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NJ Daily / BALANCE OF PAYMENTS

The Public Trust

July 9, 2009

As Congress heads into a long healthcare debate this summer, members face a stark choice. Restructure the existing private health insurance system by setting minimum national standards and creating an insurance exchange that would involve all employers and individuals. Or, do that and more by offering all Americans a public insurance option akin to Medicare.

Both sides in this debate will vilify the other. The left will attack greedy insurance companies and drugmakers, and the right will counter by raising the specter of socialized medicine.

Lost in this cacophony will be much hard economic analysis of what is at stake. The numbers suggest a public insurance option might be the best way to contain healthcare costs.

 

At the current pace, health care will consume 21.3 per cent of the U.S. GDP by 2020, 61 million people will be uninsured and 30 million more will be underinsured. None of the proposed reform options will completely reverse that spending trend. So the choice is about how to bend that curve.

The economic rationale for the public option is clear: It would save society $800 billion over the next decade compared to the cost of simply tinkering with the current system, according to a recent study by the Commonwealth Fund.

These numbers are compelling. To counterbalance them, opponents of the public option will attempt to change the discussion by raising the following objections:

*A public option would curb competition by driving private insurance providers out of business. There are nearly 1,300 health insurance plans in the United States. Such competition is supposed to hold down costs. But the proportion of the economy devoted to health care keeps rising. What the health insurance marketplace needs is not more competition, but more effective competition.

Boston's Beth Israel Deaconess Medical Center has about 80 people who work full time doing billing and insurance collections. Toronto General Hospital, one of Canada's largest, employs two people to deal with that country's single-payer insurance system. Such added bureaucracy leads Americans to overpay $98 billion a year for health administration and insurance, according to studies by the McKinsey Global Institute.

Experience shows that a public option would create a government insurer with less red tape. Medicare spends only 1.4 per cent of its expenditures on paperwork, while administration accounts for 14 per cent of private insurers' expenditures.

*A public option would raise costs. Of course it would. The goal of a public option is to extend coverage to the 48 million Americans who currently do not have insurance. That will cost more money.

The fair and relevant cost comparison is between universal coverage in a totally private system and universal coverage in a system with a public option. Here the Commonwealth Fund study's findings are clear. Over the next decade, the cumulative new increase in federal budget outlays is estimated to be $112 billion under a public plan option and $360 billion under a totally private option.

*A public option would unfairly cut payments to physicians, hospitals and pharmaceutical companies. That is the point. A medical license should not guarantee membership in the country club.

McKinsey estimates that American physicians earn about $50 billion a year more than they should, compared with physicians' compensation in other industrial economies, adjusted for the greater wealth of U.S. society. American surgeons, cardiologists and other specialists make 6.6 times the per capita U.S. income, according to McKinsey. American primary care physicians and other generalists make 4.2 times average incomes. By comparison, the take-home pay of specialists in other industrial nations averages only 4 times per capita incomes and generalists' pay is only 3.2 times the norm.

American physicians' rationalizations for their greater earnings do not withstand scrutiny. Medical outcomes in the United States are no better than in other advanced societies. The ratio of specialists to generalists -- which might explain higher average U.S. pay -- is no greater than the mix in other industrial economies. And American physicians' indebtedness upon leaving medical school is actually much smaller, relative to their potential earning power, than for other professions such as lawyers.

*A public option would eventually reduce the supply of physicians and hospitals. This is going to happen anyway. The U.S. population is expected to grow by about 50 million people over the next decade or so. But a shortage of physicians -- up to 200,000 -- is expected by 2020.

Some of this shortfall can be met by graduating more physicians from U.S. medical schools. The Association of American Medical Colleges has already recommended a 30 percent increase in enrollment by 2015. That should add about 50,000 more physicians to the pool of medical personnel by 2020.

But supply will still fall short of demand. The foreign-born could help fill the gap. Indian, Filipino and others foreign-born physicians already account for nearly a quarter of the physicians practicing in the United States.

If physicians and others are truly concerned about having an adequate number of physicians in the future, they should spend their time and money lobbying for easier immigration for physicians, not opposing a more cost-effective manner of paying them.

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