Introduction

The present health care system in the US relies mainly on a deregulated and tax credit-

based private healt...
1


        Sources & Methodology

No original or primary quantitative data has been used in this paper. However, the

pap...
2

view of the limitations imposed by the present constitution of the US health care system

and Americans’ traditional pr...
3

    Can such congruence of streams lead to major policy change? Baumgartner & Jones

(1993) opined that the American po...
4

alternatives, all in anticipation of the opening of a policy window with a possible

Democratic victory in the US Presi...
5

       2006), the highest in the world. While about two-thirds of the US population is covered

       by employer-empl...
6

with a $1300 add-on cost on account of employee health benefits to every automobile

manufactured in the US (Clinton, H...
7

this was heavily skewed toward higher income families with incomes greater than

$100,000 per annum and whose average t...
8

evident that among most policy communities who have authored these studies, the

fundamental absence of equity in an in...
9

the relatively lukewarm reception to President Bush’s recent tax-credit enhancements for

health care also point to the...
10


         Public Reaction

         The release of a report by the US Bureau of the Census in 2005 that showed

45 mil...
11

would be willing to vote for a candidate who supported a plan for national healthcare

coverage (AARP, 2006, p.4).


 ...
12

           Apart from these are influential activist groups such as Families USA, limited

insurance industry associat...
13

particularly those from the HMOs/PPOs, pharmaceutical companies and major service

providers such as hospital and labo...
14

all cases the allocation to research and development fell well short of administration and

insurance costs as Graphic...
15

               made large profits on this account alone. In April 2006 a drug, Zocor (40 mg) for

               which...
16

Medical Center
      Source: Bartlett, Donald, L. & Steele, James, B.(2004): Critical Condition. Doubleday, New York. ...
17

(1960, p. 35). For him the essence of political conflict was the scope of participation.

Since in any situation the n...
18

reforms up to and well beyond 2009. Indeed effective media management by policy

entrepreneurs such as Sen. Hillary Ro...
19

Medicare and Medicaid. Considering the physical size of HCA at 2000 revenue level of

$11.4 billion with more than 100...
20

extension (an average of $25,493 since 1990). It is pertinent to note that Congress

could have passed a law requiring...
21


        Official Actors: The Government

        In the 1980s, the Reagan Administration introduced market-like force...
22

brought against Parke-Davis by the FDA was that it had bankrolled research journal

articles in praise of Neurontin wh...
23

           Medicare, Medicaid, Veterans’ Administration and SSCHP were institutions

created by past governments to su...
24

manufacturers and partly, hospitals and nursing homes would pose a major source of

conflict. Another area would be th...
25

        The American political system creates several barriers to passing of reform. On

the one hand were powerful Co...
26

government be financially sound and administratively feasible. Notwithstanding public

opposition, skepticism and budg...
27

demand side measures have been adopted. However, there are some fundamental

differences between Europe and America – ...
28

individuals is also based upon the level of information available to them on an issue at

any time. Limited informatio...
29

governments and consolidate the implementing agencies as part of prescribing the entry

rules. All these state agencie...
30

geographical areas of a state so as not to allow a preponderance of a single insurer in any

state as part of the new ...
31

governments spent $847.3 billion on health care, $85.7 billion was spent on capital

investment and $39 billion on res...
32

HMOs/PPOs would be around $1.25 trillion (assuming per capita per annum premium

of $4,000 for a 300 million populatio...
33

    However, this may be the most difficult part of implementing the new order since

the economic stakes are perhaps ...
34

introducing a single-window collection and assessment point for health care funds and

substantially reducing administ...
35

        The scope rules having been clearly defined, the HMOs/PPOs would be have to

abide by the entry rules for the ...
36

past. Hannah Arendt stated that “Predictions of the future are never anything but

projections of present automatic pr...
37

biases or political affiliations, yet such methods would bring policy research closer to

policy making for the future...
38


                                      ANNEXURE –A



            STATEMENT SHOWING COMPARATIVE HEALTH CARE STATISTICS...
39


                 ANNEXURE- B




                 THE MULTIPLE STREAMS APPROACH FOR UNIVERSAL

                 HEALT...
40


                                                     ANNEXURE –C




                    UHC IMPLEMENTATION MODEL ADO...
Universal Health Care in the United States
Universal Health Care in the United States
Universal Health Care in the United States
Universal Health Care in the United States
Universal Health Care in the United States
Universal Health Care in the United States
Universal Health Care in the United States
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Universal Health Care in the United States

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Universal Health Care in the United States

