April 28, 2003
Is national health insurance “socialized medicine”?
No. Socialized medicine is a system in which doctors and
hospitals work for the government and draw salaries from the
government. Doctors in the Veterans Administration and the
Armed Services are paid this way. Examples also exist in Great
Britain and Spain. But in most European countries, Canada,
Australia and Japan they have socialized financing,
or socialized health insurance, not socialized
medicine. The government pays for care that is delivered
in the private (mostly not-for-profit) sector. This is similar
to how Medicare works in this country. Doctors are in private
practice and are paid on a fee-for-service basis from
government funds. The government does not own or manage their
medical practices or hospitals.
The term socialized medicine is often used to conjure
images of government bureaucratic interference in medical
care. That does not describe what happens in countries with
national health insurance. It does describe the
interference by insurance company bureaucrats in our health
Won’t this raise my taxes?
Currently, about 64% of our health care system is financed
by public money: federal and state taxes, property taxes and
tax subsidies. These funds pay for Medicare, Medicaid, the VA,
coverage for public employees (including teachers), elected
officials, military personnel, etc. There are also hefty tax
subsidies to employers to help pay for their employees’
health insurance. About 17% of heath care is financed by all
of us individually through out-of-pocket payments, such as
co-pays, deductibles, the uninsured paying directly for care,
people paying privately for premiums, etc. Private employers
only pay 19% of health care costs. In all, it is a very
“regressive” way to finance health care, in that the poor
pay a much higher percentage of their income for health care
than higher income individuals do.
A universal public system would be financed this way: The
public financing already funneled to Medicare and Medicaid
would be retained. The difference, or the gap between current
public funding and what we would need for a universal health
care system, would be financed by a payroll tax on employers
(about 7%) and an income tax on individuals (about 2%). The
payroll tax would replace all other employer expenses
for employees’ health care. The income tax would take
the place of all current insurance premiums, co-pays,
deductibles, and any and all other out of pocket payments. For
the vast majority of people a 2% income tax is less than what
they now pay for insurance premiums and in out-of-pocket
payments such as co-pays and deductibles, particularly for
anyone who has had a serious illness or has a family member
with a serious illness. It is also a fair and sustainable
contribution. Currently, over 41 million people have no
insurance and thousands of people with insurance are
bankrupted when they have an accident or illness. Employers
who currently offer no health insurance would pay more, but
they would receive health insurance for the same low rate as
larger firms. Many small employers have to pay 25% or more of
payroll now for health insurance – so they end up not having
insurance at all. For large employers, a payroll tax in the 7%
range would mean they would pay less than they currently do
(about 8.5%). No employer, moreover, would hold a competitive
advantage over another because his cost of business did not
include health care. And health insurance would disappear from
the bargaining table between employers and employees.
Another consideration is that everyone would have the same
comprehensive health coverage, including all medical,
hospital, eye care, dental care, long-term care, and mental
health services. Currently, many people and businesses are
paying huge premiums for insurance that is almost worthless if
they were to have a serious illness.
Won’t this result in rationing like in Canada?
The U.S. Supreme Court recently
established that rationing is fundamental to the way managed
care conducts business. Rationing in U.S.
health care is based on income: if you can afford care you get
it, if you can’t, you don’t. A recent study by the
prestigious Institute of Medicine found that 18,000 Americans die
every year because they don’t have health insurance.
That’s rationing. No other industrialized nation rations
health care to the degree that the U.S.
If there is this much rationing why don’t we hear about
it? And if other countries do not ration the way we do, why do
we hear about them? The answer is that their systems are
publicly accountable and ours is not. Problems with their
health care systems are aired in public, ours are not. In U.S.
health care no one is ultimately accountable for how it works.
No one takes full responsibility.
The rationing that takes place in U.S.
health care is unnecessary. A number of studies (notably the
General Accounting office report in 1991, and the
Congressional Budget office report in 1993) show that there is
more than enough money in our health care system to serve
everyone if it were spent wisely. Administrative costs are far
higher in the U.S. than in other
countries’ systems. These inflated costs are directly tied
to our failure to have a publicly-financed, universal health
care system. We spend at least twice more per person than any
other country, and still find it necessary to deny health
Who will run the health care system?
