A Superior Health Care System Without the Middleman

IF YOU HEARD OF A COUNTRY that in 1995 introduced single-payer universal health care, with complete freedom of choice of doctors and no waiting lists, you would expect all the presidential contenders to be beating a path there to find out what was happening. After all, this is not Shangri-la. It is Taiwan, which also offers dental and prescription-drug coverage, and the choice between Chinese traditional or modern medicine, all for just over a third of the proportion of the GDP that the U.S. “system” costs.

But none of the last three remaining major presidential candidates mentioned this highly successful Taiwanese experiment. Indeed, all of them ruled out any single-payer system. To sharpen the irony, the designers of the Taiwanese system scoured the globe for a model, and in the end adopted what they thought was the most promising system to emulate—Medicare in the U.S.A.!

The reason for this political omerta is that all the presidential candidates want to appease the health insurance companies, under whose lobbying aegis the U.S. spends 16 percent of GDP on a health-care “system” that leaves 45 million uninsured and countless millions more underinsured.

What’s more, with a system that ties health insurance to increasingly precarious job security, almost any American working- or middle-class person may have to decide whether to pay the mortgage or pay the health insurance premiums. If someone is too ill to work, he can lose his job and medical coverage in one fell swoop.

A COVERAGE CRISIS—When Hillary Clinton was overseeing the last attempt to reform health care, in 1993-94, the Clinton administration’s efforts were defeated by an advertising campaign, with actors “Harry and Louise” complaining about the complexity of Clinton’s plan and a new “billion-dollar bureaucracy.” Her opponents had a point: her plan was unnecessarily complex because she pre-emptively discounted any single-payer system, ensuring another level of private sector bureaucracy.

Ironically, since then the insurers themselves have moved to HMOs, breeding an even larger bureaucracy that devours as much as a third of premium income while chiseling down doctors’ fees and denying clients coverage. Yet even most advocates of universal health care have now put the single-payer option on the shelf, not because it does not make sense, but because they assume that health insurance companies have such a lock on the political class that they are guaranteed priority consideration. The insurance companies are in fact a major part of the problem.

One of the important differences between the U.S. and Taiwan is the way in which they approach health care. In Taiwan, the government set out to include everyone, even those who could not afford the stunningly low premiums being charged for health care. Here, George W. Bush vetoed an SCHIP bill that would have provided coverage for nine million children, because the parents of a tiny minority of them might have been able to afford coverage for the children.

Our government’s failure to provide coverage creates an enormous gap in coverage between public and private sectors. After all, American health insurers have no ambition to insure everybody. They have been working to get rid of inconvenient clients—because they are self-employed or, perish the thought, might actually need medical attention.

“We will not sacrifice profitability for membership,” president and CEO of WellPoint Angela Braly told financial analysts, while she emphasized her company’s ability to lean hard on its network doctors to accept lower reimbursement. She is not alone.

PREMIUM SERVICE—In Taiwan, workers and employers pay premiums in the same way Social Security deductions are paid in the U.S.—on an income-based scale. The maximum premium is approximately $20 per month, per person, with a maximum of three dependents to be paid for. Employers pay an average sum for dependents, reducing the temptation to penalize workers who have “too many” children.

There are exemptions for those who cannot pay, loan packages to pay premiums, and referral to charitable organizations for payment if the loans fail. In addition, by the end of 2004 the Bureau of National Health Insurance (NHI) had issued 750,000 Catastrophic Illness cards, whose holders’ co-payments are either reduced or eliminated entirely, relieving the financial burden of chronic illness for the class of people most American insurers would be trying to drop.

Far from being offered “socialized” medicine by an uncaring bureaucratic state, the Taiwanese get their medical services from a mix of private and public hospitals and clinics—of their choice. What Taiwan has created would seem like a bureaucracy-free dream to anyone who uses American medical care. Each citizen has a smart card that automatically bills the NHI for treatment, while at the same time giving access to medical records.

The card provides access to details of serious illness and injury and major medical examinations, CT, PET and MRI scans, avoiding unnecessary and expensive repeat tests done so frequently in the U.S. It also stores records of prescriptions and drug allergies, averting the problems of adverse interactions between different medicines, and duplication of prescriptions in a dangerous or expensive manner.

Standing up to the pharmaceutical industry allows the single-payer system to control costs, while the technology of the NHI card provides a system that controls overcharging and encourages best practices. The 29 million monthly claims going through the system allow effective analysis of costs and billing patterns.