  1. 1. Introduction The present health care system in the US relies mainly on a deregulated and tax credit- based private health insurance (PHI) based system that accounts for 55 per cent of total health care expenditure in 2004 and a State-funded system that accounts for the balance 45 per cent. The PHI system operates through private Health Maintenance Organizations (HMOs) that contract with physicians and hospitals for services, form a network, and offer individual and Woolhandler & Himmelstein, 2002, p.89 group health insurance Fig.1 American Health Care System cover; and Preferred Provider Organizations (PPOs) that contract with employers for providing group health care by physicians. The federal Health Care Financing Agency (HCFA) administers Medicare and Medicaid. The latter through the states) Fig. 1 shows the complex relationships that form this system. The system is a multi-payer one that subsists on a large multiplicity of insurers and diversity of insurance plans involving thousands of employers and millions of employees and self-employed people, a million-strong work force that services the health care industry and colossal wastage of resources, human and fiscal.
  2. 2. 1 Sources & Methodology No original or primary quantitative data has been used in this paper. However, the paper uses quantitative data from diverse sources including the US National Accounts, Federal Health Statistics, US Securities and Exchanges Commission, the US Federal Reserve, US Bureau of Census, US Bureau of Economic Analysis, US Food and Drug Administration and the US Federal Department of Health. Other sources include the OECD, World Health Organization, the print media, policy journals and private nonprofits. While government statistics have been used to primarily analyze the state of the present health care system, print media and policy community sources have been used to identify the policy streams and their convergence on the need for universal health care. Data from nonprofits has supported the analysis of the relative strengths and past performance of the actors in order to provide an insight into their potential ‘combat’ power during conflict in future. Based upon current events (of the last 2-3 years) this paper attempts to predict and build a future scenario and policy that may emerge in 2009. In doing so this paper generalizes the emergence of a consensus on universal health care to the multiple streams theory. Based on extensive analysis as stated in the preceding paragraph, this paper concludes that large-scale reform leading to a paradigm shift is the only way to achieving universal health care. In doing so, the paper attempts to generalize such reform to punctuated equilibrium theory in order to bring out the inevitability of large scale reform and the importance of institutions in implementing universal health care. Simultaneously, the New Order is also generalized to the IAD framework in defining the new action arena and situation, actors and implantation rules. Based upon mainly analysis of current events, this paper finally suggests a futuristic blueprint of the New Order – universal health care. Accordingly, this paper causes the analysis of this new action situation within the contemporary and even futuristic parameters of the Institutional Analytical Development (IAD) framework. In
  3. 3. 2 view of the limitations imposed by the present constitution of the US health care system and Americans’ traditional preference for gradual and incremental policy-making and non-intrusive government, the implementation model suggested mainly corresponds to such trends and preferences. While an attempt has been made to define certain variables in the IAD framework, particularly by laying out the functional arrangements for the New Order that also would ultimately define the various types of rules and their possible interaction at various levels and their impact upon the system, future research should aim at the precise definition of these variables as shown in the diagram at Annexure-B of this paper. Multiple Streams & Punctuated Equilibrium Kingdon (1984), defines four stages of the policy process, viz. agenda setting, specification of alternatives and choice, authoritative choice from alternatives and implementation of the decision. Both official and unofficial actors propel agenda from systemic agenda into governmental agenda either through diffusion of ideas to policy elites or through change in party control or election-related ideological change. Both the President and political appointees may propel such changes (such as President Carter’s deregulation of civil aviation and Joseph Califano’s elevation of health policy). The process of agenda setting may be determined by focusing events, changes in widely accepted indicators, accumulation of knowledge and generation of perspectives by specialists, arm-twisting and swings in public opinion, elections results, etc. Kingdon has attached much importance to the role of policy communities comprising of specialists, within and outside of government for generating alternatives and policy leaders called entrepreneurs who are the key advocates for policy change. The entire policy process progresses in expectation of the opening of a policy window such as a Presidential election that may bring with it new governmental agenda or resuscitate old agenda (per the party election manifesto).
  4. 4. 3 Can such congruence of streams lead to major policy change? Baumgartner & Jones (1993) opined that the American political system moved from one stage of equilibrium to another as policymakers established new institutions to support the policies they favored or altered existing ones to give themselves greater advantage. They believed that while political systems are never in perfect equilibrium, they are not in chaos either. Stability is maintained by the institutions and by their definition of issues. Such definition and redefinition of rules introduces new participants into the process causing conflict and followed by equilibrium. The resultant partial equilibrium is maintained by the allocation of attention of government to elites and apathy of voters. In times of instability, a system temporarily moves away from equilibrium but swings back to equilibrium after a new policy is decided upon. Unlike in the traditional view of democracy where equilibrium balances citizen preferences and public policies through a combination of elections and struggle of independence, Baumgartner & Jones stated that this did not happen; instead policy monopolies backed by powerful images in multiple venues established equilibrium. Shifts in public apathy, occasioned by the appearance of new participants in the process of socialization of conflict and conditioned by interest groups thus affected agenda setting with conflict occurring at every level. The emergence of new policy communities upsets existing communities through use of venues – reminiscent of Gaetano Mosca’s dialectical theory of constant competition among (or circulation of) elites in the 1920s. Thus at any one time there may be little change, but periods of relative stability may be punctuated by fitful bursts of mobilization that change the structure of bias for a long time. Thus Kingdon and Baumgartner & Jones complement each other in their respective interpretations of the policy process and are on the same continuum although they differ in their interpretation of the instrumentalities for policy change. Can the issue of health care reform presently in America be seen as a convergence of multiple streams to bring the issue of health care reform to the governmental agenda with public apathy gradually becoming proactive and policy communities building new perspectives and devising
  5. 5. 4 alternatives, all in anticipation of the opening of a policy window with a possible Democratic victory in the US Presidential election in 2008? Setting the Agenda for Reform: The Convergence of Streams Although the problem of health care has been defined many a time in the past, till recently conditions had not deteriorated enough to provide it adequate visibility to become an active agenda item since 1994. Nor has there been a unifying symbol to propel this issue onto the governmental agenda (Kingdon, 2003, p. 95). The increasing budget deficit of the federal government also cast its shadow on reform as the legislatures sought inexpensive and symbolic solutions (Kingdon, 2003, p. 107).The failure of the Clinton Plan in 1994 also ensured that this issue remained a condition than a right between changes in Administration. Is there a convergence of streams on this issue? For this purpose we need to examine evidence of rising costs, shrinking coverage and the average performance of the present health care system in improving the quality of life, evidence of change in public opinion, political postures, industry and legislative responses. Following this would be critical analysis of the key actors in policy communities, government, legislature and industry to show their past record, strengths and weaknesses, to predict the level of reform, conflict, barriers to reform and future rules of the game. Accumulated Evidence: Performance of the Health Care System Health care expenditure has grown by 260 per cent since 1990 of which over 80 per cent has been recorded in the last decade or an average 7.5 per cent per annum. At current rates of growth, expenditure is projected to rise by another 75 per cent by 2014 AD to $3.59 trillion, which would correspond to a 2.7 per cent rise (to touch 18.7 per cent) in its share of GDP from 2006 (Centers for Medicare and Medicaid Services, 2005). The rise in prescription drug costs in 2004 over 2003 is estimated at 8 per cent while physician, clinical and hospital services increased by 9 per cent. Per capita spending on health care was $5711 in 2004 (WHO Health Statistics,
  6. 6. 5 2006), the highest in the world. While about two-thirds of the US population is covered by employer-employee contributory PHI (with business spending on employee health care at 8.3 per cent in 2003) (Cowan, 2005, p. 8), another fifth have some form of coverage either thorough government agencies or with HMOs/PPOs. However, 15 per cent of the population is uninsured (Bureau of the Census, 2005). About two thirds of the uninsured fell in the less than $50000 per annum income bracket while a sixth of the uninsured fell in the $75000 income bracket (Bureau of Census, 2005). Finally, while personal income rose by 3 per cent in 2003, household spending for health care rose by 7.8 per cent in 2003 burning a bigger hole in family budgets. The declining value of the US dollar in 2006 computed (with base of $100 in 2001) for six different benchmarks of US government statistics vis-à-vis health care costs is given in the following table: TABLE 1: Declining value of US Dollar Consumer Price Index 113.41 GDP Deflator 112.74 Unskilled wage 115.61 Nominal GDP per capita 120.96 Relative share of GDP 126.88 Average 117.92 Avg. annual depreciation of $ (%) 3.55 Avg. annual increase in PHI premia 7.0 5-year $ depreciation 17.80 5-year increase in insurance premia 35.0 Williamson, Samuel, H (2006):, "Five Ways to Compute the Relative Value of a U.S. Dollar Amount, 1790 - 2005 While health care expenditure has been more than double that of America’s defense spending in terms of GDP yet the benefits have not flowed evenly from this system either in coverage, affordability or infrastructure when compared to many smaller developed nations as shown in Annexure-A of this paper. The US ranks the lowest among 19 developed nations in male healthy life expectancy, 18th in female healthy life expectancy, 14th in the number of physicians and nurses, 18th in the number of hospital beds and 15th in government expenditure on health care, although it has the highest percentage of GDP devoted to health care as well as the highest per capita expenditure in the world (WHO Statistics, 2006). There is a decline in employers offering health benefits to employees by about 8 per cent since 2000 (Kaiser Commission, 2006, p.1) even as US automakers grapple
