Afraid of Socialist Healthcare in America? It's Already Here

03/18/2010 05:12 am ET | Updated May 25, 2011

In the course of our ongoing national debate about health care, it is instructive to observe the words that are used -- and the words that are avoided -- to describe different models of healthcare. Consider:

Socialist Health Care System. This is the model under which the government pays for health care (they are they "single payer" you may have heard of) but health care is provided for by private entities. As a single payer, the government may choose to negotiate for better prices should it choose to do so. Private providers (doctors, hospitals, and other providers of health services) are free to decline to provide services to those covered by these government plans should they decide they do not like the reimbursement rates offered.

We will describe who these people are shortly. But first consider that some in America get an even stronger dose of government-provided health care. Some even get treated under the...

Communist Health Care System. While the term is avoided for obvious reasons, it does accurately describe the operation of an important segment of the American health care system. Under this model, not only does the government pay for health care, it also actually employs those who provide health care. Doctors are government employees and hospitals are government-owned. Who gets health care under this model? Not who you might think. Read on.

Capitalist (and possibly "free market") Health Care System. Under this model, individuals and companies can purchase health care insurance from companies who wish to sell it to them. If you are not lucky enough to be employed by a large employer who can negotiate an exemption, insurers are free to decline coverage to those who they think are bad risks, such as those with pre-existing health conditions (such as almost everyone over 50). Indeed, many of those who purchase insurance believing that they will be covered when they get sick may find that their insurance companies determine, after the fact, that illnesses are the result of these pre-existing conditions, and that the coverage they thought they paid for will be declined. Indeed, all sorts of medical treatments from prescription drugs to various treatments may be denied to insured individuals for a variety of reasons. Free markets, however, with their competition among insurers are supposed to protect us from these bad behaviors.

Health Care Rationing. This is what exists whenever the provision of health care is not universal and unlimited. In other words, under just about every system. For example, rationing comes in to play in the current system when insured people try to get care in an emergency room but encounter a 12 hour wait due to the line created by uninsured patients who can get care in no other place. It also occurs whenever health care is denied by an insurer for whatever reason, including claims of pre-existing conditions. (To see how invidious this designation is, consider that insurers in eight states recently decided that being a victim of domestic abuse is a pre-existing condition.) Rationing also occurs when your doctor prescribes drugs for you that are not on your insurers "formulary." (A formulary is a list compiled by an insurer of prescription drugs that they have decided to pay for. If, after examining you, your physician decides to prescribe a certain drug for you and it is not on your insurers list, you are out of luck. Your health care has been rationed.)

Opponents of health care reform have often cited their opposition to any reform by claiming that it will involve the rationing of health care. They are half right. Any health care system that does not provide unlimited care to everyone employs rationing. But they conveniently ignore the fact that there is massive rationing in the current system and that the current system rations in many ways that are socially counterproductive and irrational. The most irrational statistic is that nearly half of all health care costs are invested in people in the last year of their lives. Contrast this with the lack of investment in child nutrition or prenatal care and you see how irrational the current allocation of health care resources is.

Other incentives are badly misaligned. For example, most very poor citizens receive publicly supported health care. Should a welfare recipient get a low-paying job without health care benefits (most are unlikely candidates for upper management employment), not only do they lose their health care, so do their dependent children. Thus the current system actively discourages employment among those on the public dole.

Whose Health Care is Provided under Which System?

It is interesting to note who currently gets health care under each model.

The principal recipients of health care under the communist model are members of the United States Army, the United States Navy, the United States Air Force, and the United States Marines. Apparently the military believes it can best ensure the readiness of our fighting forces by directly providing for their health care. (Recipients also include military veterans who receive medical services through the Veterans Administration.) Most get health care in government military facilities provided for by employed physicians, often themselves members of those same service branches. Most report a very high level of quality control and the costs to provide these services are lower than under most alternative schemes. They forgo one thing however, that many opponents of health care reform often describe as important: they do not have an unlimited ability to choose their health care providers. Yet the collegial peer review that occurs within these government facilities provides a high quality of care at a reasonable cost. This level of choice does not appear to be a necessary correlate of quality.

Note: One reason for the comparatively low costs under this model is that the incomes of the providers are not dependent on providing a large volume of services. Most health care in the United States operates on a "fee for service" basis. This means that providers are paid for doing a lot of stuff, not necessarily for keeping patients healthy. Providers in government-run facilities are paid to take care of patients and meet their medical needs. Providers in most of the remainder of the health care system are paid for every service they perform, usually at a negotiated rate. Providers who provide more services earn more income.

Who gets their health care under the Socialist model? Nearly every person over sixty-five years old who enrolls in Medicare, for one. Also, the very poor who are eligible for Medicaid. Interestingly, much of the opposition to health care reform comes from the Medicare-covered group. But their objection almost never emanates from dissatisfaction with the health care they get. Rather, it stems from fear that the cost of providing health insurance to those who cannot or will not get it will be paid for in part by reducing the costs of the benefits which they currently enjoy. Their socialist model of health care has taken such good care of them that some are terrified that something may come along that will interfere with their good deal.

Still others are simply confused. The cry of one elderly patient is a case in point: "I want us to have a private health care system -- like my Medicare".

What of providers under the socialist model? There is a lot of grumbling among providers that Medicare reimbursement rates are too low. Who wouldn't want to be paid more? Indeed who among us thinks they do not deserve more? But there is a clear and definitive measure of whether these rates are too low. Providers are free to decline to see Medicare and Medicaid patients. As long as few decline to participate, such claims are without merit. And the system is in place to increase reimbursements whenever that is really called for, like when enough providers decline to participate. But if we increase reimbursement rates, we should expect to see commensurate increases in some taxes to pay for these. If we pay more for identical services, it costs more.

What of the capitalist and/or free market model? First, we should distinguish these from each other. We have a capitalist system whenever there is a profit motive. Clearly this defines the residual of our system after we have excluded those who receive their health care under either the communist or socialist models.

Even the nonprofit sector operates with a profit motive, even though they are prohibited from distributing revenue surpluses to stockholders. They can, however, invest in executive salaries or empire-building. As one nonprofit hospital executive described it to me, "If we don't make money, we are out of business".

One interesting feature of this system is that the insurance companies "have a direct financial incentive to deny coverage." This is because when patients are denied coverage, they get to keep collected premiums yet decrease the amounts they pay out. Company executives may benefit since their compensation is often tied to profit and every claim not paid increases this profit.

But free markets are supposed to protect us from the excesses of capitalism. But do we have a health care system that operates in the free market? Free markets are defined by competition. Unless you live in a rural enclave, you have a multitude of choices when you buy your groceries. But unless you are employed by a government or large corporation, you are unlikely to have any meaningful choice in health care insurers. Most states have a single dominant health insurance provider. So those who have to buy insurance in the private market are lucky to get a single insurer to take them on as a customer without first excluding from coverage nearly every condition they are likely to develop (by classifying these as uncovered "pre-existing conditions"). Even if you pass this screening, you are at their mercy if they decide that some new ailment is a by-product of something you had before your current policy took effect. Or, if the medicine your doctor said you needed was not on their formulary. If you are dissatisfied with how they treat you, you can't take your business elsewhere; you can only take what they offer you.

And, when was the last time you asked what a particular health care service would cost? Our system does not encourage us to ask. When we do not have a meaningful choice of insurers, and pay whatever we are charged and accept whatever reimbursement is offered, we do not have anything close to a free market. We pay our copays and hope that the services we get will be covered, something we find out only weeks later when the bill arrives.