CHAPTER 16 Medicine and InequalityThis chapter discusses finance of medical care in the United States. It discusses the history of medicalfinance in America and Canada. Its essential question for discussion is: should a just American societycreate a medical system to guarantee minimal care to all citizens?MEDICAL FINANCERosalyn Schwartz Rosalyn Schwartz, age 47, white, lives in Ridgefield, New Jersey, and has a son, Andy.When she divorced in 1987, she lost the medical coverage from her hus- bandâs job. 1 The gift-wrapcompany where she works with five other employees (making around $19,000 a year) provides no medicalcoverage, though it might do so soon.When Rosalyn tried to buy an individual policy, because she had an ulcer, a preexisting condition ,insurance companies offered her only policies that excluded treatment for ulcers and that cost $4,000 ayear. In 1988, she found a small lump in her breast. Her physician said it might be cancerous andrecommended removal, but Rosalyn postponed the lumpectomy, hoping that her employer would soonprovide coverage. In 1989, Rosalyn felt pain tear through her hip. By then her breast cancer hadmetastasized and had eaten into her hip, making her bones as fragile as glass. When she slipped and fell tothe floor, her hip socket shattered. In the ambulance, she sobbed and could think only of costs. âAndy,â shesaid. âI have no insurance. Tell them [at the hospital] I have no insurance. But youâve just turned 18. Donâtsign anything or youâll be responsible.âSome cancers are cells gone wild, so they must be excised and radiated as soon as possible. If such cancersreach the bone, itâs bad. Hospitalized for 23 days, Rosalyn underwent three surgeries. The total cost was$40,000, half paid by charity. Rosalyn owed the rest, which she paid off at $10 a month to each of 12physicians and the hospital. Unable to work after her surgery, Rosalyn received disability under Medicareamounting to $10,500 a year. Attempting now to purchase personal medical cov- erage, she discovered itwould still cost her $4,000 a year, but it would not cover ulcers or cancer. Lacking such insurance, sheforewent physical therapy, as well as bone scans every six months to check whether the cancer hadreturned. A decade later, Rosalyn died. 2 Such is the life of one middle-aged working American womanwho got sick and, after her divorce, had no medical coverage. 3 In 2008, filmmaker Michael Moore madeâSicko,â a devastating, funny cri- tique of the various ways our patchwork system of insurance seeks toprofit by denying coverage and by excluding benefits for sick people who need them (this film can beeasily rented; parts of it are available on YouTube).Medical Coverage in the United States Universal medical coverage supports basic medical care for allcitizens in a nation. One form is a single-payer system administered by one organization, usually agovernmental agency, and funded by taxes. Most European countries provide single-payer, universalmedical coverage, including Austria, Belgium, Denmark, Finland, France, Germany, the Netherlands,Norway, Portugal, Spain, Sweden, and the United Kingdom. So do Australia, Canada, Cuba, Japan, NewZealand, South Africa, and Taiwan. America differs from other developed countries in having highexpenditures per capita on medical care, yet not providing coverage for one-sixth of its citizens. TheInstitute of Medicine estimates that this gap leads to unnecessary deaths each year of 18,000 Americans. 4Another form of universal medical coverage is mandated multi-plan coverage where every citizen mustpurchase some form of medical coverage, either from a private or public plan, and all plans work undersome governmental regulations. This is also called a play-or-pay program ; its name comes from focusingon options for small employers, who must either play by offering medical insurance or pay a fine peremployee for not doing so.Massachusetts and Vermont recently led the way toward universal coverage. Their programs compromisedbetween the right, which had pushed medical sav- ings accounts, and the left, which had pushed agovernment-managed, single-payer system like Canadaâs. They required every citizen to have healthinsurance. Begin- ning in 2008, each citizen who filed a tax return had to indicate if he had healthinsurance; if he did not, he had to pay $129 extra in taxes. Insurers who did business in these states had toturn over lists of their clients to the state health department. 5Americanâs Patchwork System of Medical Finance Because America lacks one unified system of medicalfinance, explaining how the countryâs finance works is complex. America essentially has stumbled into afive- part patchwork system that covers most serious problems for most people most of the time, but whichstill allows some people to fall through the cracks. The section that follows describes these six parts. 