  7. 7. 6 with a $1300 add-on cost on account of employee health benefits to every automobile manufactured in the US (Clinton, Hillary, 2004, p.28, Wall Street Journal 01/25/07 p. A.1). As people remained uninsured, credit card medical debt too went up (Zeldin & Rukavina, 2007, p.5), while 1.9-2.2 million Americans (filers and dependents) experienced medical bankruptcy in 2001 (Himmelstein, et al. 2005, p. 63) and about 12 per cent remained underinsured ( Schoen, et al, 2005, p.293). Clearly “America's health care system is neither healthy, caring, nor a system” (Walter Cronkite); the crisis encompasses not only costs but efficient delivery of health care services and available human resources too. Many solutions ranging from universal government sponsored and funded health insurance, extension of the coverage by government agencies to more tax credits, HMOs maintaining paid doctors and running hospitals and drug price regulations, have been mentioned while some states like California and Massachusetts have recently started their own coverage programs. Accumulated Evidence: Colossal Waste in the Health Care System The National Coalition of Health Care (2006, pp. 14-16) estimated that universal health coverage would reduce $600 billion by 2015 from employer expenditure on health care and $200 billion from employee share of insurance. After accounting for disproportionate share savings, higher indirect tax receipts linked to employee savings and payroll tax receipts, it is estimated that the federal government would have to contribute only $21 billion in 2006 to keep health care expenditure in America to approximately 15 per cent of GDP in 2005. Presumably this estimate takes into account the total federal and state tax expenditure of $209.9 billion in 2004 by way of revenues foregone for various deductions and exemptions for health benefits under personal income tax and Social Security and Medicare hospital insurance payroll taxes. However, this proposal does not appear to take into account the ability of the federal government to sustain such large budget support. It may be mentioned that the average health benefit tax expenditure was about $1482 per family in 2004, although
  8. 8. 7 this was heavily skewed toward higher income families with incomes greater than $100,000 per annum and whose average tax benefit was $2,780 while those below $100,000 derived an average benefit of only $102. Thus only 28.4 per cent of all tax expenditures went to families with incomes below $50,000 even though they formed 57.5 per cent of all US families. Families with incomes above $100,000 who formed 14 per cent of the population accounted for 26 per cent of the average tax benefit (Shells & Haught, 2004, p. 109-110). That a single-payer system would save on costs is apparent from another study (Kahn, et al, 2005, pp. 1633-37) in California which showed that billing and revenue-related (BIR) functions account for 7.5 per cent of the work time of non-physician clinical staff and 5 per cent of physicians’ time is spent on BIR work. In fact, BIR administration consumed an average of 81-85 per cent of total administrative costs of HMOs while for physicians it was 52 per cent and 31-51 per cent for hospitals. Overall BIR administration in California represented 19.7-21.8 per cent of total expenditure of all these types of health care service providers. This figure too is understated since costs on external brokers’ fees, oversight and administrative costs of independent practice associations (IPA) have not been taken into account in this study. In 1999 the average overhead costs of insurance companies at 11.7 per cent exceeded that of Medicare at 3.6 per cent and Medicaid at 6.8 per cent. US employers spent $15.9 billion while nursing homes spent $17.3 billion, physicians $ 90 billion, home care agencies $11.6 billion making for a total of $294.3 billion on overhead costs alone. Even if this gross figure is reduced by the administrative costs of the Canadian health care system in the same year, yet the US system overspent $209 billion. It is not surprising to note that the proportion of administrative and clerical personnel among the health care labor force grew from 8.2 per cent in 1969 to 27.3 per cent in 1999 (Woolhandler, et al, 2003, p.771-72). Therefore, even a 20 per cent subsidy to the price of individual insurance would reduce the number of uninsured people by at most 5.5 million only (Marquis, et al, 2006, p.232). It is therefore
  9. 9. 8 evident that among most policy communities who have authored these studies, the fundamental absence of equity in an income-level related system and the failure of tax credits as an instrumentality of state health policy and heaviness of administrative costs, impels some form of state-sponsored universal health coverage for Americans. Reaction of Businesses & Health Care Industry Business too has been adversely impacted by rising costs of health care. The national grocery chain Safeway stated that the $1 billion it spent on employee health care last year exceeded its net income (Freudenheim, New York Times, 01/25/07). General Motors spent $4.8 billion last year providing health care to 1.1 million employees, retirees and dependents in 2006 (Bunkley, New York Times, 03/29/07) that added $1,500 to the price of every General Motors automobile (Nocera, New York Times, 11/08/2006) affecting the company’s global competitiveness. Similarly, The National Association of Realtors stated that 28 per cent of its 1.3 million members were without health insurance (Pear, New York Times, 03/05/2007). An IBM estimate stated that while in 1985, 91 per cent of all companies offered health insurance benefits to their employees; in 2000 it declined to 70 per cent. In 2007, only 61 per cent of companies are expected to offer employees health care benefits (IBM, 01/01/2007). Wal Mart, America’s biggest retailer of consumer goods that employs 1.3 million people has, in an unexpected move, sided with the Service Employees International Union, in support of universal health coverage (The Wall Street Journal, 02/07/2007). The launching of a joint initiative by the Business Roundtable and Service Employees International Union and the health insurance industry’s America’s Health Insurance Plans (The Washington Post, 01/17/07 p. D.1) and the introduction of universal health care in California (Wall Street Journal (Eastern Ed.) 01/19/2007. p. A.10) and partial state health coverage in Massachusetts in 2006 (The Washington Post, 01/31/07. p. A.15) and New York’s proposal to make available affordable insurance to 400,000 uninsured children (New York Times, 02/01/07. p. B.5) and
  10. 10. 9 the relatively lukewarm reception to President Bush’s recent tax-credit enhancements for health care also point to the agenda once again make a comeback to the mainstream agenda. Major employers like Marriott International, Pitney Bowes, the carpet maker Mohawk Industries and Maine’s state government have introduced free drug programs to avoid paying for more expensive treatments down the road. Working with Anthem Blue Cross and Blue Shield, a unit of Wellpoint, Maine, has started offering free drugs and supplies to employees with diabetes who take part in a face-to-face interview with nurse educators and agree to a year of follow-up telephone sessions. At the Mohawk Industries carpet factory in Dublin, GA, about 200 of the 750 employees signed up for free blood pressure and heart drugs in summer of 2006 after the company held meetings to describe the benefits of lowering blood pressure and cholesterol. Eastman Chemical, Kingsport, TN, offered free mammograms for its workers and free vaccines for employees’ children and now also provides free drugs and supplies for diabetics under its health plan. (Freudenheim, New York Times, 02/21/07). Big drug makers like Pfizer and Merck, which could benefit politically and financially from the employer drug programs, are also supporting the effort. Richard T. Clark, the chief executive of Merck stated that “If we all don’t do a better job, the private employer-based market will continue to weaken and the country will move forward toward rationing of care and greater government control, with greater pressure for a single-payer model with price controls,” (American Journal of Managed Care quoted in Freudenheim, New York Times 02/21/07). Perhaps mirroring such apprehensions are reports of large campaign contributions from the health care industry to Sen. Hillary Clinton (D-NY) of $854,462 of which $431,000 has come from doctors and health care professionals and $142,000 from hospitals and nursing homes in 2005-06. At the same time Sen. Rick Santorum (R-PA) collected $977,354 from the same industry. (Hernandez & Pear, New York Times, 07/12/2006). Clearly, having realized the inevitability of universal health care, the industry is seeking to placate both the Democratic and Republican parties and their candidates/policy entrepreneurs.
  11. 11. 10 Public Reaction The release of a report by the US Bureau of the Census in 2005 that showed 45 million Americans as being uninsured, reignited the debate and served as a catalyst in refocusing public attention to the health care system. A recent survey poll showed that 15 per cent people saw heath care reform (after the Iraq war and economic issues) as the most important issue that they would like President and Congress to act on in 2007; 35 per cent of those who polled for health care reform wanted to expand coverage for the uninsured while 30 per cent said that reducing health costs were their priority (Kaiser Family Foundation/Harvard University, 2006). About 61 per cent of a surveyed population believe that prescription drugs would be cheaper if the Democratic Party won the Presidency in 2008 while 48 per cent said they did not intend to join the liberalized Medicare prescription drug benefit (New York Times-CBS poll, 05/10/2006, p. 29, 39) that would seem to imply popular support for state intervention in the health care market. A Gallup poll similarly showed that 25 per cent and 17 per cent of people polled stated that their first concern was health care/insurance costs and access to health care respectively (Gallup Poll, Nov. 7-10, 2005). Other polls have showed that 69 per cent people think it is the responsibility of the federal government to make sure all Americans have health care coverage (up from 59 per cent in 2000) while 55 per cent felt that there were major problems in the health care system and 16 per cent felt the system was in crisis (Gallup Poll. Nov. 9-12, 2006). A survey showed that 53 per cent of people were also willing to pay higher taxes if every one was insured while 55 per cent supported a Massachusetts-like plan (NBC News/Wall Street Journal Poll, Jan. 17-20, 2007). Another survey showed 62 per cent Americans felt that the federal government should guarantee health coverage for them while 56 per cent felt fundamental changes were required in the present health care system and 34 per cent believed the system should be rebuilt (CBS News/New York Times Poll. Jan. 20-25, 2006). Yet another survey showed 77 per cent of people
