The Legacy of the Crash

by Terrence Casey

  Alex Waddan

  In the US, health care provision and potential reform of that provision has been a source of consistent controversy since at least the 1930s. There have been a series of set-piece political battles as different presidents have, with mixed success, attempted to reshape existing arrangements (Blumethal and Morone, 2010). In the UK, on the other hand, following the establishment of the National Health Service (NHS) in 1948, there was a period of relative policy stability. There were debates about how best to achieve the NHS’s goals but there was a period of ‘consolidation’ if not exactly fulfillment of the initial expectations for the service. That era of relative consensus ended in the late 1980s (Klein, 2006), and since then arguments over health care have continued in British political life. And in both the US and UK these ongoing arguments over health policy quickly took center stage with the changing of the partisan guard in Washington in 2009 and Westminster in 2010. This chapter, therefore, explores the problems faced by the incoming Obama and Cameron administrations with regard to health care policy and examines how, and how radically, they proposed to change existing arrangements in the US and UK respectively.

  The dilemma facing health policy-makers across industrialized nations is broadly similar. What is the best way to reconcile the potentially contradictory goals of providing individuals access to care at a reasonable aggregate cost with optimal system efficiency? In answering that question the US and UK have arrived at quite different policy settlements. The US, if slightly misleadingly, is perceived as a market-based system in contrast to the state-dominated health care landscape in the UK. That divergence in health care policy is especially notable given how the two countries are often grouped together in typologies that consider overall welfare state policy frameworks (Esping-Andersen, 1990). Yet, manifestly a country’s health care system is central to its welfare state arrangements and, moreover, central to the distributional organization of the state itself: ‘Health care institutions are large-scale concentrations, and means of allocating society’s resources’ (Moran, 1999, p. 4). Consequently health care reform has significant implications not just for the provision of health care but also for the wider distributional organization of the state. In turn this helps explain why the political battle over health care reform has been so intense in the US and UK, especially the former.

  In the US the bitter political fight over health care reform that was initiated when Obama took office was resolved in legislative terms with the passage of the Affordable Care Act (ACA) in March 2010, but the partisan conflict continued through the 2010 midterm elections while legal challenges to the constitutionality of the ACA were also mounted (Saldin, 2010). In the UK general election of 2010, the future of the NHS was not a first-order issue, but shortly after the election Secretary of State for Health, Andrew Lansley, revealed plans for a major shakeup of the role of doctors and hospitals in the service (Secretary of State for Health, 2010). Opponents derided the plans as a threat to the integrity of the NHS, and health care quickly became a primary political battleground between the Coalition government and the Labour opposition (Ramesh and Williams, 2010). Before moving on to look at the controversies surrounding these reform proposals it is important to clarify what was being reformed and why reform was felt to be necessary.

  Health care states

  In 1987 the Organization for Economic Co-operation and Development (OECD)’s study of comparative health systems distinguished between system types based on the sources of funding for care and the degree to which arrangements prioritized ‘consumer sovereignty’ or ‘social equity’ with the ‘former being characterized by incentives, the latter by control’. Using these criteria the OECD described the US and UK as ‘prototypical country examples’ of different system types (OECD, 1987, p. 24). And the distinction between the UK, with its state-dominated system emphasizing equal access and government funding from general tax revenues, and the US, with its reliance on private sources of funding with individuals responsible for accessing their own care and government providing a safety net, was clear. Twenty years on, this model retained considerable interpretive value. The state remained the dominant payer in UK health care. In 2008, 82.6 percent of health care spending in the UK was public expenditure, making the UK the second highest ranking of OECD countries in that category after Iceland (OECD, 2010). Through this spending the NHS provides free care, at the point of use, by both General Practitioners (GPs) and hospitals for everyone who is ‘ordinarily resident’ in the UK. Of aggregate NHS spending, 90.3 percent came from general tax revenues, 8.4 percent from National Insurance contributions and 1.3 percent from patient charges, mostly arising from prescription charges and payments for dental services (Delamothe, 2008a).