There is a myth that, with national health insurance, the
government will be making the medical decisions. But in a
publicly-financed, universal health care system medical
decisions are left to the patient and doctor, as they should
be. This is true even in the countries like the UK
and Spain that have socialized medicine.
In a public system the public has a say in how it’s run.
Cost containment measures are publicly managed at the state
level by an elected and appointed body that represents the
people of that state. This body decides on the benefit
package, negotiates doctor fees and hospital budgets. It also
is responsible for health planning and the distribution of
The benefit package people will receive will not be decided
upon by the legislature, but by the appointed body that
represents all state residents in consultation with medical
experts in all fields of medicine.
What about medical research?
Much current medical research is publicly-financed through
the National Institutes of Health. Under a universal health
care system this would continue. A great deal of drug
research, for example, is funded by the government. Drug
companies are invited in when it comes to marketing successful
new drugs. AZT for HIV
patients is one example. All the expensive clinical trials
were conducted with government money. When it was found to be
effective, marketing rights went to the drug company. (This is
a controversial practice because it means pharmaceutical
companies enjoy significant profits on the back of
Medical research does not disappear under universal health
care system. Many famous discoveries have been made in
countries that have national health care systems. Laparoscopic
gallbladder removal was pioneered in Canada. The CT
scan was invented in England. The new treatment to cure
juvenile diabetics by transplanting pancreatic cells was
developed in Canada.
It is also important to note that studies show that the
number of clinical research grants declines in areas of high HMO
penetration. This suggests that managed care increasingly
threatens clinical research. Another study surveyed medical
school faculty and found that it was more difficult to do
research in areas with high HMO
Won’t this just be another bureaucracy?
The United States has the most bureaucratic health care
system in the world. Over 24% of every health care dollar goes
to paperwork, overhead, CEO
salaries, profits, and other non-clinical costs. Because the U.S.
does not have a system that serves everyone and instead has
over 1,500 different insurance plans, each with their own
marketing, paperwork, enrollment, premiums, rules, and
regulations, our insurance system is both extremely complex
and fragmented. The Medicare program operates with just 3%
overhead, compared to 15% to 25% overhead at a typical HMO.
It is not necessary to have a huge bureaucracy to decide
who gets care and what care they get, if and when everyone is
covered and has the same comprehensive benefits. With a
universal health care system we would be able to cut our
bureaucratic burden in half and save nearly $150 billion per
How will we keep costs down if everyone has access to
comprehensive health care?
People will seek care earlier when diseases are more
treatable (and affordable). We know that the uninsured delay
or avoid seeking care because they are afraid of health care
bills. This will be eliminated under such a system.
Undoubtedly costs of taking care of the medical needs of
people who are currently doing without will cost more money in
the short run. But we will be spending proportionately less on
administration to compensate.
In the long run, the best way to control costs is to
negotiate fees and budgets with doctors, hospitals, and drug
companies and to set and enforce an overall budget.
How will we keep doctors from doing too many procedures?
This is a problem in systems that reimburse physicians on a
fee-for-service basis. In today’s health system, another
problem is physicians doing too little for patients. So the
real question is, “how do we discourage both overcare and
undercare”? One approach is to compare physicians’ use of
tests and procedures to their peers with similar patients. A
physician who is “off the curve” will stand out. Another
way is to set spending targets for each specialty. This
encourages doctors to be prudent stewards and to make sure
their colleagues are as well, because any doctor doing
unnecessary procedures will be taking money away from other
physicians in the same specialty. Another way is to continue
to develop expert guidelines by groups like the American
College of Physicians, etc. to shape professional standards
– which will certainly change over time as treatments
change. This really gets to the heart of “how do you improve
the quality of health care” which is a longer topic .
Suffice it to say that universal coverage is a pre-requisite
for quality improvement.
What will happen to physician incomes?
On the basis of the Canadian experience, average physician
incomes should change little. However, the income disparity
between specialties is likely to shrink.
