FEW WOULD dispute that our health care system is deeply troubled. Thirty-nine million Americans are completely uninsured and millions more have inadequate coverage. After a brief lull, health care costs have resumed their exuberant growth; health maintenance organizations (HMOs) have fallen to the basement of public esteem and have failed to contain costs; commercial pressures threaten medicine's best traditions; and healing has become a spectator sport, with physicians and patients performing before a growing audience of bureaucrats and reviewers. Opinion on solutions is more divided.

Debate over health care reform has been muted since the defeat of the Clinton Administration Rube Goldberg scheme for universal coverage. But the fast developing health care crisis--business leaders grappling with rapidly rising premiums, workers and unions facing cutbacks in coverage, governments confronting deficits, and a sharp upturn in the number unemployed and uninsured--promises to spur new interest in reform.

We advocate a fundamental change in health care financing, national health insurance (NHI), because we are convinced that lesser measures will fail.

In the 35 years since the implementation of Medicare and Medicaid, a welter of patchwork reforms has been tried. Health maintenance organizations and diagnosis related groups promised to contain costs and free up funds to expand coverage. Billions of dollars have been allocated to expanding Medicaid and similar programs for children. Both Medicare and Medicaid have tried managed care. Oregon essayed rationing in its Medicaid program, Massachusetts and Hawaii passed laws requiring all employers to cover their workers, Tennessee promised nearly universal coverage, and several states have implemented high-risk pools to insure high-cost individuals. For-profit firms pledged to bring business-like efficiency to running HMOs, hospitals, dialysis clinics, and nursing homes. And market competition has roiled health care's waters.

None of these initiatives has made a dent in the number of uninsured, durably controlled costs, or lessened the inexorable bureaucratization of medicine.

All such patchwork reforms founder on a simple problem: expanding coverage must increase costs unless resources are diverted from elsewhere in the system. With US health care costs nearly double those of any other nation and rising more rapidly,1 and the economy gone sour, large infusions of new money are unlikely.

Absent new money, patchwork reforms can only expand coverage by siphoning resources from existing clinical care. Advocates of managed care and market competition once argued that their strategy could accomplish this by trimming clinical fat. Unfortunately, new layers of bureaucrats have invariably overseen the managed care "diet" prescribed for clinicians and patients. Such cost management bureaucracies are not only intrusive but expensive, devouring virtually all of the clinical savings.

Resources seep inexorably from the bedside to the executive suite. The shortage of bedside nurses coexists with a proliferation of RN utilization reviewers. Productivity pressures mount for clinicians, while colleagues who have withdrawn from the bedside to the executive suite rule our profession.

Bureaucracy now consumes nearly 30% of our health care budget.2-4

The latest policy nostrums--medical savings accounts and voucher schemes like President Bush's "premium support" proposal for Medicare--would further amplify bureaucracy and limit care. Medical savings accounts discourage preventive and primary care, while failing to curb the high cost of care for severe illnesses (which account for most health spending). Such plans would also require insurers to start keeping track of all out-of-pocket spending, while retaining their existing bureaucracy, and would slash the cross-subsidy from healthy enrollees to the sick.

Voucher programs are thinly veiled mechanisms to cut care. The vouchers offered are invariably too skimpy to purchase fully adequate coverage, forcing lower-income individuals into substandard plans. Voucher schemes also posit that frail elders and other vulnerable patients will make wise purchasing decisions from a welter of confusing insurance options. Finally, vouchers would boost insurance overhead by shifting people from group plans (ie, Medicare or employer groups) into the individual insurance market where overhead averages more than 35% of premiums.5

WHY NHI?

The fiscal case for NHI arises from the observation that health care's enormous bureacratic burden is a peculiarly American phenomenon. No nation with NHI spends even half as much administering care, nor tolerates the bureaucratic intrusions in clinical care that have become routine in the United States.

Our biggest HMOs keep 20%, even 25%, of premiums for their overhead and profit6; Canada's NHI has 1% overhead2 and even Medicare takes less than 4%.7 And HMOs inflict mountains of paperwork on physicians and hospitals. The average US hospital spends one quarter of its budget on billing and administration,4 nearly twice the average in Canada. American physicians spend nearly 8 hours per week on paperwork, and employ 1.66 clerical workers per physician,8 far more than in Canada.

Reducing our bureaucratic apparatus to Canadian levels would save 10% to 15% of current health care spending, at least $120 billion annually, enough to fully cover the uninsured and upgrade coverage for those now underinsured. Proponents of NHI,9 disinterested civil servants,10, 11 and even skeptics12 all agree on this point.

HOW NHI? Unfortunately, piecemeal tinkering cannot achieve significant bureaucratic savings. The key to administrative simplicity in Canada (and other nations) is single-source payment. Canadian hospitals (mostly private, nonprofit institutions) do not bill for individual patients. They are paid a global annual budget to cover all costs, much as a fire department is funded in the United States. Physicians (most of whom are in private practice) bill by checking a box on a simple insurance form. Fee schedules are negotiated annually between provincial medical associations and governments. All patients have the same coverage.

Unfortunately, during the 1990s Canada's program was starved of funds by governments responsive to pressure from the healthy and wealthy who sought to avoid cross-subsidizing care for the sick and poor. Where once Canadian and US health care spending were comparable, today, Canada spends barely half (per capita) what we do.1 Shortages of expensive, high-technology care have resulted. Yet, Canada's health outcomes remain better than ours (eg, life expectancy is 2 years longer1), and most quality comparisons indicate that Canadians enjoy care equivalent to that for insured Americans. A system structured like Canada's, but with double the funding, could provide high-quality care without the waits or shortages that Canadians have experienced.