  In contrast, in 2008 the US was the only OECD country where public expenditure accounted for less than half of aggregate health care spending (OECD, 2010), and most Americans accessed health care through private insurance coverage. Nevertheless, the idea that the US has a free market in terms of health care is misleading. First, even in the US the consumption of health care is mostly collectively organized. Only the very rich could afford to enjoy the full range of health care services on a pay as you go basis (Moran, 2000, p. 141). The market solution for this is insurance, but it is questionable whether health insurance is quite the same as most other types of insurance. Given the consumer’s imperfect knowledge, then consumers who are insured, and who thus have the security of a third-party payer, are likely to over-consume health products, especially since it may be in the interests of the expert provider for this to be the case (Barr, 2004, pp. 258–63). Also, since the risk of illness and injury generally increases over the lifecycle, consumers will become increasingly unattractive to insurers just as the consumer is most likely to call upon the insurance. Further, while, from a commercial perspective it makes sense for insurers to exclude a pre-existing illness from insurance coverage, this seems medically unethical. If, however, as stipulated by the ACA, insurers are forced to offer insurance coverage to all, then the commercial autonomy of insurers is being infringed.

  Second, the US government is a major payer in US health care. Established in the mid 1960s, Medicare and Medicaid provide health insurance for the elderly and the poor, respectively (Marmor, 2000). By 2008 the costs of these two programs meant that US government spending accounted for 46.5 percent of total health care expenditure (OECD, 2010). In addition to this direct spending the government effectively subsidizes employer-based insurance, which provided cover to 52.3 percent of the population in 2008 (Kaiser Family Foundation, 2010), by granting tax relief to employers who provide health insurance coverage to their employees. In 2005 the tax relief amounted to approximately $75 billion (Howard, 2007, p. 52).

  Overall, the OECD’s typology helps initial understanding about the relative roles of the state and market in helping people access health care, but it needs significant qualification in practice. Furthermore, there are aspects of the health care state that the typology does not adequately address. In particular, it does not take into account the degree to which the state organizes health care providers. To what extent are doctors and hospitals under the control of the state? That is, while the rules governing access to health care are obviously critical, so too are the rules that govern the behavior of providers of care (Moran, 1999, 2000). Expanding on the categorization of health care states, Moran labels the original NHS a model of ‘command and control’ while the US had evolved into a ‘supply state’ (Moran, 2000, pp. 147–54).

  The concept of the ‘supply state’ adds significant dimensions to discussion of the US system. In particular it brings more attention to the independent power of providers, notably hospitals and physicians, rather than just to the position of consumers of care. It also makes sense of the fact that public funding has been given to further American medicine to fund medical research and hospital building through measures such as the Hospital Survey and Construction Act of 1946 (Jacobs, 1995). In contrast, the NHS was initially
notable not only for government funding but also for effective government ownership of hospitals and hospital employees. That command and control was always more restricted with regard to the position of GPs or primary health care providers in the UK. Unlike doctors who work in hospitals as salaried employees, most GPs have contracts with, rather than salaries from, the NHS. As will be explained below, the semi-autonomous position of GPs is critical in understanding why Lansley’s reform proposals proved so contentious.

  The cry of ‘crisis’

  Whatever the different norms and procedures both systems have seen a series of problems. Perhaps the starkest statistic is that in 2008 15.4 percent of the US population was uninsured (US Census Bureau, 2010), with 18.9 percent of non-elderly adults lacking protection from either market or government sources (Kaiser Family Foundation, 2010, p. 1). In addition, many millions of others are underinsured, leaving them vulnerable to potentially significant medical expenses. About three-quarters of people filing for bankruptcy and citing medical costs as a primary cause report that they had some insurance (Thorne and Warren, 2008, p. 66).

