What Ails Delivery of American Health Care

<i> Michael D. Reagan is a professor of political science at UC Riverside. </i>

Those who say the United States spends too much on health are wrong. The health care cost-containment crisis is not the problem of a society spending more than it can afford to care for its citizens. The problem is much more a matter of institutional arrangements: how to organize and “deliver” health care and insure--or not insure--for its payment.

Although America does put a higher share of its gross national product (more than 11% in 1986) into health care than other nations, the per capita cost was, at $926, lower than in West Germany, France, Sweden or Canada. Our northern neighbor, using a universal coverage, single-payer (government) organizational pattern, spent $1,370 per person on health, although only 8.5% of its GNP.

For the record:

12:00 AM, Sep. 25, 1988 For the Record
Los Angeles Times Sunday September 25, 1988 Home Edition Opinion Part 5 Page 3 Column 2 Opinion Desk 2 inches; 58 words Type of Material: Correction
In an Opinion article Sept. 4 by Michael D. Reagan (“What Ails Delivery of American Health Care”), the per capita cost of U.S. health care was misstated. Rather than $926, it should have been about $2,000, with total spending more than 11% of U.S. gross national product. The author compared U.S. spending with Canada’s, $1,370 per capita or 8.5% of GNP, observing that Canada has universal government health care.

Consider, too, that health care expenditures add to gross national product, the same way purchases of automobiles do, even though, as economist Uwe E. Reinhardt reminds us, those cars pollute the environment and increase dependence on foreign oil. Health-care jobs have been a major part of new employment opportunities for women and minorities, especially in major cities.

So why this financial crisis in medical care--the Los Angeles area trauma center system collapsing, expectant mothers having to go without prenatal care because understaffed clinics have waiting lists and Circle K Corp. threatening to refuse employee coverage for life-style-related illnesses?


The answer is not in looking at the total amount spent on doctors, nurses, hospitals and pills, but at the distribution of the financial burden, and how the health-insurance system is structured.

The problems are shared by both government and private institutions. Starting later than other industrial countries in building a health insurance system, the United States did not follow their lead toward a public, universal system from the beginning. Instead, having missed a possible opportunity to build health insurance into the Social Security System in 1935, we developed our primary alternative--employee-benefit health insurance in the private sector--as an accident of World War II wage freezes.

By the 1960s, as medicine grew both more effective and more expensive, it became clear that large segments of the population were uncovered by a system tied to full-time employment in larger companies. Medicare and Medicaid (MediCal), enacted in 1965 as a stopgap response for specific groups, have become an increasingly inadequate answer in the market-oriented 1980s.

The innovations, private and public, of the 1940s-1960s redistributed the costs of caring for the covered populations, but took the system of bringing health care to the patients as given: individual, fee-for-service medical practice, with insurance payments on the basis of charges submitted by physicians, hospitals and other “providers.” No innovation there--the price paid for buying off opposition by organized medicine was a promise that the government would not interfere with the established medical system.


In the Nixon years, budgetary concerns overcame fear of the American Medical Assn. Federal stimulus--not very effective at that time--was given to a different delivery pattern, Health Maintenance Organizations. HMOs receive a flat monthly or annual sum from the purchaser; in return, all needed care is given. In the best instances, the prototype being Kaiser Permanente, this means an emphasis on prevention, plus incentives to think twice before performing procedures that may not really be in the patient’s best interest.

In the 1980s, the dam seems to be bursting and floods of new institutional arrangements pour forth: preferred provider organizations, second opinion requirements, pre-hospital clearance procedures and that well-known federal restraint, DRGs, or diagnostic-related groups, instituted in 1983.

At last we have some innovations and have started to rethink the patterns for providing care. That’s good, and long overdue.

The orientation of most of the new arrangements, however, is not toward ensuring care for everyone, but toward saving money for particular payers--private corporations, federal and state governments.


Their understandable screams about escalating costs in a period of competitive pressures and federal deficits have defined the health-care crisis in financial terms. The effects of self-interested cost-cutting measures by institutional payers have, however, produced a truer crisis, leading to a shortage of health care itself.

With 37 million persons uninsured or inadequately insured for health needs, and the employee-benefit system losing its ability to provide adequate coverage for the middle class, our major challenge is not over how much money to spend on health care. It is this: How do we move from the crazy quilt we have now toward something that provides coverage for all and delivers care through arrangements that neither encourage wasteful expenditures nor withhold needed care on the basis of “wallet biopsies?”

Once the proper question is recognized, a variety of approaches open. While public-private cooperation may be part of the picture (not least because we have to start from where we are), a framework will have to be enacted by Congress to establish universalism and equity, in both financing of care and access to care.

One possibility is to combine mandated employee health coverage (the approach advocated by Sen. Edward M. Kennedy (D-Mass.)) with federally subsidized HMOs for the unemployed poor, as advocated by Reinhardt. Stanford economist Alain Enthoven has a related approach: state-level “public sponsor” agencies that would provide a kind of health insurance pool, helping small businesses and otherwise uncovered individuals to obtain insurance.


A more daring change, but in the end perhaps more practical, would be a universal health insurance system, a full medical equivalent to this nation’s most successful safety net: Social Security.

Too expensive? Not if the public cost at the national level was fully balanced by the private costs no longer incurred by firms and individuals, and by the tax relief possible at county and state levels. Indeed, some economists have argued that a universal public system would be cheaper overall because of the substantial savings in administrative red tape resulting from a single, national system.

Whatever pattern emerges from the chaotic situation, the crisis is clearly one of organizational capacity, political will and social conscience--not just money.