. Federal projections suggest that out-of-pocket health expenses will rise at least until 2013. Elizabeth Warren and Steffie Woolhandler foresee medical bankruptcies continuing to climb as the uninsured population swells, overburdened hospitals aggressively collect to meet the bottom line, prescription drug prices increase and employers shift medical costs to employees.
The only real cure for the medical bankruptcy epidemic, according to Physicians for a National Health Program, is national health insurance--a system where coverage isn't linked to employment and medically necessary care is accessible to all without deductibles or copayments. If such sweeping reform seems a long way off, there are short-term fixes too. One would be to exempt medical debtors from any new laws restricting bankruptcies. "The bankruptcy courthouse doors must stay open for those who really need it," says Warren. Another worthwhile improvement, notes Henry Sommer, president of the National Association of Consumer Bankruptcy Attorneys, would be to better protect the homes of medical debtors; many states allow people only a small amount of home equity after they've gone bankrupt.
But even modest measures to protect medical debtors face an increasingly unforgiving environment. Although the recent litigation will likely force some hospitals to rethink collection practices, there's evidence they are finding other ways to reclaim money, like pushing debtors toward lenders and hospital-sponsored credit cards. And the bankruptcy reform pending in Congress could hurl many more middle-class Americans into lifelong debt.
Rose Shaffer, for one, is still reeling. She works two nursing jobs, seven days a week for nearly sixty hours, so she can make the monthly $2,088 in Chapter 13 payments she still owes. Advocate has yet to claim its portion, but Shaffer's credit is severely damaged and will be for the next decade. She's praying her eleven-year-old car will make it through the Chicago winter.
"Sometimes I would start crying. I wished I was dead, but I was too big a coward to kill myself," Shaffer says. "I never thought my life would end up like this."