  In the UK, issues about access revolve around whether and when specific treatments will be available rather than about who will pay. The historical dilemma for the NHS has been about how to ration the care that it provides – and underlying that is the question of how much the government is prepared to fund. Mostly the NHS has rationed in a ‘covert’ manner that attempts to deflect explicit blame away from the government (Delamothe, 2008b, p. 1344). Historically the medical profession was a participant in the blame avoidance game in a relationship described by Klein as ‘the double bed’ (Klein, 2006). Reflecting the mutual dependence of the state and the medical profession after the establishment of the NHS, GPs took on the role of gatekeeper to more specialized services, enabling the NHS to stay within its allocated budget. In return the state stood relatively to the side in terms of potential intervention in the medical profession. This rationing does not go unnoticed but much of it is not interpreted as rationing and political leaders avoid the term altogether. The visible, and somewhat quantifiable, face of that rationing has been waiting lists, which explains ‘the totemic importance’ attached by ‘government and the electorate, not to mention foreign observers of the NHS’ to those waiting lists (Delamothe, 2008b, p. 1344).

  Lack of insurance in the US and delays in getting treatment in the UK are the very immediate signs to patients of the problems with health care delivery. For the respective governments there is another pressing, and in the US unremitting, issue: rising health care costs. Health spending has followed an upward trajectory in both countries, but that has been much more accelerated in the US than in the UK. In the latter, health spending as a percentage of gross domestic product (GDP) rose from 3.9 percent in 1960 through 7.0 percent in 2000 and was 8.7 percent in 2008. In the US the numbers were 5.2 percent in 1960, 13.4 percent in 2000 and 16.0 percent in 2008 (OECD, 2010). The underlying explanation for this phenomenon is that the UK government imposes a ceiling on NHS spending while the US government imposes no such restrictions on global health spending, even in the programs that it funds. Indeed, government’s tight control of the purse strings in the UK resulted in the country having the lowest spending on health care as a percentage of GDP of the western European nations at the end of the twentieth century. Hence, in 2000, when other nations were already looking to contain health expenditures, Prime Minister Tony Blair pledged to increase UK spending on health care to bring the country up to average EU levels. At that point France spent 10.1 percent of GDP on health care while for Germany the figure was 10.3 percent (OECD, 2010). Conversely, the US was an outlier at the other end of the spectrum, spending a significantly higher percentage of GDP on health than any other OECD nation. It is unsurprising that the US spends more than other countries on health since there is a correlation between a nation’s wealth and its health care spending, but the overspend is significantly disproportionate (McKinsey Global Institute, 2008, p. 10). There are various explanations for this, but higher costs are a central part of the equation (Oberlander and White, 2009).

  One consequence is that many Americans do not have a means of paying for their health care needs, yet simultaneously health care spending has increasingly squeezed both the US government and the corporate sector. Direct health care expenditure by government has taken up an increasing slice of both federal and state government spending over the last 30 years. Government spending on the Medicare program is all federally funded. In 1970 Medicare took up only 3.5 percent of the federal budget. That figure rose to 5.8 percent by 1980 and then 8.6 percent in 1990. By 2000 Medicare consumed 12.1 percent of the federal budget (Moon, 2006, p. 38). In fact the initial rules governing payments under Medicare, a publicly funded program, illustrate well the power of providers in the US system. In enacting the legislation the Johnson administration and supporters in Congress overcame significant opposition from the medical profession, but they also conceded much ground to those providers (Jacobs, 2005, p. 46). The 1965 law allowed providers to charge what they deemed appropriate and in the immediate years after implementation, hospital and physician fees rose ‘markedly’ (Marmor, 2000, p. 84). Changes were made to reimbursement methods in the early 1980s when there was a shift from retrospective payments on the basis of the charges that hospitals and doctors demanded, to prospective payments whereby fees would be paid according to an amount settled in advance for each procedure. This was a significant extension of the administrative role of government (Oberlander, 2003, pp. 120–6), but while it limited payments per procedure it did not limit the number of procedures and so did not constitute a global cap on aggregate Medicare spending.

