Everything but healthy - A power structure analysis of the U.S. health system

Contents

1. Introduction

2. Background
2.1. An old agenda: National Health Insurance
2.2. What makes a good health system?

3. The current Situation
3.1. The best or just the most expensive system?
3.2. A cross- country Comparison

4. The policy-planning network: Power Structures in the US Health Sector
4.1. Myths of the US health sector
4.1.1. American Exceptionalism -The people want it this way?
4.1.2. Isn’t everything getting more expensive?
4.2. Channels of Influence. Big Pharma in Washington

5. Conclusion

References

Annex
A1 OECD: Health care financing in the United States, 2003
A2 Differences in life expectancy of men by country
A3 The public-policy framework
A4 Quality and Medicare Spending Vary Across States, 2000-2001
A5 Health insurance coverage among persons under 65 of age by selected characteristics: United States, 2003
A6 Public’s satisfaction with health care system, selected European and non-
European countries, 1988-2001
A7 Sales of top 20 global pharmaceutical corporations

1. Introduction

“The problem of providing satisfactory medical services to all the people of the United States at costs which they can meet is a pressing one. At the present time many persons do not receive service that is adequate either in quantity or quality and the costs of service are inequitably distributed. The result is a tremendous amount of preventable physical pain and mental anguish, needless deaths, economic inefficiency, and social waste. Furthermore, these are largely unnecessary. The United States has the economic resources and organizing ability and the technical experience to solve this problem.“^[1].

This was the diagnosis of the U.S. Committee on the Costs of Medical Care, written in 1932. One might think it was written today and indeed there are many very similar voices in the current health care debate. How could it be that the most powerful and richest nation in the world, the United States is still discussing about the same issues in health care? The statement is also powerful because it indirectly defines how a good health care system might look like and what challenges have to be overcome. There are the following three main criteria. A satisfactory medical service points at higher quality standards, at low costs and thirdly reaching all citizens. This paper asks why the U.S. has still not achieved these three major goals.

The hypothesis guiding the more descriptive first part of this paper is therefore that the U.S. health system has low efficacy (coverage of all citizens in a fair way) and low efficiency (the relation between costs and outcome).

To answer this question one has to put it into context. Since there is an ongoing discussion with ups and downs for more than 70 years the question that comes up first is, how this peculiarity of the US case is possible? What might be the path-dependency that explains why: “The United States is the only western industrialized nation that fails to provide universal coverage and the only nation where health care for the majority of the population is financed by for-profit, minimally regulated private insurance companies.”^[2]. There is a very voluminous scholarship on U.S. health care and there are many competing theories and hypotheses about its roots and peculiarities. This paper argues that the failures of the U.S. health care system, being debated continuously over decades can’t be explained just by referring to “American Exceptionalism”, a culture and history that favors free market regulation. Though this and other popular explanations might play a role, this paper argues that power structures in U.S. society and specifically in the health care sector better explain the current system.

Here, the second leading hypothesis is that few well-organized institutions to their favor concentrate power^[3] in the health sector and exercise social control leading to a sub-optimal (not pareto efficient) policy outcome for society.

2. Structure and Background

The first part of this paper consisting of Background and The current situation is more descriptive and tests the hypotheses:

- The United States has a very peculiar health care system, distinct from other industrialized (OECD) countries.
- The United States has an inefficient health care system.
- The United States has an unfair health care system.

To better understand U.S. peculiarities and possible indicators for efficiency and health care system quality the historical background and a possible path-dependency is briefly discussed. Furthermore the U.S. health care system will be put into international context. In which regards is the U.S. health care system different from systems in Germany, Sweden, the UK or Canada? The aim is not to create another detailed historical analysis, which already exist in high numbers^[4], but to outline some key differences.

After having outlined the ‘big picture’ of the U.S. health care system in historical and comparative context and having tested the hypotheses, chapter 4 The policy-planning network strives to explain the U.S. peculiarities. Hereby competing theories and hypotheses such as ‘American Exceptionalism’ are discussed and criticized. The method and goal is to examine the power structures in U.S. society and specifically in the health sector. One assumption is that a valid explanation of health policy outcome needs to recognize the health sector in context of society. Only by looking at the power structures, socio-economic relations at societal level one can understand and explain health sector outcomes. The model how exactly, which actors exercise power in the health sector will be discussed in more detail in chapter 4.