  12. 12. 11 would be willing to vote for a candidate who supported a plan for national healthcare coverage (AARP, 2006, p.4). Reaction in Politics & Policy Politicians of all hues such as Sen. John Kerry (D-NC), Hillary Rodham Clinton (D-NY) and Sen. Barack Obama (D-IL) too are jumping on the reform bandwagon. With the Democrats in a majority in the Senate (2007), Democratic Senators like Ron Wyden (OR) are attempting a return of health care to the governmental agenda (Los Angeles Times. 12/14/06. p. A.18). Democratic hopefuls for the Presidency such as Barack Obama, John Edwards, Bill Richardson echo Sen. Hillary Rodham Clinton (D- NY) in that health care reform would be “the No. 1 voting issue in the 2008 election.”(Clinton, Hillary Rodham, New York Times, 01/25/07). The insurance industry’s recent proposal, although made with its own benefits in mind, also endorses “universality as a moral imperative” (Klein, Los Angeles Times, 2006, p.A-35 & 11/14/06. p. A.1). Sen. John Conyers Jr. (R-MI) introduced a bill (HR 676) on January 24, 2007 titled the United States National Health Insurance Act that would establish the United States National Health Insurance (USNHI) Program to provide all individuals residing in the United States and in U.S. territories with free health care that includes all medically necessary care, such as primary care and prevention, prescription drugs, emergency care, and mental health services. This bill has been supported by 63 co-sponsors up to March 31, 2007, all of whom are Republicans. Other health care reform sets include AmeriCare proposed by Sen. Pete Stark (R-CA). Recent actions of the Bush Administration in augmenting health care tax credits and the likely revival of a plan akin to the ill-fated Clinton Plan (1994) by the Democrats, post-2008 Presidential election, points to a broad political convergence on the need for reforming the health care system urgently. It is therefore evident that the political stream has reached a broad consensus on the need for introducing universal health care.
  13. 13. 12 Apart from these are influential activist groups such as Families USA, limited insurance industry associations such as the Kaiser Permanente Group, Commonwealth Fund, AARP, Universal Health Care Action Network, American College of Physicians, Physicians for a National Health Program, Brookings Institution and the National Coalition on Health Care. A recent report of the Commonwealth Fund (2006) that took a poll of health care opinion leaders came up with a range of remedies for reforming the US health care system as shown in Graphic 3. Fig. 3 It is therefore evident that fragmented policy communities in the health care arena are not too far from agreement on the need for universal health care. America’s middle class being the worst affected, bureaucrats, small business owners, company employees and many others would support such a move. Perhaps the “rebirth of ………. dissent, of irreverence, of an uncompromising insistence that phoniness is phony and platitudes are platitudinous” (Arthur Schlesinger, Jr.) is finally dawning upon all the streams. While both the national mood and the political stream, as Kingdon defines it, and Baumgartner & Jones’ policy communities having moved to an agenda-setting stage with congruence of opinion on the need for universal health coverage, unanimity in arriving at its final shape may be expected to cause conflict between interest groups,
  14. 14. 13 particularly those from the HMOs/PPOs, pharmaceutical companies and major service providers such as hospital and laboratory chains, chemists and druggists and citizens in income brackets of over $100,000-150000 per annum. Such conflict would thus form the new action arena while the new legislation and its rules would form the new action situation. Since such a paradigmatic shift arising from large-scale reform is predicted to occur, the success of the New Order would hinge on its successful implementation. Therefore the role of the new emerging institutions and their operating environment and rules would be crucial in establishing and maintaining the new system. The Actors The present action arena comprises of four main sets of actors, viz. 1) pharmaceutical manufacturers, HMOs/PPOs, service provider networks and their special interest groups 2) legislature 3) executive and 4) citizens and their common interest groups that would stand to derive some advantage by aligning themselves with the second and third categories of actors. Since the actors in the action arena are relatively few (if we consider them in clusters of interests), it is important to discuss at some length and fact their full ‘combat’ potential in the succeeding paragraphs, before heading into the new action situation. The Unofficial Actors – Health Care Industry The American pharmaceutical industry is a limited one of around 20-30 major companies and their subsidiaries. Some leading companies are Pfizer Inc., Johnson & Johnson, Merck & Co. Inc., Abbott Laboratories, Bristol-Myers Squibb Company, Wyeth and Eli Lilly and Company. SEC data showed that these companies had a combined turnover of $193.08 billion in 2004 of which they spent $61.54 billion on marketing, advertising and administration (32 per cent of net sales) and $26.24 billion (14 per cent) on research and development and retained $34.35 billion (18 per cent) as profit. In some cases, such as for Pfizer the profits equaled 22 per cent of revenue. In
  15. 15. 14 all cases the allocation to research and development fell well short of administration and insurance costs as Graphic 4 shows. Naturally, the companies’ top executives were well looked after. The value of unexercised stock options for the chief executives of these companies was, on an average, more than $19 million in 2004 with a median value of about $24 million. The total reported (to SEC) value of unexercised stock options for the seven chief executives was around $135 million in 2004. Largesse flowed further down the line with the 36 top executives having total reported value of stock options of about $297 million in 2004 (Families USA, 2005). Similarly, the CEO of Tenet Hospitals in 2002 drew $117 million in stock options and salary (Bartlett & Steele, 2004, p. 103). An independent study showed that these companies also incurred the major percentage of the total industry lobbying costs of around $123 million in 2004 (Ismael, 2005). Indeed pharmaceutical companies were ranked as America’s most profitable enterprises from 1995-2002. Drug advertising increased to $ 11.4 billion in 2005 that was a five- fold rise from 1996. Even in 2005 they ranked fifth with profits of 16 per cent compared to 6 per cent for all Fortune 500 firms (Fortune, April 2006). The number of prescriptions in America increased by 71 per cent from 1994- 2005, i.e. from 7.9 to 12.3 per capita. Sixty one per cent of those under age 65 and 91 per cent of those above age 65 had prescriptions. Against this, spending on pharmaceuticals rose by about 375 per cent from 1994 to 2004. New drug approvals do not appear to have contributed to reduction in drug prices. While co payments for non-preferred drugs have doubled since 2000, the rise in preferred drug prices has been about 70 per cent (Kaiser Family Foundation, 2006, pp. 1-4). As a result imports of drugs through Internet sales and by travel to Canada have totaled about $700 million in 2003. An equivalent amount of prescription drugs was estimated to have entered the US from the rest of the world, mostly through mail and courier services (US Department of Health, 2004, p. ix). The companies have also taken advantage of the absence of any bulk drug purchasing mechanism (except Veteran Affairs - VA) and
  16. 16. 15 made large profits on this account alone. In April 2006 a drug, Zocor (40 mg) for which the lowest VA price for a year’s treatment was $190.76 had a Medicare Part D price of $1275. 36, a 670 per cent difference! (Families USA, 2006, p. 9). Bartlett and Steele (2004, p. 36-37) estimated that in 2002 the profits made by Pfizer Inc. was 2.5 times that of General Electric, nine times better than Wal-Mart and 32 times better than General Motors Corporation. Medical service providers too are a major source of high costs plaguing the health care system in America. While physician fees have more than doubled from 1993-2005 and are expected to double again by 2014, nursing home care will have tripled from 1993-2014 while health insurance rates would more than quadruple from 1993-2014. The incidence of overcharging by hospitals, amongst other malpractices, has also been on the rise as would be seen from Table 3 that follows. Table 3 Name of Medical Institution Geographic Nature of treatment Amount Medicare PHI cost %age Difference Location charged cost payable by patient over PHI/Medicare University Medical Center Oklahoma City, Craniotomy $85400 $13900 $15600 447/514 OK Florida Hospital Orlando, FL Appendectomy $35200 $6200 $7000 403/468 Medical Center of Aurora Aurora, CO Cranial & Peripheral nerve $24100 $4100 $4600 424/488 disorder treatment Our Lady of Resurrection Chicago, IL Removal of cyst in neck $74396 $6100 $6900 978/1220
  17. 17. 16 Medical Center Source: Bartlett, Donald, L. & Steele, James, B.(2004): Critical Condition. Doubleday, New York. pp. 15-18 It is apparent from the above discussion that the pharmaceutical manufacturers may pose to be among the biggest threats to the implementation of any price control regime. Having had a virtually unfettered run on profits and health policy relating to pharmaceuticals for the last several decades, these companies would invariably unleash their strong organizational capacity and fiscal resources in unethical ways to block UHC legislation unless such legislation is backed by strong collective political leadership, commitment and will both at party and legislative levels. It is evident that the conflict over health care has so far remained a private conflict, with the unofficial actors having mobilized bias in their favor (Schattschneider, 1983, p.39). Although periodic socialization of conflict (Schattschneider, 1983, p.38) between the detractors of the unofficial actors and political parties resulted in legislation that, inter alia, led to the creation of Medicare and its subsequent widening, the continuing competitive advantage being enjoyed by the unofficial actors shows that the conflict has mainly remained in the private realm. Although pharmaceutical manufacturers such as TAP Pharmaceutical Products, Inc. ($875 million for Lupron), Pfizer ($49 million over Lipitor and $430 million over Neurontin), Glaxo SmithKline ($88 million over Paxil), Bayer ($257 million for Adalat) and Astra Zeneca ($355 million over Zoladex) have been indicted on criminal charges of fraud periodically and arrived at settlement agreements, yet their malpractices are legendary (Bartlett & Stele, 2004, pp. 63-69). (Kingdon (2003, p. 8) rightly stated, previous national health insurance failed primarily because of budgetary constraints, a national mood that preferred a smaller government and the inability to line up a unified coalition behind the proposals. Therefore put together, the unofficial actors constitute a disproportionately powerful set of special interest groups that would have as their sole negative incentive to prevent the new legislation ushering in universal health care and partial regulation. Writing over four decades ago, EE Schattschneider pertinently noted “The flaw in the pluralist heaven is that the heavenly chorus sings with a strong upper-class accent”
  18. 18. 17 (1960, p. 35). For him the essence of political conflict was the scope of participation. Since in any situation the number of apathetic outnumber those involved, competition between winners and loses in the original policy dispute gave incentives to the losers to enlarge the scope of conflict. Given the groundswell of opinion in favor of universal health coverage, political parties may have to “capitalize on the public hostility toward many of these groups than woo them” (Schattschneider, 1960, p. 53). The increasing definition of alternatives for achieving universal health coverage is “the supreme instrument of power” (Schattschneider, 1960, p. 66) and therefore may well become “the power of irrelevance which transmutes one conflict into another and turns all existing alignments inside out” (Schattschneider, 1960, p. 72) by pitting the groundswell of opinion against the health care industry. Unofficial Actors: The Media Over six decades ago, Herbert Simon made an apt observation on the limitations of human cognitions thus, “People are endowed with very large long-term memories, but with very narrow capacities for simultaneous attention to different information …..Of all the things we know, or can see or hear around us, only a tiny fraction influences our behavior over any short interval of time” (1983, p. 301). In a similar vein, McCombs (1981, p. 22) stated that “the public agenda seems to be an oligopoly limited to approximately a half-dozen major concerns at any particular moment”. The media therefore plays a key role in bringing together or fragmenting public opinion, knitting together policy venues, or causing shifts of policy venues and creating powerful images. For Baumgartner & Jones (1993, p. 105) the media served as a major vehicle for change of venues by policy entrepreneurs. The ruinous run of the Harry and Louise campaign on television in 1993-94 spelt doom for the Clinton Plan by an effective use of metaphors of big and intrusive government that was not matched by any strong governmental response. The media would therefore play a very significant role in providing positive feedback on the reignited debate for reviving universal health care