The drop in income that a physician might experience under
a single-payer system could be mitigated by a drastic
reduction in office overhead and malpractice costs. Billing
would involve imprinting the patient’s national health
program card on a charge slip, checking a box to indicate the
complexity of the procedure or service, and sending the slip
(or a computer record) to the physician-payment board. This
simplification of billing would save thousands of dollars per
practitioner in annual office expenses.
How will we keep drug prices under control?
When all patients are under one system, they wield a lot of
clout. The VA can purchase drugs for
40% discounts because they are a bulk purchaser. This is
called monopsy buying power and it is the main reason why
other countries’ drug prices are lower than ours. The same
could happen with medical supplies and durable medical
Why shouldn’t we let people buy better health care if they
can afford it?
Whenever we allow the wealthy to buy better care or jump
the queue, health care for the rest of us suffers. One need
only look at the example of the nation’s health insurance
program for the poor, versus the Walter Reed Hospital in
Bethesda, MD, that serves members of
Congress. Access to care for the poor is deteriorating because
Medicaid is a grossly underfunded health care program. Because
it doesn’t serve the wealthy, the payment rates are low and
many physicians refuse to see Medicaid patients. D.C.
General Hospital in D.C.,
which serves the poor, is always on the brink of bankruptcy.
Calls to improve Medicaid fall on deaf ears because the
beneficiaries are not considered to be politically important.
On the other hand, members of Congress have completely free
access to care at Walter Reed where the quality of care
couldn’t be better.
What will be covered?
All medically necessary care, including doctor visits,
hospital care, prescriptions, mental health services, nursing
home care, rehab, home care, eye care and dental care.
What about alternative care, will it be covered?
Alternative care that is proven in clinical trials to be
effective will be covered. For example, spinal manipulation
for some back conditions. Other treatments will be decided by
the health care planning board or other public body. New kinds
of treatments will be added to the benefits package over time
as they are shown to be effective, including “alternative”
treatments. Similarly, ineffective, harmful, or wasteful care
can be removed from the benefits package, such as funding for
a costly medication that is no better than aspirin for
Isn’t a payroll tax unfair to small businesses?
The payroll tax is more costly to businesses who are not
currently insuring their workers. However, it is much less
that what they would pay for good private insurance for
themselves and their workers. For most of the small businesses
already providing coverage, the payroll tax will be much less
expensive than what they are paying now.
Ideally, the payroll tax will be replaced in the future by
a tax that doesn’t charge an administrative assistant making
$17,0000 a year the same percentage of salary as a CEO
earning $175,000 a year.
Can a business keep private insurance if they choose?
Yes and no. Everyone has to be included in the new system
for it to be able to control costs, reduce bureaucracy, and
cover everyone. However, business and anyone who wants to can
purchase additional private insurance that covers things not
covered by the national plan (e.g. cosmetic surgery,
Insurance companies will no longer be needed to decide who
gets medical care and what kind of medical care, and would not
be allowed to offer the same benefits as the universal health
care system. Any allowance for this would weaken and
eventually destabilize the health care system. It would
undermine the principle of pooling the risk. Health care
systems act as universal insurers. At any one time the healthy
help pay for those who are ill. If private insurers are
allowed to cherry pick the healthy, leaving the public health
care system with the very sick, the system cannot help but
fail. This is part of what is happening in U.S.
health care now.
Another reason is that, if allowed, patients would enroll
in the private system while they were healthy (and their
premiums were low), and enroll in the public system when their
care (and private premiums) became expensive. This, in fact,
is what we saw happen to Medicare and HMOs.
There, patients needing expensive care, e.g., a hip
replacement, were encouraged to drop out of their HMO
so traditional Medicare would pick up the tab. However, while
they are healthy they enroll in the HMO
for the modest additional dental and drug benefits.
What will happen to all of the people who work for
The new system will still need people to administer claims.
Administration will shrink, however, eliminating the need for
a large bureaucracy. The focus will shift to those who deliver
health care. More health care providers, especially in the
field of long-term care and home health care, will be needed,
and many insurance clerks can be retrained to enter these
fields. Many people now working in the insurance industry are,
in fact, already health professionals (e.g.nurses) who will be
able to find work in the health care field again.
How will we contain costs with the population aging and
the advent of expensive technology?
