The Residential Library

The sometimes demented, frequently irreverent, and occasionally stupid musings of Ron Hargrove

A Better Path to Universal Health Care

By Jamie Daw

As a Canadian living and studying health policy in the United States, I’ve watched with interest as a growing list of Democratic presidential candidates — Senators Bernie Sanders, Kamala Harris, Elizabeth Warren, Kirsten Gillibrand and Cory Booker — have indicated support for a Canadian-style single-payer plan with little or no role for private insurance. Approval of such a system has become almost a litmus test for the party’s progressive base.

But rather than looking north for inspiration, American health care reformers would be better served looking east, across the Atlantic.

Germany offers a health insurance model that, like Canada’s, results in far less spending than in the United States, while achieving universal, comprehensive coverage. The difference is that Germany’s is a multipayer model, which builds more naturally on the American health insurance system.

Although it receives little attention in the United States, this model, pioneered by Chancellor Otto von Bismarck in 1883, was the first social health insurance system in the world. It has since been copied across Europe and Asia, becoming far more common than the Canadian single-payer model. This model ensures that all citizens have access to affordable health care, but it also incorporates age-old American values of choice and private competition in health insurance.

Germans are required to have health insurance, but they can choose between more than 100 private nonprofit insurers called “sickness funds.” Workers and employers share the cost of insurance through payroll taxes, while the government finances coverage for children and the unemployed. Insurance plans are not tied to employers. Services are funded through progressive taxation, so access is based on need, not ability to pay, and financial contributions are based on wealth, not health. Contributions to sickness funds are centrally pooledand then allocated to individual insurers using a per-beneficiary formula that factors in differences in health risks.

The United States has the foundation for this kind of system. Its Social Security and Medicare systems use taxation to pay for social insurance policies, and the health care exchanges created by the Affordable Care Act provide marketplaces for insurance policies.

In an American version of this system, private insurers would have to be heavily regulated to ensure that coverage was affordable and to prevent the sort of rapid increases in premiums, deductibles and cost-sharing that have occurred over the past decade. Similar to regulations for Medicare and Medicaid, insurers would be required to provide a comprehensive set of benefits with limits on patient cost-sharing, which could be means-tested or tied to other criteria, such as having a chronic disease.

In Germany, for example, insurers can charge only small out-of-pocket fees limited to 2 percent or less of household income annually. Compared with the mostly fee-for-service, single-payer arrangements in Canada or the Medicare system, enrolling Americans in managed care plans paid on a per-patient basis would offer greater incentives to increase efficiency, improve quality of care and promote coordination of care.

Under a German-style plan, states could still be given flexibility in regulating nonprofit insurers to reflect regional priorities, similar to the flexibility offered to states in managing Medicaid and the A.C.A. exchanges.

Administrative and governance costs in multipayer systems are higher than in single-payer systems — 5 percent of health spending in Germany compared with 3 percent in Canada. But there is much room to cut prices. If, for example, insurers were able, on average, to achieve hospital and physician prices at the level of Medicare, and prescription drug prices at the level of the Department of Veterans Affairs, the savings would be significant.

While recent polls indicate that a majority of Americans support so-called Medicare for all, approval diminishes when the plan is explained or clarified. The former Starbucks chief executive, Howard Schultz, who is considering running for president, called the proposal to eliminate private health insurance “not American.” A German-style multipayer road to universal coverage might receive a much warmer reception.

Americans have long valued choice and competition in their health care. The German model offers both: Patients choose private insurers that compete for enrollees, in the process driving innovation and improving quality. If the United States adopted this model, insurance companies would be more tightly regulated and required to become nonprofits, and some job losses would be likely. But they would not need to be eliminated, an idea suggested, and then retracted, by Ms. Harris in her call for Medicare for all.

The diversity of health financing arrangements globally demonstrates that there are many possible paths to achieving universal health care at an affordable cost — as Ms. Harris’s advisers acknowledged after walking back her call for the elimination of private insurance.

Advocates and policymakers should pick carefully among these paths, choosing one that strikes a balance between what is possible and what is ideal for the United States health system. While the single-payer model serves Canada well, transitioning the United States to a multipayer model like Germany’s would require a far smaller leap. And that might encourage Americans to finally make the jump.

Jamie Daw is assistant professor of health policy and management at Columbia University’s Mailman School of Public Health.
This article originally appeared in the New York Times on Feb. 20, 2019.
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