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The Maynard Doctrine: the challenges of healthcare reform in the USA

The US healthcare system is fragmented and expensive, costing twice as much per capita as the NHS and consuming nearly 16 per cent of a much larger national income.

If you are elderly or disabled, you can get a reasonable package of healthcare benefits from Medicare, which is federally funded. If you have fought for US armed forces, you are eligible for benefits from the Veterans Administration which is also federally funded and an efficient mini-NHS.

Medicaid health care benefits for some of the poor vary from state to state, depending on the generosity of the local legislators and their voters. Thus Medicaid in Arizona is parsimonious and restrictive, whilst in Massachusetts there is universal cover.

Medicare and Medicaid together cover twenty two per cent of the population; and this funding (together with the tax breaks for employer-based insurance) results in over forty cents in the US healthcare dollar being funded by federal and state governments.

About fifty-five per cent of the population acquire benefits from the insurance programmes to which they are given by their employers. The contributions made to employer-based insurance programmes are in lieu of higher wages. Coverage is incomplete in these programmes in terms of people (e.g. family members) and the services which are covered. Employees typically have to note carefully the services exempt from cover and the co-payments that restrict and make expensive their access to care.

The notion that US employees choose their insurer is of course nonsense. Employers offer the package of insurance that they can afford and choice for the employee is usually non-existent. Benefits can evaporate if the employer goes bankrupt.

Forty-six million Americans have no insurance cover. Many millions more are under-insured by their Government and insurance programmes.

10% annual cost inflation in US healthcare

In addition to this fragmentation and expense, the system is chronically inflationary. Aon Consulting recently estimated that healthcare inflation in the USA will be ten per cent in 2009. A major cause of inflation is the payment systems for doctors and hospitals.

The US healthcare systems still rely on payment for activity as the basis of funding. Thus doctors are paid fees for service, and hospitals levy fees for services given to patients. Both systems, together with advertising costs, result in very high administrative costs of up to thirty cents in the healthcare dollar.

Provider fees vary depending on who the patient is and what their healthcare plan pays. It is not unusual for hospital managers to charge fifty or sixty different tariffs for the same procedure. For instance: Medicare and Medicaid may negotiate prices for their beneficiaries which are very different from the fees levied on insurers. If the latter send few patients to the hospital, they may pay more than an insurer who sends many.

Also astonishing for UK citizens is the fate of the poor, who typically pay more. The poor are a challenge for the hospital manager: he knows that some significant proportion of them - even after pursuit through the courts and seizure of their assets - will be unable to meet the cost of care.

Robin Hood healthcare in reverse

How can such losses be mitigated? The solution is to charge the poor more; so that those who pay compensate the hospital for those poor patients who fail to pay. US providers rob poor Paul to pay for other poor Pauls, whereas in the NHS we try to rob rich Peter to pay for poor Paul’s health care!

Paying for activity with fees for service for doctors and “diagnostic related groups” (DRGs), which in England we call “payment by results”, encourages activity. It is impossible to determine whether this activity is appropriate or efficient, since US heathcare’s outcome measurement is as primitive as what we have in the NHS.

However the activity data from these systems does show enormous variations in what is done to patients of similar need and personal characteristics. For instance, it has been estimated that there is a sixty per cent variation in the volume of care provide for similar Medicare patients. If the conservative practices of the low activity areas were universal across the US, it has been estimated that Medicare expenditure could be cut by thirty per cent without detrimental effect for the patient.

'incentives ... are double-edged swords that can bring benefits and costs to taxpayers and patients'

The not-so-bad NHS

Most British students of the US healthcare systems would conclude that the NHS is not so bad after all. Both systems need to invest in outcome measurement to illuminate whether spending billions on healthcare in the UK and trillions on it in the USA improves population health efficiently. Both systems should be cautious in their use of incentives: these are double-edged swords that can bring benefits and costs to taxpayers and patients.

Ultimately, national choices of healthcare systems reflect social preferences crudely. The Americans fear national health insurance since they regard the state with greater caution than the British, who still see it as the means by which the population can be best served (albeit imperfectly) with equitable access to healthcare. Both systems create enormous sound and fury about the performance of their systems and the ways they fail to serve well the interests of patients and payers. We continue to be able to learn from each others mistakes and occasional triumphs!