The NHI that we propose would create a single tax-funded comprehensive insurer in each state, federally mandated but locally controlled. Everyone would be fully insured for all medically necessary services, and private insurance duplicating the NHI coverage would be proscribed (as is currently the case with Medicare). The current byzantine insurance bureaucracy with its tangle of regulations and wasteful duplication would be dismantled. Instead, the NHI trust fund would dispense all payments, and central administrative costs would be limited by law to less than 3% of total health care spending.

Each hospital and nursing home would negotiate an annual global budget with the NHI, based on past expenditures, projected changes in costs and use, and proposed new and innovative programs. Many hospital administrative tasks would disappear. There would be no hospital bills to keep track of, no eligibility determination, and no need to attribute costs and charges to individual patients. Cost shifting would be pointless as there would be nowhere to shift costs to.

Clinics and group practices could elect to be paid fee-for-service, or receive global budgets similar to hospitals. While HMOs that merely contract with providers for care would be eliminated, those that actually employ physicians and own clinical facilities could receive global budgets, fee-for-service, or capitation payments (with the proviso that capitation payments could not be diverted to profits or exorbitant executive compensation).

As in Canada, physicians could elect to be paid on a fee-for-service basis, or receive salaries from hospitals, clinics, or HMOs.

Properly structured, NHI would not raise costs; administrative savings would pay for the expanded coverage. While NHI would require new taxes, these would be fully offset by a decrease in insurance premiums and out-of-pocket costs. Moreover, the additional tax burden would be smaller than is usually appreciated, since nearly 60% of health care spending is already tax supported (vs roughly 70% in Canada). Besides Medicare, Medicaid, and other explicit public programs, our governments fund tax subsidies for private insurance that exceed $100 billion annually.13 In addition, local, state, and federal agencies that purchase private coverage for government workers account for 22.5% of total employer health care spending (D.U.H. and S.W., unpublished analysis of Current Population Survey data from the US Census Bureau, 2001).

Demonstration projects in 1 or more states might precede national implementation of NHI. Initially, funding might mimic existing patterns to minimize economic disruption, but all payments would be funneled through the NHI trust fund. Thus, Medicare and Medicaid moneys, as well as current government expenditures for employee health benefits, would go to the trust fund. Employers would pay a tax equivalent to the average now spent for health benefits. In the long run, a shift to a more progressive, income tax funding base would provide a fairer and more efficient revenue stream.

The NHI we propose faces important political obstacles. The virtual elimination of private health insurance will evoke stiff opposition from insurance firms. Similarly, investor-owned hospitals and drug firms fear that NHI would curtail their profits.

Practical problems in implementing NHI also loom. The financial viability of the system we propose is critically dependent on achieving and maintaining administrative simplicity. Canada's macromanagement approach to cost control -- enforcing overall budgetary limits is inherently less administratively complex than our current micromanagement approach, with its case-by-case scrutiny of billions of individual expenditures and encounters. However, even under NHI, vigilance (and statutory limits) would be needed to curb the tendency of bureaucracy to reproduce and amplify itself.

National health insurance could solve the cost-vs-access conflict by slashing bureaucratic waste. It would reorient the way we pay for care, and eliminate financial barriers to access. National health insurance could restore the physician-patient relationship, offer patients a free choice of physicians and hospitals, and free physicians from the bonds of managed care.

How many more failed patchwork reforms, how many more patients turned away from care they cannot afford, how many trillions of dollars squandered on malignant bureaucracy, before we adopt the only viable solution: NHI?

Steffie Woolhandler, MD, MPH
Cambridge

David U. Himmelstein, MD
1493 Cambridge St
Cambridge, MA 02139

REFERENCES

1. Organization for Economic Cooperation and Development. OECD Health Data 2001 [computer database]. Paris, France: Organization for Economic Cooperation and Development; 2001.

2. Woolhandler S, Himmelstein DU. The deteriorating administrative efficiency of US health care. N Engl J Med. 1991;324:1253-1258.

MEDLINE

3. Himmelstein DU, Lewontin JP, Woolhandler S. Who administers? who cares? medical administrative and clinical employment in the United States and Canada. Am J Public Health. 1996;86:172-178. MEDLINE

4. Woolhandler S, Himmelstein DU. Costs of care and administration at for-profit and other hospitals in the United States. N Engl J Med. 1997;336:769-774. MEDLINE

5. Pauly MV, Percy AM. Cost and performance: a comparison of the individual and group health insurance markets. J Health Polit Policy Law. 2000;25:9-26. MEDLINE

6. Special report. BestWeek Life/Health. April 12, 1999.

7. Heffler S, Levit K, Smith S, et al. Health spending growth up in 1999: faster growth expected in the future. Health Aff (Millwood). 2001;20:193-203. MEDLINE

8. Remler DK, Gray BM, Newhouse JP. Does managed care mean more hassles for physicians? Inquiry. 2000;37:304-316. MEDLINE

9. Grumbach K, Bodenheimer T, Woolhandler S, Himmelstein DU. Liberal benefits, conservative spending: the Physicians for a National Health Program proposal. JAMA. 1991;265:2549-2554. MEDLINE

10. US General Accounting Office. Canadian Health Insurance: Lessons for the United States. Washington, DC: US Government Printing Office; 1991. Publication GAO/HRD-91-90.

11. Congress of the United States Congressional Budget Office. Universal Health Insurance Coverage Using Medicare's Payment Rates. Washington, DC: US Government Printing Office; 1991.

12. Sheils JF, Haught RA. Analysis of the Costs and Impact of Universal Health Care Coverage Under a Single Payer Model for the State of Vermont. Falls Church, Va: Lewin Group Inc; August 2001.

13. Sheils J, Hogan P. Cost of tax-exempt health benefits in 1998. Health Aff (Millwood). 1999;18:176-181. MEDLINE

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