From the doctors’ point of view, rapid, paper-free payment reduces their costs and frustrations. Doctors do not have to spend time arguing bills with petty HMO clerks who get bonuses for denying coverage. It helps the doctors’ bedside manner considerably that patients are not tied to any particular doctor, clinic or hospital and can go “doctor-shopping.”

Taiwan has provided excellent coverage for considerably less than the U.S. pays for bad coverage. Taiwan’s health care costs ran at 6.2 percent of gross domestic product (GDP) in 2005, compared with 16.2 percent for the U.S. In absolute terms, the difference is even starker. In 2003, Taiwan spent less than $800 per person, compared with the U.S. level of approximately $5,500. In fact, by 2005, U.S. health care spending had increased 6.9 percent from two years earlier, to almost $2 trillion, or $6,697 per person.

THE ART OF CAPPING COSTS—Much of the cost—and cost increase—in the U.S. is driven by the industry into whose hands our presidential candidates want to place health-care solutions. The industry’s prescription is always the same: higher premiums, lower fees for doctors, and reduced coverage.

Of course, any health system faces escalating costs, and a “free” system does tend to create more demand. To contain costs, in 2005 Taiwan introduced a referral system, aimed at dissuading the insured from racing to the most prestigious hospital or specialist with every headache. Patients can still do that, but now they face an increased co-payment if they skip the referral stage. The co-payments should not dissuade anyone genuinely ill from seeking help—it is a mere $12 for an un-referred patient who chooses to go to an Academic Medical Center. For anyone who took the hint and went first to a clinic, referred or un-referred, the co-payment is $1.50.

For some expensive high-tech and experimental procedures pre-authorization is required, but it would appear that this is less onerous than dealing with an American HMO. Counterbalancing the co-payments are ceilings on in-treatment liabilities—for example, an annual cumulative ceiling of approximately $1,300, or 10 percent, of per capita income for co-payments. There are many exceptions to co-payments—for serious illness, childbirth, people in rural and outlying areas, and low-income families—to ensure that people are not deterred from seeking the help they need.

The NHI manages prescription costs in a similar way. First, it bargains down drug prices and, second, co-payments are determined on a proportional basis with a ceiling of approximately $6 per prescription. Once again, there are many exemptions for the needy. Some of the cost for such social provision comes from a lottery and tobacco taxes, which are useful models for a U.S. system.

Of course, there are differences in scale between Taiwan’s 23 million people and the 300 million in the United States. However, bearing in mind that Taiwan only recently raised itself from an agrarian Third World status, surely the world’s only superpower can join the rest of the industrialized world in creating universal health care.

THE 2 PERCENT SOLUTION—Not only does Taiwan show what is possible; it has based its success on U.S. examples. All the elements are here at home already. We have a Social Security system that is possibly the most efficient part of the federal government, with very low overheads that could be adapted for health care premiums. We have Medicare, Medicaid, the Veterans Administration, and a network of public and not-for-profit hospitals already in existence.

American industry now complains about the costs of the old, employer-provided health care system, and many companies are straining under the burden of employee health care costs. General Motors has dumped its health care system onto the United Auto Workers Union, and it is difficult to avoid the conclusion that the UAW has taken a poisoned chalice.

U.S. health insurance companies spend approximately 20 percent of their premium income on administrative overhead, as opposed to a 2 percent cost for Taiwan’s NHI. If you add in the cost to American medical professionals and hospitals of dealing with insurance claims, the numbers become mind-boggling. In a Wall Street Journal op-ed in May, a Columbia University professor lamented that administrative costs of U.S. health care amounted to $500 billion annually. His Wall Street–style solution was global free trade in health care. Rather than contacting a call center in Bangalore for pre-authorization, surely an operation that would cut the Gordian Knot and do away with those wasteful overheads is what any sane doctor, or indeed patient, should want.

The health insurers have confessed that they do not want to provide universal coverage, and are inefficient, callous and charge high overheads. The insurers are clearly an unnecessary part of the system; they should be invited to confine themselves to special additional care services, long-term nursing care and similar more-profitable activities.

Apart from the savings from rationalizing the system, just think about the master settlement between the tobacco companies and the states, which has paid out $250 billion so far in what state legislatures have treated like walking-around money. Appropriate that money for the health care system, not to mention some of the money spent in Iraq, and universal coverage should be a cinch. If Chiang Kai-shek’s heirs, the Kuo Ming Tang, could find the political will to do it at the beginning of Taiwanese democracy, the U.S.A. should be able to emulate it 220 years or so after ratifying the Constitution.

Obama, McCain—return those health care lobby checks and get to work.

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