Thursday, September 17, 2009



“Universal Healthcare” – You are either for it or against it. It seems that there is no middle ground on this one. If there is one issue that touches all Americans regardless of social, financial or demographic differences, it is healthcare; given the current environment, everyone has an opinion on this. So here’s my two cents: if I have to choose between universal healthcare and what we have today, I choose universal healthcare.

I don’t necessarily believe that universal healthcare is the best alternative out there but I see enough merit in it to select it over the current system we have. If you have a few minutes, I would like to share my understanding of universal healthcare, socialized medicine, pros and cons, healthcare in other countries and some financial statistics.

What is universal healthcare? It is a system under which all participants (citizens and legal residents) are provided with a uniform coverage of healthcare. This is usually funded by taxes and usually managed by a government program. The participants are free to seek enhanced healthcare of their choice at their own expense. The US is the only developed country in the world that does not provide its citizens with a universal healthcare program.

What, then, is socialized medicine? When a government provides universal healthcare as the only healthcare option, it is referred to as socialized medicine. Under universal healthcare, hospitals, doctors, pharmaceutical companies and health workers can remain independent and for-profit, if they wish. Under socialized medicine, the entire healthcare industry is a part of the government. I don’t think that the US will ever be in such a situation because of the current private ownership of every element in the system.

Pros of universal healthcare:

  • The biggest plus is that one will always have healthcare coverage regardless of job loss or change and the level of healthcare will not change.
  • A singular system will have lower cost and overhead than a complex system of multiple health insurance providers. The costs of such a singular/public system are less than private. A larger pool affords better negotiation of rates for drugs and services.
  • Typically countries with any kind of universal healthcare spend less than what the US spends on healthcare as a percentage of GDP.
  • Currently consumers pay for emergency services provided (by law) to uninsured patients. This means that you, as an insured American, pay for the uninsured ones. Under universal healthcare, no one goes without insurance and one pays in form of taxes. This would bring down the expenses for those already carrying insurance. (This is not forced taxation - think of taxes going towards roads, schools, infrastructure, etc.)
  • One will be able to choose one’s doctor. If you do not feel comfortable with one doctor, you can move on to someone else. There is no in or out of network (and no penalties).
  • Businesses, especially small businesses, do not have to be burdened by high costs of healthcare for their employees (which they currently bear because they do not have a large pool to negotiate lower costs).
  • Doctors and service providers will have to deal with just one insurance claim form and would see lower overhead burdens.
  • The 48 million or so Americans that are uninsured today will get coverage. (A 2002 study indicates that about 18,000 Americans die each year due to lack of insurance.) Not to mention, a large number of already insured Americans will see improvement in their coverage.
  • Currently, there is an increased use of emergency rooms by uninsured and Medicaid type of insured patients simply because they do not have access to primary care. This can be totally eliminated and make emergency rooms more effective.
  • One major plus which gets overlooked is the security afforded by continuous healthcare coverage. If one does not have to stress about how one’s health will be cared for in case of job loss/change or retirement or accident then one’s quality of life is greatly improved (at least in my case).

Cons of universal healthcare:

  • The biggest drawback that is cited pertains to the implementation of universal healthcare – long waits to get care, waitlists to get specialized medical treatments. (Canadians claim having to wait a month to see a specialist.)
  • The other big issue is that the government would be in charge. Think of Medicare/Medicaid and Social Security where experts predict these programs running out of funds in the near future. How can we expect the bastion of bloated bureaucracy to manage this system efficiently? (A fair point, but one must note that Medicare/Medicaid’s overhead is one-tenth of that of private insurance. Also, the programs are also bearing the brunt of selective rejection by private insurance providers.)
  • Universal healthcare will eliminate competition in the marketplace. Competition breeds innovation and growth. That is the reason why pharmaceuticals is one of the fastest growing industries in the US. There is the possibility of holding back new breakthroughs since the government would want to share the breakthrough and thereby reducing profitability. (The government currently controls the US biomedical research funding and the world’s greatest scientists are competing for it.)
  • There could be a huge incremental tax burden levied on Americans to fund this system and this might reduce one’s take-home pay. (But keep in mind that currently, almost 60% of the healthcare system is funded by tax monies: Medicare, Medicaid, the VA, public employees’ coverage, elected officials, military, etc.)