  19. 19. 18 reforms up to and well beyond 2009. Indeed effective media management by policy entrepreneurs such as Sen. Hillary Rodham Clinton (D-NY) and positive feedback by the media may be a key factor in the implementation of health care reforms in 2009 and beyond. Already the print media is taking close interest in views on health care reform aired by all Presidential candidates and is also being used by various policy communities as is evident from 869,000 links showing up on web search string “media reports on universal health coverage in USA” on the Yahoo web search engine on March 31, 2007. Official Actors: The Political System Bartlett and Steele have estimated that from 1989-2004, the health care industry contributed $479 million to political campaigns, more than the energy industry ($315 million), commercial banks ($133 million) and large tobacco ($52 million) have done. From 1997 to 2000, the health care industry spent $734 million lobbying Congress and the executive branch, second nationally to the finance, insurance and real estate lobby that contributed $823 million and in contrast to $211 million spent by the defense industry (2004, p. 69). Political appointments to posts in the state health care system have also arisen indirectly from such large investments. Barlett & Steele (2004, p. 69-71) pointed out the appointment of Thomas A. Scully as the Administrator of the Federal Centers for Medicare and Medicaid Services (CMS) in 2003. Scully who was president of the Federation of American Hospitals prior to his appointment in the CMS played a central role in drafting the final version of the Medicare Bill that blocked imports of low-cost drugs from Canada (to benefit the US drug industry) apart from imposing a $534 billion burden on taxpayers (2004, p. 72). A significant role was played by the then Senate Majority Leader Bill Frist (R-TN), whose family founded the Hospital Corporation of America (HCA) that derived about a third of its revenue from Medicare and Medicaid. HCA was involved in large settlements of $840 million in 2000 and a further $631 million in 2003 mainly for false claims preferred on
  20. 20. 19 Medicare and Medicaid. Considering the physical size of HCA at 2000 revenue level of $11.4 billion with more than 100,000 employees in 111 hospitals in 17 states, it is evident that such interest groups would have a strong political influence in the framing of health care policy in America. Even though HCA may enjoy what Lindbolm (1977) called the “privileged position of business” yet business interests have not been able to establish an equilibrium point as the current debate over universal health care shows. Legislatures have also not been above board while extending patents for drugs. US law provides for a six-month extension of a monopoly patent provided the manufacturers prove by clinical trials that the drugs are safe for pediatric use as well as “pediatric exclusivity” provided in the Food and Drug Administration Modernization Act (FDAMA, 1997). Public Citizen, a consumer rights group founded by Ralph Nader in 1971, estimated in 2001 (2001, p.i) that Bayer would gain additional revenue of $358 million for Ciproflaxcin while expending an average of $3.87 million per drug for such trials (Tufts Center for the Study of Drug Development). Cumulatively, tests on 188 drugs requested by FDA in 2001 would cost the industry a total of $727 million against FDA estimates that pediatric patent extensions are worth at least 40 times that, or $29.6 billion, or $592 million per annum in added sales for the patent-holding companies. This patent extension bill faced a major test on October 4, 2001 in the Health Subcommittee of the House Energy and Commerce Committee. However, several amendments aimed at reducing the cost of the patent extension to consumers were defeated. Republicans (with the help of some Democrats) rejected proposals that would: guarantee drug companies a 100 percent return on pediatric test expenditures; limit drug companies to a 10,000 percent return on certain drugs; and curtail the incentive only for the best-selling drugs (those with over $800 million in annual sales). The subcommittee members who voted to leave the six-month patent extension untouched received far more in campaign contributions from the drug industry (an average of $64,691 since 1990) than those voting for the amendments to reduce the patent
  21. 21. 20 extension (an average of $25,493 since 1990). It is pertinent to note that Congress could have passed a law requiring pharmaceutical companies to test their products in children as a condition of gaining new drug approval by the FDA that would have provided children the drugs they needed and consumers their much-needed price relief (Public Citizen, 2001). Despite their innumerable failings, legislatures and their committees/sub- committees remain the favorite venues for conflict expanders primarily for their law making powers and for the confidentiality arising from the legislatures’ opaque institutional operating environment. Their relative porosity to influence stems from a fractured political system and compounded by a weaker party system, that would be fully exploited by the HMOs/PPOs and pharmaceutical manufacturers for their benefit for blocking UHC legislation. Courts are another venue where the power of judicial review aids losers in a conflict with existing policy communities. The HMOs/PPOs and manufacturers would also take recourse to courts to sabotage the UHC legislation as also to preserve their cartels. As Cobb and Elder (1983, p. 104-29) stated, the process of successive mobilization of larger and larger groups, as if in a series of concentric circles, destroys existing policy monopolies by expanding conflict from “specialists, to attention publics, to the informed public, and finally to the general public”. The present mobilization in favor of universal health reform thus has every potential of destroying the laissez faire complexion of the health care market – a distinct apprehension of which is presently being voiced by influential industry representatives as mentioned elsewhere in this paper. An analogy to this situation was the decline of the nuclear power industry as a policy monopoly that initially prospered by powerful images of harnessing “the world’s most dangerous technology” but the possibility of accidents and subsequent public outcry and regulatory legislation led to the industry losing control of the issue. This eventually led to utilities ordering only 15 more power plants after 1974 (Baumgartner & Jones, 1993, p. 70).
  22. 22. 21 Official Actors: The Government In the 1980s, the Reagan Administration introduced market-like forces in the health care market. This was in stark contrast to the 300-strong HMO system (the pioneer was Kaiser Permanente in California) that had been introduced by the Nixon Administration and that had functioned on a no-profit basis with partial government financial assistance and kept medical costs down. Deprived of government funding with change in policy, these HMOs had to turn to the market for their survival. The creation of national physician practice management (PPM) and hospital networks marked the beginning of large monopolies in the American health care system. Market forces also engendered the rise of more interest groups such as the Professional Association of Healthcare Reimbursement Specialists, National Association for Claims Assistance Professionals or the 35000-member strong American Academy of Professional Coders (Bartlett & Steele, 2004, p. 159) and fostered the creation of a vast bureaucracy to cater to a multi-payer and fragmented payment system. At the same time, enforcement by statutory public agencies has been slow as is evident from the example of the FDA opening the door to direct drug advertising to consumers on television. An understaffed FDA found it impossible to cope with misleading advertisements that was further diluted by the US Department of Health and Human Services in November 2001 that removed the notification period on misleading advertisements (Bartlett & Steele, 2004, p. 229-231). FDA’s enforcement of laws also appears to have been lax as is evident from its agreement to allow drug companies to mention side effects in fine print and in technical and largely incomprehensible terms to customers. The FDA that in the 1950s had kept thalidomide off the US market has presently approved its use for leprosy patients with a warning (Bartlett & Steele, 2004, p. 230). The FDA’s effectiveness in curbing off-label use of prescription drugs has also been very limited. While Parke-Davis earned over $2.7 billion in 2003 alone from Neurontin, they paid $430 million as one-time settlement damages. Among the charges
  23. 23. 22 brought against Parke-Davis by the FDA was that it had bankrolled research journal articles in praise of Neurontin which were then sent to prescribing physicians. Surprisingly, FDA rules did not prohibit this practice of circulating selective research articles. In another case the FDA permitted Bristol-Myers Squibb Company to continue marketing the antidepressant drug Serzone for another three years (when it was removed from the market by the manufacturer) even as reports of it being unsafe and often fatal poured in from Canada while Turkey and Spain banned its sale (Bartlett & Steele, 2004, pp. 41-42). The FDA estimated that the pediatric incentive under FDAMA, 1997 and the six-month extension of monopoly patents would cost consumers $695 million per year by delaying access to lower-priced generic drugs. This however, downplayed the impact of pediatric patent extensions on individual consumers. For instance, a senior who took Glucophage (diabetes), Vasotec (high blood pressure) and Prilosec (heartburn) would see their prescription drug bill increase by $425 because of the added patent protection given to those three drugs. That $425 increase represented a 45 percent hike in such a senior’s drug bill was a far cry from one-half of one percent stated by FDA (Public Citizen, 2001, p. 10). Therefore even public agencies were not above willful misrepresentation although the power of enforcement of compliance laws was vested in it. Thus statutory institutions by their enforcement powers would be an important cog in the wheel of government in establishing and maintaining the equilibrium in the New Order. Though not as porous as the legislature to outside influence, yet the government bureaucracy would continue to suffer from the imposition of political appointees (as part of the spoils system and also as department Secretaries) and their professional infirmities, and also the appointees’ propensity to be influenced by the private sector from where most of them are appointed. Yet the bureaucracy would play a very significant role in the implementation of the UHC scheme and would thereby constitute a major pillar, along with other new institutions, that would eventually sustain the New Order.