  Federal and state governments fund Medicaid jointly with incentives to the states to spend on the program in order to receive more federal largesse. Given the means-tested nature of Medicaid eligibility, it is a program that sees increased demand in economic downturns. Clearly this helps contain the numbers of uninsured, but it means that increased demand for services comes at those points in time when government revenues decline. This is particularly problematic for state governments trying to balance their budgets (see the Kaiser Commission on Medicaid and the Uninsured, 2010, for an assessment of Medicaid’s finances during the economic crisis).

  Overall, the situation of the Medicare and Medicaid programs reveal much about the chaos afflicting American health care arrangements. Reflecting that the constituencies who receive benefits from the programs are likely to be the highest health risks in the population (the elderly and the poor) the costs associated with them rise, apparently inexorably. Hence, the Congressional Budget Office (CBO)’s projections for the next ten years issued in January 2010 (before the passage of the ACA) stated: ‘The biggest single threat to budgetary stability is the growth of federal spending on health care – pushed up both by increases in the number of beneficiaries of Medicare and Medicaid (because of the aging of the population) and by growth in spending per beneficiary that outstrips growth in per capita GDP’ (CBO, 2010a, p. 21).

  Further to the strain on government finances, health care costs also hurt many American businesses. For example, William Clay Ford, then chair of the Ford Motor Co., reflected in 2004: ‘During the four-year period through 2003, [Ford’s] health insurance premiums increased by 11.4 percent, compared to 2.2 percent for overall inflation. This is a pace we cannot sustain’ (quoted in Morris, 2006). The options open to businesses looking to reduce their costs are to pass more of the cost for insurance on to employees or to stop offering insurance altogether. Any such steps then exacerbate the problem of uninsurance.

  Overall, the different problems outlined above reflect both the alternative trajectories that health care policy has taken in the two countries and also the underlying issue that organizing a comprehensive health care system is inevitably hugely problematic. The flaws in the US system seem more profound because high spending has not led to universal care, but in the UK a historic legacy of low spen
ding left gaps in care that were not easy to fill even as spending increased through the 2000s. And finding remedies for the problems has become increasingly problematic as changing demographics, particularly population aging, and improved medical technologies add to the strain on services. New treatments can be very expensive with an uncertain success rate. Making decisions about whether to provide funding for these new treatments is especially awkward in the UK where the need to maintain the cap on aggregate spending means that different treatments may be in competition with each other. This landscape is further complicated by the rise of ‘consumerism’ as a range of organized groups campaign on behalf of victims of particular illnesses. In the UK context this has exposed more of the previously hidden techniques of rationing to the light of day (Harrison and McDonald, 2008, pp. 115–18).

  As policy-makers have struggled to find solutions to the problems of health care the political terrain has become more polarized. In the US, debates have followed established ideological lines as Democrats seek to expand coverage to more of the uninsured and Republicans rebuke their opponents for trying to ‘socialize’ American medicine. Whatever the half-truths that often arise during this debate, it is an argument of substance reflecting deep division. In the UK the ground in the health care fight is more muddied. The NHS remains highly popular (Delamothe, 2008c, p. 1469) and mainstream politicians continue to champion its principles, but since the 1980s the NHS has increasingly become a political football.

  ‘Obamacare’: the socialization of American medicine?

  At the signing ceremony for the ACA, President Obama reflected that finally the US recognized ‘the core principle that everybody should have some basic security when it comes to their health care’. In contrast, House Republican Leader John Boehner lamented: ‘This is a somber day for the American people’ (quotes in Stolberg and Pear, 2010). The ACA is in fact scheduled to rearrange many aspects of existing health care organization over the next decade, making it difficult to judge the law’s likely long-term institutional significance. But while assessments about the ACA’s impact can only be provisional it is possible to ask to what extent it seems likely to shift the nature of the US health care state, lessen the number of uninsured and restrain the cost burden of health care to the US economy.