Japan and Europe are already facing this problem head-on
and doing fine. They have a much higher percentage of elderly
than we do, and still spend less on health care by far.
The best way to approach this is to regard it as a societal
problem, one that needs a solution with everyone in mind.
Germany and Japan recently adopted single-payer long-term care
systems to cover the long-term care needs of the elderly at
home and in specialized housing. Germany is pioneering a
program that pays family members to care for the elderly at
home. That’s family values!
What about ERISA? Doesn’t it
stand in the way of implementing a universal health care plan?
No. ERISA (the Employees
Retirement Income Security Act) prevents a state from
requiring that a self-insured employer provide certain
benefits to their employees. However, a single payer plan
would not mandate the composition of employer benefit plans
– it would replace them with a new system that would
essentially be “Medicare for All”. The state would require
employers to pay a payroll tax into the health care trust
fund. This is legal and is done now with taxes levied to pay
How will the Health Planning Board operate?
In Vermont, it would work something like this: The health
planning board (the Health Care Administration) would be a
public body with representatives from every legislative
district. The representatives would be appointed by each
member of the state house of representatives. The state would
be divided into 7 regions. The appointed members from each
region would elect one person among them to serve on the
health planning board. The board would consult regularly with
a medical expert advisory committee. The latter would advise
the regional board members on what treatments, medications and
services should be covered, decisions supported by medical
Since we could finance a fairly good system , like the
Norwegian, Danish or Swedish system with the public money we
are already spending (60% of health costs), why do we need to
raise the additional 40% (from employers and individuals)?
There are three reasons why the U.S.
health care system costs more than other systems throughout
the world. One, we spend 2-3 times as much as they do on
administration. Two, we have much more excess capacity of
expensive technology than they do (more CT
scanners, MRI scanners, mammogram
machines than we need). Three, we pay higher prices for
services than they do. There is no doubt that we do not need
to spend more than we currently spend to cover comprehensive
care for everyone. But it would make the transition to a
universal system very difficult at first if we spent less.
That is because we have a tremendous medical infrastructure,
some of which would likely retain its slightly larger than
necessary capacity during the transition phase. Secondly, we
would likely retain salaries for health professionals at their
current levels. Thirdly, we would cover much more than most
other countries do by including dental care, eye care, and
prescriptions. And for these reasons we would need the extra
40% that we are already spending – but NOT
more. We could cover all the uninsured for the same amount we
are currently spending!
How much of the health care dollar is publicly financed?
Previous calculations of the percentage of the health care
dollar that is publicly financed were estimated to be around
50%. That was from federal and state taxes to fund Medicare,
Medicaid and the VA. 30% was
out-of-pocket and 20% from employers.
Estimates differ depending on how they factor in certain
costs. For example, recent studies put the tax subsidy offered
to employers into the public spending column. A tax subsidy to
help employers buy health insurance for employees means the
public helps pay the bill. Another factor is that many
employees pay the full cost of the premiums for their health
insurance at work – not the employer. Newer analyses of
these factors put the public financing estimate at 64%,
out-of-pocket at 17% (for uncovered services, premiums not
paid for by an employer) and employers’ contributions at
19%. (Health Affairs 1999;18(2):176.
Why not MSAs?
Medical savings accounts (MSAs) and similar options such as
health reimbursement arrangements are individual accounts from
which medical expenses are paid. Once the account is depleted
and a deductible is met, then medical expenses are covered by
a catastrophic managed care plan, usually a restricted PPO
plan. Individuals with significant health care needs may
rapidly deplete their accounts and then be exposed to large
out-of-pocket expenses. They would tend to select plans with
more comprehensive coverage. Since only healthy individuals
would be attracted to the MSAs,
higher-cost individuals would be concentrated in the more
comprehensive plans, driving up premiums and threatening
affordability. By placing everyone in the same pool, the cost
of high-risk individuals is diluted by the larger sector of
relatively healthy individuals, keeping health insurance costs
affordable for everyone. Also, since healthy individuals
cannot possibly predict whether or when they would develop
significant health care needs, they would eliminate that
potential financial risk by being included in the
comprehensive pool with everyone else.