  24. 24. 23 Medicare, Medicaid, Veterans’ Administration and SSCHP were institutions created by past governments to support programs arising from waves of popular enthusiasm. Although many issues fade away temporarily, these institutions silently continue to discharge their roles. Baumgartner and Jones have argued that “these institutional legacies of agenda access may structure participation so that a powerful subsystem can remain relatively independent of popular control for decades” (1993, p. 83). Over the years Medicare and its sister institutions have maintained partial equilibrium in policy outcomes by adopting an incremental policy outlook. However, with the issue of universal health care once again emerging as a frontline agenda, these institutions may be dismantled in the second period of agenda access to make way for new institutions as has been suggested in the latter half of this paper. Waves of enthusiasm that resulted in Medicare and Medicaid’s creation several decades ago may now be overwhelmed by popular disenchantment with their coverage and make way for new institutions such as the Universal Health Care Agency amidst a wave of criticism. Conflict & Equilibrium Any comprehensive reform of the health care system would result in winners and losers. Prospective big-buck losers would naturally be much more involved and effective in stopping change than the prospective winners would be in promoting it. Indeed, as Machiavelli said nearly five centuries ago (1517, 1532), “There is nothing more difficult to carry out, nor more doubtful of success, nor more dangerous to handle, than to initiate a new order of things. For the reformer has enemies in all those who profit by the old order, and only lukewarm defenders in all those who would profit by the new order.” Which would therefore be the likely areas of conflict in the new legislation? The first likely area would be the reformation and state regulation of the health services market. Shorn of their unbridled power to dictate prices and terms in the market and forced to reckon with consumers represented by powerful government single-payer agencies commanding great collective power, HMOs/PPOs, pharmaceutical
  25. 25. 24 manufacturers and partly, hospitals and nursing homes would pose a major source of conflict. Another area would be the limited geographic market for each PHI although they would be allowed to apply for all geographic regions across the country. The pharmaceutical industry too would strongly resist any regulation and creation of monpsonic markets as this would adversely impact their profitability. Another area of conflict where citizens groups would be involved is the creation of geographic zones for insurance purposes that are likely to be viewed as an intrusion into privacy. Higher income groups would be affected since they would perceive the system as being a source of additional taxation for a service they may not like to use. Well-worked out economics of taxation would also be required to impose an UHC tax on businesses and corporate entities. A final major area would be the merger of agencies and their staff where resistance would be encountered. In the final analysis, as Napoloen Bonaparte put it aptly, “Man will fight harder for his own interests than for his rights.” Barriers to Reform Jacob S. Hacker rightly opined that health care policy is “not an outgrowth of industrialization or the growth of medical complexity Fig. 2 Effect of Health Savings Accounts on Health Insurance Coverage nor “… a reflection of distinctive national cultures or the power of prominent societal groups.” (1998, p. 127). Rather it is the efficacy of political institutions through which national health policies passed, in creating incentives and constraints and inherited legacies of past policies that structure the health care sector and which sets the agenda for reform.
  26. 26. 25 The American political system creates several barriers to passing of reform. On the one hand were powerful Congressional committees like the Ways and Means Committee in the House and the Finance Committee in the Senate that have, in the past, been gateways for health insurance legislation. On the other, were a set of weak political parties which ensure that partisan congressional majorities seldom translate into policy majorities. Thus a fragmented political system in which Committee chairpersons have their own fora to raise health care issues different from those of the President and of the party they belong to makes passage of any reform legislation extremely complex and time-consuming. Another barrier that reform legislation faces is from PPOs, HMOs, drug manufacturers, etc. all of whom have a vested interest in keeping the status quo alive. Unlike the political system, these interests are very well organized and funded and willing to take advantage of the fragmented political system and the power of the media (e.g. the Harry and Louise advertisement issued by the Health Insurance Association of America in 1993-94) to block any reform legislation (a negative incentive for them). Adding to the advantage of the special interest groups, are an amorphous body of apathetic Americans, particularly the uninsured, who are a diffused group that cannot be easily organized. Public opinion too in favor of the uninsured or the underinsured or even the employed middle class is centered on the issue of additional taxation for redistributive justice and fluctuates in direct response and apprehensions of additional taxes being imposed. An additional disincentive to reform is the traditional dislike of big government by Americans. Therefore, “the political contest for national health insurance has never been played on a level field and it never will be” (Marmor & Oberlander, 2004). To perpetuate the tax credit system would not serve the purpose as about 55 per cent of people would not be covered as Graphic 5 shows. Next is the fact that the health care industry in America employs over 1.5 million people who would be out of a job if the private sector’s role in health care is substituted in toto by government, which too would not have the personnel required for this magnitude of operations. Nor would large-scale employment of support personnel by
  27. 27. 26 government be financially sound and administratively feasible. Notwithstanding public opposition, skepticism and budget deficits Medicare and Social Security were translated into law. Last, but not the least, is the federal government’s burgeoning budget deficits. The GAO (2007) has estimated that in 2006 Medicare and Medicaid accounted for 19 per cent of federal spending while social security (including these agencies) rose by 147 per cent from 2000-06 while the unified budget deficit was $248 billion in 2006. By 2040 while government spending would equal 40 per cent of GDP, yet revenue would be able to sustain only about 18 per cent of such expenditure. By 2080 expenditure on Medicare and Medicaid (at current physical levels) would rise to over 22 per cent of GDP. This would imply cutting federal spending by 60 per cent or doubling taxation from today’s levels. Universal health care too therefore appears to be headed in the same positive direction as Medicare over a half century ago, but as a private-public partnership. Clearly there is no option of establishing UHC as a federal government funded system and it follows that whatever is the final complexion of UHC it would remain a quintessentially public-private funded system. Limitations of Replicating European Health Care Systems in America However, before proceeding with the analysis of implementation, it is necessary that the limitations of state funded universal health care as in Europe and Canada are discussed since these countries’ system has been popularly viewed as the appropriate panacea for America’s ailing health care system. A hybrid (private-public) planned, though monopsonic, market has played an important role in the UK, Sweden and Finland. Saltman & Figueras stated that “reform experience in Europe has shown that the greater the reliance on market mechanisms, the greater the need for a reinvigorated state role.” (1998, p. 102). Thus the state has come to assume the role of a monitor of outcomes directing broad strategic objectives for the health system while discharging a regulatory function over public and private providers. In doing so, both supply and
  28. 28. 27 demand side measures have been adopted. However, there are some fundamental differences between Europe and America – the market in America is unregulated and comprised entirely of private players (except for Medicare and Medicaid, VA and few others). The infrastructure of the health system too is almost entirely in the private sector and there is no equivalent of the NHS (except for the defense services). While there is no denying the central role of the state as the principal regulator, yet expecting a fully federally funded and regulated system to emerge may be unrealistic considering the huge transition, powerful interests involved and governmental budget deficits. Therefore any system for universal health coverage must necessarily involve all the private players and governments conjointly for optimal utilization of resources and infrastructure, minimizing costs of operation and maximum economy of expenditure. However, the European practice of running a hybrid market (government as monpsonic buyer but private sector as supplier of health care services) has its appeal in America primarily for its universality of coverage and relatively sound economics. It is perhaps this option that would be the most politically acceptable solution that would sustain the broad convergence of streams of opinion to introduce universal health care. The IAD Framework According to Ostrom (1999, p. 41) the first step in analyzing a problem is to identify a conceptual unit, which she calls the action arena to “analyze, predict and explain behavior within institutional arrangements”. The action situation is a subset of the action arena and is characterized by seven clusters of variables, viz. (1) participants, (2) positions, (3) outcomes, (4) action-outcome linkages, (5) the control that participants exercise, (6) information and )7) the costs and benefits assigned to outcomes. Thus the action arena “refers to the social space where individuals interact, exchange goods and services, solve problems, dominate one another or fight” (Ostrom, 1999, p.43). Obviously, such interaction of individuals is governed by sets of rules, the operating environment and the structure of the community. The interaction of
  29. 29. 28 individuals is also based upon the level of information available to them on an issue at any time. Limited information and information-processing capabilities of humans ensure that decisions with the highest return are not always taken, rather such decisions come by experience and more information that leads to what Schattschneider called “the mobilization of bias”. Given the multiplicity of actors with high financial and political stakes in the health services sector in America, the action arena and the situation leading up to possible reforms in 2008 and beyond, the action arena would be the dependent variable and independent variables for comprehensive health care reform would center on new legislation and institutional structures arising therefrom. Therefore this paper examines the implementation of legislation only at the macro institutional level. The Implementation Model Since this paper is of a prescriptive and futuristic nature, the implementation model of analysis proposed and followed in this paper is shown in the diagram in Annexure-C of this paper. Action Situation - The New Order Having discussed the background, the groundswell of opinion in favor and the need for universal health coverage, I will now outline my proposal for what I believe would be a paradigmatic shift to a New Order – universal health care. The New Order would redefine the limits of the presently unregulated health care market by consolidating the major players, viz. implementing government agencies and the private health care industry. Incremental legislation would authorize the merger of Medicare, Medicaid, Veteran Affairs and all other state and local government health care agencies and their replacement by a single Universal Health Care Agency for each state (and for federal the HCFA could be converted to the UHCA, limited to their own employees and coordination, etc.) as a part of prescribing position and scope rules. Repeal of the restrictive provisions of the Employees Retirement Income Security Act that would shift the onus for implementing universal health coverage from the federal to the state