2.1. An old agenda: National Health insurance

One of the historical peculiarities of the U.S. health acre system is not only the absence of a universal health care system but the length since it is heavily debated. One might think of recent plans of the Bush administration to increase private insurance, Clinton’s failed ‘patients Bill of Rights’ in 1999^[5] or Reagan’s enlargement of Medicare^[6] in the 1980s. However the debate of health care and the efforts to implement a universal health care system in the U.S. are much older. The plans to implement a universal health care system for all Americans, even though they were pushed forward by U.S. presidents such as Roosevelt, Truman or most recently Clinton have something in common: failure.

President Truman made the same experience with his plan for universal health care as Theodore Roosevelt who in 1944 planned to incorporate “the right to adequate medical care” into his ‘Economic Bill of Rights’^[7]. During the debates, while in polls the majority of Americans favored a universal health care system both were confronted “the AMA made voluntary health insurance the foundation of its bitter assault on government insurance.”^[8]. Until the 1990s the American Medical Association (AMA) played the lead role in the fight against universal and for private, voluntary health insurance: “All the same, the AMA’s influence was unquestionably impressive and surely tipped the scales in favor of caution. That influence rested not merely on membership or resources, but on the profession’s privileged place within American medical care and American politics.”^[9]. Also Clinton’s effort failed, starting in 1993 with a speech before a joint session of Congress “to complete the long-unfinished business of the Social Security Act of 1935. Within a year of his dramatic speech, however, the president’s plan lay in tatters, his presidency in disrepute, and his congressional majority is shambles.”^[10].

The Social Security Act of 1935, the reaction towards economic crisis, social unrest and workers mobilization was the first big of a (small) series of major efforts to implement universal (non-market) health care in the United States. So, the topic is on the agenda for a long time. It is striking how often words such as ’battle’, ‘campaign’ and ‘conflict’ are used in the literature when it comes to the historical development of the U.S. health care system. Well-organized interest groups such as the AMA don’t tell the whole story of how the U.S. health system developed but they play a very big role, since the very beginning of the debate on U.S. health care.

But against which development did organizations, such as the AMA lobby and what was achieved instead of a universal system?

Let’s begin chronologically. U.S. economy was hit hardest when in 1929 after the so-called ‘Black Friday’ at the New York Stock Exchange world economy was in severe crisis. Until then among private health insurances, trade unions, and employers “none provided more than token protection or reached more than isolated pockets of American workers”^[11]. Roosevelt’s ‘New Deal’ addressed social unrest, fear or communist worker’s mobilization and the demands for the creation of some sort of welfare. Surprisingly due to a “fierce campaign” of the AMA “the Social Security Act of 1935, did not include national health insurance (Katz 2001).^[12] ”. Even though physicians, especially the AMA resisted any form of non-market regulation the economic pressure of the Great Depression was so high that hospitals, organized in the American Hospital Association (AHA) and searching for a stabilization of income created successfully a prepaid insurance for hospital stay called blue cross and blue shield. “Under Blue Cross plans subscribers would prepay a small monthly fee in exchange for free hospital care when needed. Hospitals would be paid for whatever services they provided at whatever price they charged.”^[13]. Especially after World War Two private insurance companies competed with these plans by offering lower insurance costs to better risk groups. While younger, employed groups gained, the less profitable risk groups (elderly, disabled and the poor) had it hard to find affordable insurance, even though they needed it most. “In response, the Blues were forced to pursue a similar strategy to remain competitive.”^[14]. When in 1945 under president Truman his “Fair Deal” for national health insurance was again on the agenda, private insurance companies, “Corporate America”^[15], and foremost the AMA fought a successful campaign battle against “socialized medicine”^[16]. Pharmaceutical and drug manufactures and the Chamber of Commerce joined this AMA led alliance and publicly opposed national health insurance: “The message to be promoted in every venue evoked the same antistatist theme—that national health insurance was socialized medicine, part of a Communist plot to destroy freedom. Patients would surrender liberty and receive in return “low-grade assembly line medicine.”^[17].

