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David Wallechinsky Headshot

Health Reform: A Beginner's Guide

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To say that Americans are confused by the health care debate is an understatement. So, as the nation prepares for the next round, to be kicked off by President Obama's speech to the Congress, I thought it might be useful to provide a beginner's guide to health care in the United States to make it easier to understand what is being debated, or should be debated. The proposed reforms are filled with details and intricacies, but to get our bearings, let's just deal with the variety of ways that health care can be paid for.

Methods for providing health care range from complete government control to complete personal responsibility and liability. Currently, there are five broad categories of health care in use in the United States, to which Obama has proposed adding a sixth. Keeping in mind that in practice the methods often overlap, here is a brief rundown on where we stand now.

1. Socialized Medicine
You'd never know it from the TV version of the health care debate, but the United States already has an extensive system of socialized medicine. In the U.S., we don't call it "socialized medicine;" we call it "military health care." In socialized medicine, the government not only pays for each person's health care, it also owns and operates all of the hospitals and pays all of the doctors, nurses and other caregivers. If you are a member of the Army, the Navy, the Air Force, the Marines or the Coast Guard, you and your family are using socialized medicine. The government may outsource certain treatments and procedures to private hospitals, but it is still government doctors who make the basic decisions. Many veterans, particularly those with illnesses or injuries caused or aggravated by military service, are also covered by socialized medicine.

To those people who, on television or at town meetings, complain about "socialism," ask yourself: would you be satisfied if, when an American soldier is wounded by an explosion in Iraq or Afghanistan, he has to prove that his private insurance company covers the specific kind of injury he has received? Better to take him to the nearest government-run hospital so that government doctors and government nurses can take care of him.

2. Government Pays, You Choose (Single-Payer)
In the single-payer system, the government pays for everyone's health care, but you choose your own doctors and you make most of the decisions. Again, in the United States, we already have single-payer systems. They're known as Medicare and Medicaid. If you are at least 65 years old or you are disabled, the government pays for your health care, but, generally speaking, you are free to choose your own doctors and hospitals. A full single-payer system would extend such coverage to Americans who are younger than 65 and not disabled.

Polls show that a majority of Americans find the single-payer system appealing, yet it was not even considered in the Congressional debate. A full single-payer system would significantly increase government spending, but it would also dramatically decrease the nation's overall health care spending because the insurance industry charges almost 30% in profits and overhead, whereas the figure for Medicare, as an example, is only 4%.

Surprising Fact
Add together the military, veterans, civilian government employees, the disabled and seniors, and federal, state and local governments were already paying 45% of all health care costs in the United States before Obama even brought up the subject of health care reform. Private health insurance and private funds pay for 40% of all costs and 15% of money spent on health care comes directly from people's pockets.

Where Does the Money Go?
According to the Centers for Disease Control and Prevention, in 2006, the most recent year that has been fully analyzed, Americans spent $1.7 trillion on personal health care, an average of almost $6,000 a person. Of that total, about 37% went to hospitals, 25% to doctors, 12% was spent on drugs, and 7% went to nursing homes. Included in the remaining 18% are medical supplies and "nonphysician medical providers."

3. Employer-Based Health Insurance
Approximately 60% of Americans with health insurance get it through their employer or the employer of a family member. In most cases, the employer chooses the employee's insurance plan, but the employee has to pay a portion of the expenses. In a majority of cases, the employer contracts with a Preferred Provider Organization (PPO) and employees must go to designated doctors and hospitals. Many Americans are satisfied with their employer-based health care; others not so much. This system has been around for about 75 years.

Since 1999, the cost of employer-based health insurance has risen at more than quadruple the rate of wages.

4. Individual Health Insurance
If you are younger than 65, not in the military and do not have an employer with a health program, you are left with the responsibility of paying for your own health insurance. About 9% of Americans fall into this category. Although the plans are similar to employer-sponsored plans, individuals have less leverage than groups, so they tend to pay higher premiums and have higher deductibles.

5. Cash for Care
About 16% of Americans (48 million) do not have health insurance at all and must pay for services out-of-pocket. Although some of these are wealthy people or individualists who prefer to go it on their own, most uninsured Americans are those who simply cannot afford it. The most likely outcome of this year's push for health reform is that these people will be insured. Not only are President Obama, the Democrats and even many Republicans committed to insuring the uninsured, but some other powerful forces are too. If more than 40 million Americans are added to the rolls of the insured, this represents a huge boom in business for doctors, hospitals and drug companies, none of whom care who pays for all these people, as long as someone does.

6. Public Option
To the existing health care systems, President Obama has proposed a new one, which has come to be known as "the public option." This would create a government-sponsored insurance plan that Americans can sign on to instead of the ones provided by private health insurance companies. Consequently, the public option is a big threat to private insurance companies. If Obama is looking for a political victory rather than a policy victory, the obvious solution would be to drop the public option and agree to a system in which the government pays for low-income Americans to buy health insurance from private companies. If Obama and the Democrats accept this compromise, the private health insurance industry, being guaranteed 40 million new customers, would pour money into an ad campaign to support Obama's program and that would be the end of that.

Personally, I see private health insurance as a parasitic industry. If you are having health problems, the people who help you are doctors, nurses, technicians and other support staff at hospitals and doctors' offices. Private health insurers have nothing to do with providing health care. They are just middlemen who bully their way in between patients and their caregivers, and reap a large profit just because they can. It's not unlike an organized crime protection racket, but one that's legal.

Having experienced health care in other countries, I would vote for the single-payer system as the one most likely to improve care, while cutting national expenses. The one legitimate criticism of single-payer is that it adds to the cost of government. Obama's position on single-payer is that it would be the best system "if the nation was starting from scratch. But now we need to build on the system we have." Translated into English, that means "the health insurance industry is too big and too powerful to be dumped."

Cross-posted at

Insurance Companies Win Big in Healthcare Debate...Hospitals Too (by Noel Brinkerhoff, AllGov)
Cost of Employer-Sponsored Health Insurance Skyrockets (by Noel Brinkerhoff, AllGov)
Drug Industry to Spend $150 Million on TV Ads Supporting Obama Health Care (by Noel Brinkerhoff, AllGov)
Health Industry Passes Financial Sector in Lobbying Race (by David Wallechinsky and Vivian Kim, AllGov)