Why not use tax subsidies to help the uninsured buy health
The major flaw of tax subsidies is that they would be used
to help purchase plans in our current fragmented system. The
administrative inefficiencies and inequities that characterize
our system would be left in place, and we would continue to
waste valuable resources that should be going to patient care
instead. In spite of tax subsidies, moderate and lower income
individuals would be able to afford only those plans with very
modest benefits, and with higher cost sharing that might make
health care unaffordable. Instead of perpetuating our current
inequities, tax policies should be used to create equity in
contributions to a system in which everyone is assured access
to comprehensive beneficial services.
If the tax subsidies are granted to individuals, employers
would be motivated to drop their coverage, and most
individuals covered would have merely rotated from employer
coverage to individual coverage. The net reduction in the
numbers of uninsured would be close to negligible. If the tax
subsidies are granted to employers, a major shift in funding
passes from employers to taxpayers without significant
improvements in the inefficiencies and inequities of our
current system. We can use the tax system to create equity in
the way we fund health care, but we should also expect equity
and efficiency in allocation of our health care resources.
That is possible only if we eliminate the private health plans
and establish our own publicly administered system.
Won’t competition be impeded by a universal health care
Advocates of the free market approach to health care claim
that competition will streamline the costs of health care and
make it more efficient. What is overlooked is that competitive
activities in health care under a “free market” system
have been wasteful and expensive and can be blamed for raising
costs. Not only have they NOT
contained costs, they have raised costs. In fact it has been
shown that in some states where competition among insurers and
HMOs is fiercest, such as
California, costs are higher than the national average.
There are two main areas where competition exists in health
care. Among the providers, and among the payers. When, for
example, hospitals compete they often duplicate expensive
equipment in order to corner more of the market. This drives
up overall medical costs to pay for the equipment. They also
waste money on advertising and marketing. The preferred
scenario has hospitals coordinating services and cooperating
to meet the needs of the public.
Competition among medical care providers can be beneficial
in terms of improving the quality of medical care.
Take for example, three primary care doctors in a certain area
“competing” for patients for which they will receive equal
reimbursement from every patient. The doctor who is most
competent in different areas will attract the most patients in
that area. One doctor may make house calls to see the elderly.
Another may be very good at mental health care. This is
competition based on quality not on price.
Competition among insurers (the payers) is not effective in
containing costs either. Rather, it results in competitive
practices resorted to by private payers such as avoiding the
sick, cherry picking, denial of payment of expensive
procedures, marketing, etc.
Why not make people who are Higher Risk pay Higher
Experience rated insurance requires higher risk people to
pay higher premiums. This approach says that people who have
had cancer or other problems in the past, or who have chronic
conditions like diabetes and hypertension, must pay more
because they are at higher risk of getting cancer again or
having a stroke or other health problem. Experience rating
allows insurance companies to “cherry pick” the healthiest
people and either refuse to insure the sickest or, what
amounts to the same thing, charge prohibitively high
rates.This approach makes no sense. The whole point of
insurance is to spread the risk so that everyone is covered.
If you raise premiums – and thereby exclude from coverage
– those people unfortunate enough to have been sick in the
past, you defeat the point of both insurance and the health
care system. Genetic conditions, childhood diseases,
accidents, injuries and income distribution (or how much
equality there is in a society) play a much bigger role in
people’s health than so-called “lifestyle” factors. It
costs much less to care for a smoker than a driver who has a
paralyzing accident. (Of course, we need public health and
education programs to try to prevent both!).
Community rated health insurance is the socially fair
approach. It spreads the risks evenly among all the insured.
It removes the punitive element. It does not discriminate
against the very sick, nor against those of us who are at
higher risk because of our age (say, over 50) or our gender
(females have higher health expenses in their 20’s and
30’s than men do).
It appears that for what should be a broad social service
an insurance-based approach does not work. For it to work at
all society is asked to surrender all control of the system
and what is left is both discriminatory and unaccountable to
anyone. At some point in our lives all of us without exception
have needed or will need some level of health care. Health
insurance is unlike any other form of insurance. We all are
involved in it. It is profoundly intertwined with social
principles of decency and fairness. A system that punishes the
sick is neither. Any reform of the health care system must
begin from a principled approach.