Historically specific and unlike other countries the U.S. system linking^[18] employment and good health to the reception of health insurance leaves a lot of people aside. For that reason in 1965 Congress passed a social insurance for the elderly (Medicare) and “Medicaid, an underfunded federal-state collaboration to finance care for the poor that is shunned by many providers.”^[19]. A lot of people were still left uninsured since most states set Medicaid eligibility well below the federal poverty level. Additionally, drug industry and physician lobbyist only accepted Medicaid because there wasn’t any fee- or hospital reimbursement reduction and so the bill contributed to the inflation of U.S. health expenditure^[20]. Historically it became a very typical pattern that an alliance of dug industry, insurance companies and physician associations fiercely attacks any reform proposal until increased costs and in turn higher profits are the result on the enlarged coverage. Typical in this regard is also President Reagan’s proposal in 1986 to include costs of “catastrophic illness” into Medicare. Opposed by the Pharmaceutical Manufacturer’s Association (PMA) the final compromise bill signed in 1988 made no longer a reference to cost controls on drugs and Reagan: “[He] insisted, however, that any proposal be voluntary, self-supporting, revenue neutral, and that it not encroach on the private market”^[21]. The increased financial burden would not have to be financed by the state or the industry but by a dramatic increase in premiums from $122 to $511 a year. Medicare beneficiaries who paid at least the very low amount of $150 a year in income taxes would have to pay a surcharge up to a maximum of $800^[22].

Blaming non-market solutions as “socialized”, no reference to price controls together with an “privatization of risk”^[23], a coalition of insurance companies, physicians and drug industry, resource- and powerful interest groups are part of the peculiar historical heritage that can be observed whenever the topic is again on the agenda. “When I am asked about the organization of health services in the United States, I answer the way Mahatma Gandhi did when he was asked what he thought of western civilization: “I think it would be a very good idea.”^[24].

2.2 What makes a good health system?

Evaluating a health system especially one as complex as the U.S. system is not an easy task. Each health system is context specific, and as shown a result of history, certain political constellations, the power relations and the structures each generation ahs inherited (path dependency). More subjective aspects should therefore facilitate a search for objective, valid and comparative indicators. The indicators used in this paper are taken from an innovative report, released by the World Health Organization (WHO) in 2000^[25]. In this analysis containing comparative health data of 191 member countries the WHO developed three main dimensions of a good health care system.

1. Good health: “making the health status on the entire population as good as possible” across the whole life circle,
2. Responsiveness: Responding to peoples expectations of respectful treatment and client orientation by health care providers, and
3. Fairness in financing: Insuring financial protection for everyone, with cost distributed according to one’s ability to pay. The WHO study also distinguished between the overall “goodness” of health care systems (“the best attainable average level”) and fairness (“the smallest feasible differences among individuals and groups”).

These three dimensions have the advantage that they do not only include measurable, objective aspects (1) but also the more subjective satisfaction with a system (2) and its fairness (3). Furthermore there is a good fit with the leading hypotheses of this paper. Similarly already the Committee on the Costs of Medical Care from 1932 demanded a health care system, which satisfies medical needs, for all people to an affordable price^[26]. Chapter three of this paper will outline subjective and objective efficiency and fairness. Fairness hereby refers not only to the absolute number of people receiving health care but also to the relative differences of health services and treatments different social groups receive. Chapter three will focus on perceived and objective efficiency and fairness of U.S. health care but it will also cast light on the differences compared to other countries.

This evaluation will look less at the process of how certain outcomes are achieved, such as market and power structures, uncertainty, principal-agent relations, but it will outline the results of these interactions. Chapter four then is the attempt to explain that power structures are the key factor responsible for the described outcomes in the health sector.

3. The current Situation - Why the market won’t do it

The historical analysis seems supportive of hypothesis one that the U.S. health care system is indeed very peculiar. One of the results was a general belief or at least governance of market principles in the health care sector. It is widely argued that in the United States health care is more handled as a commodity than a public good^[27].

To describe it briefly most Americans receive health insurance coverage through programs offered by their employers, Medicare provides social insurance for the elderly, Medicaid low level insurance for the very poor and about 45 million (15%) are left without any insurance coverage. The insurance companies spread the risk of health care (often selecting low risk groups, such as young and employed versus old and poor) but don’t do the actual healthcare. The exceptions are insurances with own hospitals the so-called Health Maintaining Organizations (HMO) such as Kaiser Permanente and companies with own physicians such as google^[28].