  30. 30. 29 governments and consolidate the implementing agencies as part of prescribing the entry rules. All these state agencies would conform to rules to be formulated by the Federal Department of Health which would also decide on budgetary allocations to each state on the basis of population. The federal department would also draw up a standard basic health care plan (with no co pay or out-of-pocket expenses and deductibles). The Agencies would group people on a geographically contiguous basis in groups of 75,000-100,000 or more and no individual consent would be required. With market competition having been preserved, a major source of conflict with the HMO/PPO industry would be avoided. The HMOs/PPOs could offer a limited range of plans with the consumer left to choose from amongst them. For the HMOs the risk would be more evenly spread out in the population that would lead to appreciable decline in insurance premia, apart from volumetric discounting of premia. Such an arrangement would also alter “the relationship between insurance companies and service providers, allowing a negotiation approach to cost containment strategies” (Diamond, 1992, p.1240). This would also cause a decline in administrative costs. A Congressional Budget Office report (1991) cites a Hay-Huggins Company estimate relating administration expenses to benefit costs for different employee groups and stated that while for groups of size 1-4 the ratio was 40 per cent, for groups of 10,000 or more it declined to 5.5 per cent. The problem of guaranteed renewability of policies too would not arise since the market would remain stable with individuals not switching insurance companies frequently. The pooling of risk over a large population would also aid stability of the market. The need for individual medical examination would be obviated and lead to further reduction in administrative costs. At the same time this system would afford a standardized though limited choice to individuals and assure a satisfactory level of universal coverage. For those in higher income groups the same insurance company may provide add-on options that would be paid for by subscribers without any tax benefit. However, such subscribers would be mandated not to buy insurance from other companies. Based upon competitive bidding, HMOs/PPOs would be identified and allocated to pre-defined
  31. 31. 30 geographical areas of a state so as not to allow a preponderance of a single insurer in any state as part of the new entry rules. Thereafter the state agency would pay the HMOs/PPOs directly for the premia to insure all its residents. Thus prescription of rules of entry, authority and aggregation would establish a competitive managed though primarily monopsonic market. Keeping in view the equity and fairness of such a system the level of conflict would be minimized that would make passing of the enabling legislation easier. At the state level a Board of Directors may be constituted to administer the State Fund with the State Universal Health Care Agency forming its permanent establishment. The composition of this Board would also include a representative each from the public, pharmaceutical manufacturers and service providers, not to exceed 10 in total number of members. This Board would also negotiate prices with pharmaceutical and other supplies manufacturers and place caps on maximum charges of service providers including physicians. State agencies may be extended the benefit of prices of the Federal Supply Schedule, Restricted Federal Supply Schedule, Big4 Prices program run by the Veterans Administration and National Contract prices. In order to ensure fair play in the market, each state would appoint a statutory regulator and an ombudsman and tribunals to adjudicate in dispute between PHIs, service providers and beneficiaries as part of the payoff rules. Financial Arrangements for the New Order The base for all calculations remains the present level of expenditure of health care of 15-16 per cent of GDP per annum from where I have attempted to create the superstructure of a model structure for the future. The broad ratio of sources of funds would be government budgetary support (including states and local govts.) $750 billion, UHC business tax $750 billion, $250 billion from individual contributions and $250 billion saved from waste and economies of scale of the New Order, making for a total of $ 2 trillion, the same level as that of 2006. In 2004, the federal and state
  32. 32. 31 governments spent $847.3 billion on health care, $85.7 billion was spent on capital investment and $39 billion on research while PHI premia and out-of pocket expenses totaled $903.36 billion. Therefore the figures that have been proposed for the New Order are in tune with such trends published by CMS (National Health Accounts, Fig. 9, Tables 120 &124, 2004). Employers and small businesses would no longer have to pay PHI premia for employees; instead the Federal government would constitute the Universal Health Care Fund into which all employers and businesses would be mandated to deposit 5 per cent of their gross annual turnover as UHC tax (small businesses employing less than 75 workers would have to pay 2 per cent), irrespective of their employee strength (above 75 employees). The self-employed would similarly be mandated to deposit 10 per cent of the HMO/PPO premia paid by them up to 31st December 2008 with a 10 per cent escalation annually thereafter. The employed would similarly pay 10 per cent of the new premia (that would be be substantially lower than present levels) as part of personal income tax. These deposits may be collected by the IRS as part of corporate/personal income tax and then re-appropriated back to the Federal fund for disbursement to the state agencies. No income tax deductibles would be available for such payments on the logic of there being no co-pay, deductibles and out-of-pocket expenses in the new system. States would similarly constitute their own Funds with their self-allocated moneys and also to receive budget allocations from the federal Fund. In addition, a 5 per cent tax surcharge (as a percentage of the existing sales tax) would be imposed on all share market transfers, animal and vehicle racing, gambling, escort services, alcohol and tobacco products, etc. Of the total funds thus received by the Federal Agency annually plus federal and state government budgetary support, 60 per cent would be devoted to universal health insurance coverage and 10 per cent each to R&D (and capital investment), medical education assistance, administrative costs and public awareness (and related wellness programs) to improve the quality of health care. Of these moneys, expenditure on
  33. 33. 32 HMOs/PPOs would be around $1.25 trillion (assuming per capita per annum premium of $4,000 for a 300 million population) while $150 billion each for R&D, capital investment and administrative costs, medical education assistance and public health awareness programs. Although nearly $2 trillion has been spent on health care in 2006, the above break-up is close to the same figure but qualitatively much better and would provide better coverage. To support capital investment in health care, 50 per cent bank interest subsidy to agencies that make capital investments in medical equipment, hospitals, etc. would be allowed. Similarly, financial incentives for pursuing education in medicine would be limited to the reimbursement of 50 per cent of the interest charged by banks on student loans to banks, in exchange for which the banks would charge a correspondingly lower rate of interest from the loanee. The state agencies would process and pay these claims directly to the banks. A Federal Health Care Regulatory Authority would be established to introduce state control in the new system. However, to offset criticism of such a move being harmful to R&D efforts, a Federal Health Care R&D Fund may be established with 10 per cent of the total annual collections above that would assist the industry in R&D efforts by providing grants to researchers and manufacturers, subject to annual review by an independent group of observers to be nominated by the Federal government. This would also obviate loan administration by government. By tying down premia costs and placing caps on health care professional charges, yet by providing for add-on insurance options, the new order would make demand more price sensitive that, in turn, may provide an increased incentive for R&D on less expensive substitutes for medical treatment and technology. At the same time, this Fund would substantially reduce criticism from pharmaceutical and equipment manufacturers about high prices of drugs being essential to support R&D activity. This set of entry rules for the industry would also deprive it of reason for raising drug prices arbitrarily in future.
  34. 34. 33 However, this may be the most difficult part of implementing the new order since the economic stakes are perhaps the highest and most concentrated and pricing least transparent in this segment of the industry. It would therefore be this segment that would attempt reruns of Harry and Louise advertisements, damaging media coverage and try to influence the Congressional Committees and sub-Committees by means foul and fair. As stated elsewhere in this paper, the fragmented nature of polity in America compounded by a relatively weak party structure and a President whose party may or may not command a political majority in Congress (even if this majority is available it is not a well-knit one) would work to the advantage of the industry. The intensity of conflict here would be the sharpest and bitterest. The Rationale of the New Order “Rules are shared understandings among those involved that refer to enforced prescriptions about what actions (or states of the world) are required, prohibited or permitted. All rules are the result of implicit or explicit efforts to achieve order and predictability among humans by creating classes of persons (positions) that are then required, permitted or forbidden to take classes of actions in relation to required , permitted or forbidden states of the world” (Ostrom, 1999, p. 30). Applied to a state or political system this implies the observance of legislative, constitutional and administrative law that demand and receive compliance. Thus a series of interlocking legislation would prescribe the rules or laws that are to be followed for implementing universal health care. These rules or laws would then structure the complex action arena In rationalizing the market by accepting a single-payer norm and pitching large state agencies against service providers and pharmaceutical manufacturers (saving indirect costs such as publicity, legal costs, etc.), apart from ensuring a level playing field for all service providers, this legislation would create a hybrid market that would be evenly balanced in terms of negotiating capabilities and capacities and be largely self- regulating. By simplifying the corporate and personal income taxation process,