Healthcare in the US and in other countries:

US healthcare is, broadly speaking, a private system with the following characteristics:

  • health insurance is voluntary
  • premiums are linked to risk, not income
  • quality and extent of care is largely determined by insurance providers rather than care-givers
  • private health insurance covers most of the medical costs
  • a large amount of (costly) legal activity related to the technicalities created by insurance providers
  • health insurance is typically linked to job which also makes the job market inefficient (one would not quit one’s job without finding another and in doing so, the performance deteriorates.)

This is unusual, to say the least. Most developed countries have some form of government policy which provides its citizens with basic healthcare. In UK, Canada and Spain, healthcare costs are paid for by the government. In Austria, Belgium, France, Germany and Netherlands, there is a form of social insurance in place: insurance is mandatory but premiums are tied to income (rather than risk) by law. One can consider this a form of taxation. In these countries, the percentage of the population without coverage is near-zero to zero. In the US, the world’s richest economy, it is shocking to note that about 15 percent of the population has no insurance coverage of any kind!

Expensive: The US healthcare costs a third more (per person) than its closest rival, Switzerland, and about twice what most European countries spend. Consider this, the Medicare/Medicaid program spends more per person than the British government does but the British government still manages to provide free healthcare for everyone. When you factor in the cost of healthcare to government employees and tax-breaks to private providers, the US government spending on healthcare per person is the highest in the world.

Administrative costs: The estimate for the administrative costs of the US healthcare system exceeds $1000 per person. This includes all the taxes, premiums and out-of-pocket expenses. In comparison, Canada spends around $307 per person and delivers much better health outcomes (in terms of life expectancy and “healthy life” expectancy – a statistic that compares a healthy long life to a long life plagued with disability).

Innovation: All is not bad about the US healthcare system, though. An open market system breeds innovation since profits are certain and plentiful for those introducing superior treatments/medicines. So far, the US has always been at the forefront of most innovations in healthcare.

Quality: True to its open-market nature, the quality of healthcare is generally in line with the cost. If one can afford to pay for it, one has the best care in the world available, top-notch and very effective. However, for those who cannot afford it, the quality of bare minimum care is suspect.

How much money are we talking about?

For most of my professional life, I have worked in Finance and have dealt with numbers and profitability and such. So when it came to this issue, I researched the financials a little bit from public sources and the numbers I uncovered are staggering. To get an order of magnitude, I looked up the 5 largest (publicly listed) health insurance companies and their basic financial performance over a 5 year span. On an average, these 5 companies generate revenues of about $160 billion per year!


Let’s assume that out of the 250 million Americans that are insured, about 50 million are covered by Medicare/Medicaid. Also assume that the top 5 companies cover about 80% of the balance. This means that the top 5 companies are covering about 160 million individuals. Each one of these individuals are paying $1000 per year to the insurance companies before they pay their share of the medical and drug costs later on. A household of four pays $4000 each year to the insurance companies.

The insurance companies also take $12 billion each year out of the system as profit. This does not go back into research or such; this is pure profit that belongs to the owners and investors. Here is my argument for universal healthcare managed by the government. If it is inefficient to the extent of about 10-12 billion dollars a year then universal healthcare is not any more expensive than the current private system. I am not even considering any savings in overhead, bonuses and reduced entertainment expenses (dinners, promotions, courting business partners, etc.).

This is a very rough and rudimentary analysis but you may start thinking about some of the questions that have popped up in your mind now.

The bottom-line (for me, at least) is this: I don’t think that universal healthcare is the best solution but I do like having continuous coverage and uniform healthcare for the rest of my life. I hope that we will not be taxed a flat rate on income, but rather a fixed percentage up to a certain income level and then it cuts off after that. I think that could be acceptable to most.

To the handful of you who read this, what I think is not important. But it is important that you inform/educate yourself and form your own opinion on this matter. And, by the way, you better have an opinion because any form of change will affect you.

Sources: Among others, I have gathered information from the following: U.S. Department of Health & Human Services; The Undercover Economist by Tim Harford;;; (National Coalition on Health Care).