The mission of MedTech Futures, which appears on MidwestBusiness.com every other Monday, is to provide insights into developments in the medical technology and health-care scene in the Midwest as well as globally.
CHICAGO – On primary election day here in Illinois, it would be of interest to discuss health care reform, which is an issue that goes head to head with the economy and Iraq as the No. 1 issue facing voters this political season. One sentiment that appears to unite nearly all the candidates is the claim that our health care system is “broken”.
Everybody has a health care reform package with the hope – among the Democrats in particular – to solve the huge problem of covering the nation’s 46 million uninsured.
It would be helpful to review – in broad strokes – how our health care system works (or as many have stated doesn’t work). Despite the claim that it is an irrational system, there is in fact a logic that has evolved over the past 60 years. It is a logic that points to why the 1993 Bill Clinton reform plan failed and why both the Barack Obama and “new” Clinton proposals are also potentially doomed.
As a consequence of the wage and price controls instituted during World War II, employer-sponsored health care insurance has become – at least until recently – the avenue by which the employed have obtained health care coverage. With the 1960s and the Great Society programs, Medicare and Medicaid were enacted to cover the well-recognized gap that developed among the non-working elderly and poor (respectively).
More recently during the 1990s, the State Children’s Health Insurance Program (SCHIP) was brought on board to cover the last apparent gap (namely that of children). In short, our system is actually quite logical and simple. It consists of two parts: businesses pay for the health insurance for the employed public while government pays for everyone else.
Obviously this is a simplification as taxpayers and businesses, of course, pay into Social Security and Medicare. Nevertheless it is useful to look at the system broadly along these lines.
While there are many reasons why the 1993 health care reform effort failed, it would seem that the core reason was that it would upend a system that had evolved through fits and starts (and occasional bursts) over the past 60 years. In essence, the proposal at that time was that government would pay for and run everything.
Beyond all the usual complaints against “socialized medicine,” such a framework was simply too radical for the logic that was firmly in place. Using this framework and fast forwarding to the present, we can see that both the Clinton and Obama plans (as summarized very nicely in Paul Krugman’s New York Times column from Tuesday) while less radical than that proposed in 1993 likewise complicate the logic and thus run an equal risk of failing.
Given the premise that there is a large population of uninsured among the working public, a proposal that would fit with this logic would propose that businesses in some form would actually fund health care insurance for the uninsured working public.
In essence, both the Clinton and Obama plans would ask (and actually mandate in the case of the Clinton plan) uninsured individuals to pay for their health care insurance. Notwithstanding the subsidies that would be involved to make this more or less affordable (as the candidates claim), this would create a more complex and in a certain sense less logical system of three parts. Namely:
- some businesses pay for the health insurance for the employed public while
- uninsured working people (some in the case of the Obama plan) pay for their own insurance and then
- government pays for everyone else.
This three-part system – with the operative terms “some” as indicated – strikes me as an inherently unstable system. The “some” businesses may become more, government gets mixed in with the working public and the problems that we lament over now may look like a party compared to the chaos of the future.
The concept of having businesses pay for the health insurance of the uninsured working public is not a new one. Illinois Gov. Rod Blagojevich tried that – though in a rather crude way – with the proposed “gross receipts tax,” which was roundly defeated. Likewise, California Gov. Arnold Schwarzenegger has attempted that in California. In the latter case, an amalgam of business taxes (including those on hospitals and doctors) sent his proposal to failure as well.
So what’s the answer? In 2007, this column – in the wake of the Blagojevich plan – proposed a new form of business tax: the health impact tax. It was expressly designed to fit with the existing logic of our health care system.
This would acknowledge that businesses should continue their role in paying for health care insurance for the working population. Businesses should be fair with respect to the actual health care burden that different firms create on society and hence also proportional to how much they should pay for the uninsured funding pool. It would also provide direct tax incentives for encouraging healthier businesses.
It is important to note that this proposal is not “anti-business” but rather consonant with the established principles of our health care system over the past half century. While it aims to preserve the balance that we have created over these years, it’s not a “conservative” plan as it proposes a 21st century health impact tax (akin to a “carbon tax”) that fully and fairly apportions the externality costs created within our society.
If you are interested in more details, I would encourage you to read the MidwestBusiness.com column or my follow-up blog article. The bottom line is that while we are voting for what appears to be set positions by the various candidates, the debate isn’t yet over. We can do better.
Check out Ogan Gurel’s blog on life sciences and investment here.
Dr. Ogan Gurel is a managing director in the health care consulting practice at XRoads Solutions Group. He is also a medical producer at the Internet TV network InTimeTV. Gurel also hosts two talk shows (“Insights in Medicine,” whose audience is primarily composed of physicians) and the show “Eye on Harvard”. He is also an adjunct associate professor of bioengineering at the University of Illinois at Chicago. Gurel can be e-mailed at ogan@midwestbusiness.com.
 Click here for Gurel’s full biography.
Previous Columns in 2007:
Innovation vs. Invention: Accelerating Development (1/21/2008)
Invention Needs to Be Left Free; Innovation Must Be Managed (10/4/2007)
Concepts of Innovation, Invention Should Now Be Regarded Differently (9/17/2007)
The Deconstruction of Amgen: Company is Victim of Own Success (8/20/2007)
Integration of Medical Records Across Populations Still a Dream (8/6/2007)
Life Sciences Funding: Has the Private Equity Boom Peaked? (7/23/2007)
Analysis: Why the Abbott Deal With GE Healthcare Fell Apart (7/17/2007)
Stryker: The Surprising Implications of Hip-Resurfacing Implants (7/9/2007)
The Future is Bright For Life Sciences in State of Illinois (6/25/2007)
FDA: Tortoise, Hare or Something Else Entirely? (6/12/2007)
Call to Action: How to Accelerate Medical Technology in Illinois, Beyond (5/30/2007)
The ‘Innovation Gap’: Preventing Ideas From Untimely Deaths (5/29/2007)
The Diabetes Divide: Is Diabetes a Surgical or Medical Disease? (5/14/2007)
Unfolding Tragedy: ‘Balancing Act Between Innovation, Health-Care Access’ (5/1/2007)
Personalized Medicine, Tech Convergence Decisive Trends (4/16/2007)
KKR Buys First Data: On Private Equity, Pipelines, Development (4/2/2007)
What Patients Want: A Story of Choice, Trials, Evidence-Based Medicine (3/19/2007)
Gov. Blagojevich Announces IllinoisCovered to Insure 1.4 Million in Illinois (3/5/2007)
Medical Design Excellence Awards Offer Decisive Glimpse Into Future of Health Care (2/20/2007)
What’s More Important in Medicine: Diagnostics, Therapeutics or Prognosis? (2/5/2007)
Lance Armstrong and the Future of Cancer Care (1/22/2007)
Subtle But Powerful, Publication Bias Goes Beyond Financial Incentives (1/9/2007)
Click for 2006 column archive.
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