  35. 35. 34 introducing a single-window collection and assessment point for health care funds and substantially reducing administrative costs both in state and federal IRS tax collection and assessment systems, this legislation would make governance relatively simpler and less expensive. Thus the establishment of the Federal and States’ Universal Health Care Agencies would not only prescribe their position rules but also structure their authority rules. The Federal Drug Regulatory Authority on the basis of its legislative mandate that would determine its position rules, would continuously monitor information flowing to it from the industry, market and consumers and impose sanctions wherever required in terms of the payoff rules prescribed by the legislature. Sanction rules could be modified if the feedback shows the system is excessively restrictive or liberal. Similarly, the State and Federal Funds in exercise of their scope and authority rules determine the eligibility of private agencies preferring R&D and capital investment subsidy claims. R&D subsidies, capital investment interest subsidies and wellness program costs would include screening equipment for influenza vaccine, pneumococcal vaccination, and breast, cervical and colorectal cancers. A study has also estimated that an additional $147 billion per annum could be saved by reduced incidence of disease attributed to long-term prevention and management and reduced acute care due to disease management and assuming 100 per cent participation, i.e. covering the entire affected population. The same study has also estimated that by adoption of Health Information Technology (HIT) at 90 per cent adoption level may save another more than $ 77 billion per annum of which $ 23 billion would accrue to Medicare while Medicaid would benefit by $31 billion against an estimated capital investment of $28 billion per annum over a decade long deployment period (Hillestad, et al, 2005, p.1103-15). Capital equipment interest subsidies to care giving agencies to install Computerized Physician Order Entry (CPOE) systems as part of Electronic Management of Records (EMR) can be made from the capital investment subsidy allocation of the agencies.
  36. 36. 35 The scope rules having been clearly defined, the HMOs/PPOs would be have to abide by the entry rules for the new hybrid market restricting their access by way of absence of monopoly in a single state or across states. They would also have to rejig their portfolio of services to conform to the entry rules. Similarly, consumers would be restricted to the ceiling limit of their insurance policy and have no additional tax rebates in purchasing supplementary insurance. While the Federal Drug Pricing Authority would enforce the scope rules, yet the entry rules would permit it to pay R&D subsidies to the pharmaceutical industry. This order would provide universal health coverage to the entire US population with a single and portable all-America insurance cover and minimal administrative cost to governments. Competition within the private sector for providing medical services would intensify with no HMO/PPO able to corner any state to itself bringing down premia substantially and augmenting extent of coverage. Duplication of administrative functions in HMOs/PPOs (caused by multiplicity of insurance plans) and in government agencies like Medicare and VA would be minimized and save around $ 300 billion per annum (incremental benefit). Policy Models & Future Research This paper, with its limited research primarily on account of length restrictions, has attempted a futuristic policy model that although is grounded in the current debate and environment, looks to the future and proposes the blueprint of a policy that meets the ends of equity and distributive justice. Although conflict is endemic to policy change, yet such conflict restructures and/or creates new intermediary institutions that would direct government attention to the achievement and maintenance of a state of near equilibrium. It would therefore be useful to devote scholarly effort to creating policy situation models and derive variables for each sub-part of a scenario. Analytical tools may include sophisticated statistical tools or event history analysis. Policy modeling need not always involve complex tools; the need is to project a vision of the future that, by its very nature, would be normative but grounded in current events and not in the distant
  37. 37. 36 past. Hannah Arendt stated that “Predictions of the future are never anything but projections of present automatic processes and procedures, that is, of occurrences that are likely to come to pass if men do not act and if nothing unexpected happens (emphasis mine); every action, for better or worse, and every accident necessarily destroys the whole pattern in whose frame the prediction moves and where it finds its evidence.” What if men were to act and unexpected things happen? The tendency to analyze the past as a guide for the future may be self-defeating in many cases. History does not necessarily repeat itself, particularly in contemporary times with its emphasis on technology, education and awareness. Even a relatively small change in the environment can produce large-scale systemic change and vice-versa. Prediction by way of creating models and scenarios on a sub-sector basis may therefore be a good place to start for policy researchers. Scenario creation may involve simulation and economic techniques based on data, a large part of which is already available in Federal government published reports. Thus census data can be manipulated to create geographically contiguous groups of beneficiaries or by income, sex or age against the dependent variable of insurance premia pricing. Similarly, published data from the Securities and Exchanges Commission and company accounts can be used in a time series study to determine the effect of universal health care on companies’ profitability, executive income, new formulations, R&D effort, advertising, stock prices, market capitalization, etc. Equally, quality of life parameters periodically published by CMS and the US Bureau of Census can be compared internationally with published OECD and WHO statistics and controlled by sex, religion, race, etc.. The impact of educational loan interest subsidy on the numbers of physicians and paramedics vis-à-vis the OECD and other countries and their impact on overall health parameters may be another sub-area worthy of prediction. Ultimately, scenario creation and modeling would form a much more useful basis for policy formulation/reformulation. Although such analysis, like all other, may not be entirely free of errors of judgment or researcher
  38. 38. 37 biases or political affiliations, yet such methods would bring policy research closer to policy making for the future. Conclusion On November 19, 1945, President Harry S. Truman addressed the United States Congress proposing a new national health care program. In his speech, Truman argued that the federal government should play a role in health care, saying "The health of American children, like their education, should be recognized as a definite public responsibility." One of the chief aims of President Truman's plan was to insure that all communities, regardless of their size or income level, had access to doctors and hospitals. Medicare which "all started really with the man from Independence" (President Lyndon B. Johnson) on July 30, 1965 (Truman Presidential Museum & Library, 2007), took two decades to be translated into reality. Truman’s analysis of the situation and the opposition to this proposal in the politically surcharged era bears an uncanny resemblance to the current scenario. Truman said in 1948, “We have met everything else in this mechanical age. Now let us see if we can't make the greatest machine--the machine that God made - work as he intended it.” (Truman Presidential Museum & Library, 2007). Favorable circumstances may, after six decades, finally propel universal health care into all American homes as a matter of right than privilege and income, finally translate Truman’s dream into reality as also make for closer friends of politics and economics at both political and academic levels.
  39. 39. 38 ANNEXURE –A STATEMENT SHOWING COMPARATIVE HEALTH CARE STATISTICS BETWEEN DEVELOPED COUNTRIES AND THE UNITED STATES Country HALE1 HALE Physicians/ Nurses/ Hospital Health Govt. Per (Male) (Female) 1000 1000 beds exp. as exp. As capita pop. pop. /1000 %age %age of exp. pop. of tot. exp. (intl. $ GDP rate) Australia 70.85 74.32 2.47 9.71 39.89 9.50 17.7 2874 Austria 69.28 73.55 3.38 9.38 83 7.50 10 2306 Belgium 68.93 73.32 4.49 5.83 68 9.40 67.20 2828 Canada 70.06 74 2.14 9.95 36 9.90 16.70 2989 Denmark 68.55 71.14 2.93 10.36 40 9.00 13.50 3534 Finland 68.67 73.51 3.16 14.33 69 7.40 76.50 2307 France 69.32 74.73 3.37 7.24 76 10.10 76.30 2902 Germany 69.64 74 3.37 9.72 86 11.1 78.20 3001 Iceland 72.06 73.64 3.61 13.63 75 10.50 83.50 3821 Italy 70.73 74.68 4.20 5.44 41 8.4 75.1 2266 Japan 72.27 77.71 1.98 7.79 129.37 7.9 81.00 2244 Netherlands 69.74 72.59 3.15 13.73 46 9.8 62.40 2987 New Zealand 69.48 72.19 2.37 8.16 59.92 8.1 78.3 1893 Norway 70.41 73.58 3.13 14.85 43 10.30 83.70 3809 Sweden 71.87 74.77 3.28 10.24 30 9.40 85.20 2704 Switzerland 71.08 75.25 3.61 10.75 59 11.50 58.50 5035 UK 69.14 72.09 2.30 12.12 40 8.00 85.70 2389 USA 67.22 71.30 2.56 9.37 33 15.2 44.60 5711 Source: Health Statistics (2005) World Health Organization, Geneva 1 Healthy Life Expectancy
  40. 40. 39 ANNEXURE- B THE MULTIPLE STREAMS APPROACH FOR UNIVERSAL HEALTH CARE FRAMEWORK ADOPTED FOR THIS PAPER Issue emergence Agenda Setting Alternative Selection • Rising insurance costs • Increasing profitability of • Incremental reform by insurers and drug majors extending tax credit system • Rising business costs • Limited FDA approvals for new • Series of incremental reform • Increasing employer drugs reluctance to provide leading to large scale reform • Patent Extensions through universal health health insurance • Large price disparities between coverage • Rising no. of uninsured VA and • State sponsored and operated • Rising no. of HMO/Medicare/Medicaid underinsured • State sponsored and private • Ineffectiveness of enforcement sector operated • Rising family debts by public agencies • • Regulatory or Facilitative • Rapid increase of premia Malpractices by HMOs & drug and drug prices manufacturers • Decline in quality of • Rising administration costs F • Convergence of policy, political health care and healthy E life parameters and problem streams • Rising demand for universal E PUNCTUATED EQUILIBRIUM MULTIPLE STREAMS health coverage D & ACTION ARENA (IAD) B A Evaluation Implementation Enactment C K • Rule configurations • Entry and Exit rules • Legislation • Financial Audit • Position Rules • Regulatory-Coord. Agencies • Technical Inspection • Scope rules • States as UHC program managers • Regulatory • Authority Rules • Federal govt. as collector of authority • Aggregation Rules revenues and facilitator • SEC for • Information Rules • Administrative reorganization of companies • Payoff Rules state health care agencies COMMON POOL/IAD ACTION SITUATION & COMMON POOL/IAD FEEDBACK
  41. 41. 40 ANNEXURE –C UHC IMPLEMENTATION MODEL ADOPTED FOR THIS PAPER AND DERIVED FROM IAD FRAMEWORK POLITICAL, POLICY AND PROBLEM STREAMS OBJECTIVES OF LEGISLATION ACTION ARENA INTEREST GROUPS • Universal health care THE ACTORS • Pharmaceutical mfrs. • Policy communities • PPOs & HMOs • Mandatory participation for all • Policy entrepreneurs • FDA & SEC • Congress • US Dept. of Health, CMS,CDC • Hybrid monopsonic market • The Presidency • Consumer rights nonprofits • Private health care industry • Political Parties preserved • The Civil Service • Merger of Medicare, Medicaid, NEGOTIATION/CONFLICT VA and local govt. health depts • Basic health care plan + add- OUTCOME/EQUILIBRIUM ons • SERIES OF RELATED INCREMENTAL REFORM • PHI by geographically ACTION SITUATION LEGISLATION LEADING TO contiguous communities EQUILIBRIUM AGAIN • Creation of R&D Fund THE VENUES • MAINTENANCE OF EQUILIBRIUM • MEDIA THROUGH NEW STATE • Rep eal of ERISA INSTITUTIONS • COMMITTEES & • Medical education assistance SUBCOMMITTEES OF CONGRESS • Capital investment assistance • CIVIL SERVICE • CMS • Withdrawal of all tax credits and exemptions • US DEPT. OF HEALTH IMPLEMENTATION • STATE LEGISLATURES & • RULE CONFIGURATIONS • Stoppage of all employer COMMITTEES • FEEDBACK LOOP FOR contributions for PHI • POLITICAL PARTY HQs RULES MODIFICATION NEGOTIATION/CONFLICT • EVALUATION CONFLICT & NEGOTIATION Feedback Feedback

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