Annex 4 visualizes the current U.S. health care system and gives a first glimpse of its complexity. One striking characteristic is that there is no single negotiator. Instead Medicare and Medicaid negotiate separately with primary care physicians, specialists, hospitals, pharmaceuticals and other health care providers. Furthermore Medicaid is subject to Federal and State government, its different regulations, channels of resources and information. Already this split of responsibility and ownership most probably reduces the bargaining power of Medicaid. Furthermore Medicare and Medicaid have to cooperate with and align their policies with the health plan providers. From a purely organizational perspective only the military coverage is in a good negotiation position, since Federal government functions as single negotiator with the drug lobby. Patients seem to have the very lowest bargaining power since they have no representative institution that aggregates their divergent interests. Additionally they have to deal with a number of well-organized special interest groups reaching from regular physicians over specialists to hospitals. The historical evidence of very significant and powerful lobbying activity in favor of market-only solutions was a first hint for a power structure that favors insurance providers (shown as health plan box in the graphic), the drug industry and other special interest groups. Looking at the organizational structure underlines this argument. The patients have no lobby and are facing a huge collective action problem. This means they have no institutions for example in form of the state that aggregates their interests and negotiates better prices and standards with drug industry and other interest groups: “Quite simply, the governmental solution to access and fiscal problems is to increase competition between institutions, in keeping with the tenets of the free market. The logic is that the institutions, which can provide services most efficiently are the ones which will survive, and that the public will be served best by fostering competition.” ^[29] . Given the very unequal distribution of (negotiation) power, between many, unorganized, diverse patient interests and well organized special interest groups more market will contribute to an outcome that favors the more powerful. Any market to be efficient has certain rules. One is the free choice between alternatives and equal power relations between supply and demand side. Another is free information about the quality of goods and services and alternatives. Both factors are constituents to speak of a free market and they are obviously not given for the health care sector, which is characterized by very high information asymmetry between unequal negotiation powers, stakeholders. Additionally consumers (the demand side) often have no choice; instead the so-called elasticity of their demand is very low. In other words an ill patient’s demand for a certain treatment, a specific drug will be relatively independent from the drug’s price, especially when the information the patient gets is biased by pharma-industry marketing.

[...]

^[1] Committee on the Costs of Medical Care (1932). In: Lichtenstein, R. (1993): 310

^[2] Quadango, J. (2005): 25

^[3] Following Max Webers (classical) definition of power: Max Weber: “In general, we understand by “power” the chance of a number of men to realize their own will in a communal act even against the resistance of others who are participating in the action” In: Dye, T. R. (2002):3

^[4] See for example Hacker, J. (2002) for a very good and detailed historical overview.

^[5] See: for example: Hacker, J. (2002): 178-181

^[6] See for example: Quadango, J. (2004): 35

^[7] Hacker, J. (2002): 223

^[8] Hacker, J. (2002): 227

^[9] Hacker, J. (2002): 211

^[10] Hacker, J. (2002): 179

^[11] Hacker, J. (2002): 191

^[12] Katz (2001). In: Quadango, J. (2004): 29

^[13] Quadango, J. (2004): 24

^[14] Lichtenstein, R. (1993): 311-312

^[15] Hacker, J. (2002): 228

^[16] It was at the ehart of the powerful campaign to warn of: “Socialized medicine”. See: Hacker, J. (2002): 222, Quadango, J. (2004): 30

^[17] Quadango, J. (2004): 30

^[18] See: Lichtenstein, R. (1993): 311

^[19] Lichtenstein, R. (1993): 312

^[20] See: Lichtenstein, R. (1993): 312

^[21] Thompson 1990 In: Quadango,J. (2004): 35

^[22] Pratt 1993. In: Quadango,J. (2004): 35

^[23] Hacker, J. (2002): 163

^[24] Lichtenstein, R. (1993): 310

^[25] Quoted in: Bureau of Labor Education, University of Maine (2001): 1

^[26] See page one, first quote: Committee on the Costs of Medical Care (1932). In: Lichtenstein, R. (1993): 310

^[27] Quadango, J. (2004), Domhof, G. W. (2002), Brandt, M. L. (2005)

^[28] Connecticut Coalition for Universal Health Care (2005)

^[29] Meyer, J. D. (1986):1063