What is really at stake in the health care debate: an ongoing series

You wouldn't know it from the swastikas and the shouting, but there really are genuine issues at stake in the American health care debate. Because of all the noise, and because of fundamental misunderstandings on both sides, many of the most important issues have not even been discussed. Over the next few weeks, I will expose some misconceptions on both sides, and try to provide some direction for people who are genuinely interested in debating the merits of reform. I expect both liberals and conservatives to disagree with some of what I have to say. I suppose these days, that is about as much as one can hope for as proof of one's credibility.

This week, because it is still hot, I take up the comparisons that have been made between any possible American health care reform involving increased government intervention, and the National Health Service in Britain.

* Misconception 1: The introduction of national health insurance (sometimes referred to as “single payer”), even if that were the true agenda of the Obama administration by introducing a “public option,” would make the American health care system similar to the British NHS.

This is dead wrong, and stems from a misunderstanding of the difference between a national health service, and national health insurance. More generally, the problem is a lack of understanding, or interest, in the basic structure of health systems.

The difference between the two types of health system are, at base, rather simple. We can think of the health system as divided into two major parts: financing and provision. Financing means who pays for health care and how. Provision means who delivers health care and how. These two parts may be either public or private. What does that mean? Private financing means that I, as a private citizen, go to the clinic and pay for my care. If I am somewhat averse to taking risks, I may buy an insurance policy so that I do not have to pay as much out of pocket when I go. Either way, as long as the insurance is sold to me by a private company, these two situations involve private finance. The alternative is public finance. Again, there are various options. Perhaps the simplest is that the government taxes me and then provides me with public insurance. Except for the fact that we are taxed first and provided care later, this is not a bad description of how Medicare works. It is publicly financed.

However, while Medicare is publicly financed, it is privately provided. This is an absolutely critical distinction. Provision may be, as finance is, either public or private. Private provision means that when you go to the doctor, you go to someone who is working in private practice, or for a private hospital, or at a private clinic. Private does not necessarily mean for-profit; the key is that the physician is not an employee of the government. In a publicly provided system, of course, the physician is an employee of the government. To repeat, Medicare is a public insurance plan which is publicly financed, but it provides access to private doctors, meaning it is privately provided.

If we were to interpret Obama's “public option” as an attempt to dominate the insurance market, in spite of his claims to the contrary (an issue I will take up later), the result would still be a system that looked like national Medicare, in which private doctors were paid by public insurers. This is similar to how health care is provided in France, but it is not similar to how health care is provided in Britain. In Britain, there is a national health service, meaning that the financing and the provision are public, and doctors are employees of the state. This is pretty close to socialized medicine (almost: see future posts on the role of private finance even in government-run systems), but it is not plausible that anything in the current bills in front of Congress would lead to this result. In order for this to happen, the government would not only have to eat up all the private insurance plans, it would also have to take over all of the private clinics and hospitals in the United States. No one in the United States has ever really proposed this, and there is nothing in any existing bill that would make it possible.

Thus the view that health reform could turn the U.S. into Britain is completely false. The remaining question is whether the health reform could turn the United States into France, and what that would mean. I take this up in a future post. For now, I would just note that, by many international rankings, France has the best health care in the world. Arguably, this is precisely because of its mix of public financing with private provision. Many economists would argue that public finance with private provision gives us the best of both worlds: public finance means that the system is more equitable, since the poor are not excluded, while private provision means that the system is more efficient, since there is competition and choice. I will return to these issues in subsequent posts.