1.Employment-Based Coverage and Private Medical Plans About half of Americans get medical coveragethough their employment. 6 This includes their spouses and children (including adult children up to theirmid-20s). Coverage in retirement varies according to the largesse of the employeeâs former employer.As a benefit to employees, employers provide medical coverage. Employers with many employees cannegotiate lower rates than employers with few workers because larger numbers spread the costs of illnessover more people. Because of their discounts, large employers usually offer the best medical plans. SinceWorld War II, private insurance plans have multiplied to over 300, each with its own rules, qualifications,reimbursement rates, and forms to be filled out by patients and physicians. 7 For the average physician, twofull-time clerks deal exclusively with billing and insurance. One disadvantage of employer-based coveragecomes with small employers. As said, employers with fewer than 25 employees pay the highest rates. Smallbusinesses trying to allocate capital for expansion, or struggling to make profits, or that cannot obtaininexpensive coverage, often cease to provide medical cover- age to employees.A second disadvantage of an employment-based plan is that when workers leave jobs, medical coverageeventually ceases. In 1985, Congress passed COBRA, 8 allowing employees to continue medical insuranceat group rates for 18 months by paying their share plus the employerâs share of their former premiums.COBRA also covers spouses after divorce and also covers adult children. 9 Even with COBRA, manyemployees cannot afford to continue their coverage because (like Rosalyn Schwartz, who was eligible) theymust now bear all this cost themselves, including the employerâs former share, which may have been ashigh (for Ameri- can auto workers) as 95 percent of the policy.In 1996, the federal Health Insurance Privacy and Portability Act (HIPPA ) required portability (i.e.,transferability) for workers between similar plans and banned excluding preexisting conditions in suchtransfers (without this ban, workers with any medical problem would be trapped in their existing job). Athird disadvantage of employer plans is cost shifting. American hospitals are not reimbursed for providingmedical care to the poor, but federal law for- bids them from turning patients away in emergency roomsbecause of inability to pay. To compensate for losses from this care, hospitals shift costs and charge morefor services for insured patients. Large employers resent such cost shifting, because it forces them, but notsmall employers, to subsidize the indigent. For this reason, large employers favored universal coverage inOregon, Vermont, and Massachusetts. A fourth disadvantage of employer-plans is that American employersclaim the cost of insuring their employees is too high. In 1990, over $675 of the cost of each new Fordvehicle went to pay for medical coverage for employees. 10 Fordâs retired employees had such generouscoverage, with neither co-pays nor deductibles, that Ford and GM could not compete with foreign carcompanies. 11 In 2008, the huge financial burden of medical coverage for their employees and retireeshelped cause the collapse of American automobile companies. Because of such high costs, some bigemployers (like many universities) created a two-class system with regular employees with salaries andgood benefits versus part-time employees with no benefits.A fifth disadvantage of the employment-based system occurs when illness or injury dislodges workers intochronic unemployment. Many people became poorbecause of medical conditions (cancer, schizophrenia, car accident) that then made them less desirable toemployers who seek to reduce medical costs. People who are unemployed or who work for a smallcompany that offers no medical insurance may buy individual policies. About 7 percent of Americans doso, including the self-employed, seasonal workers, adult students, and people between jobs. However, asRosalyn Schwartz discovered, individual policies usu- ally are expensive and exclude just what is needed.2. Medicare When Americans reach age 65, Medicare covers about 80 percent of their expenses forhospitals and physicians. Medicare in 2005 covered 35 million Americans. Medicare is a single-payersystem run by the federal government. In creating it in 1965, Congress moved toward universal coverage.Lyndon Johnson wrangled it into law and aimed at helping poor, elderly people during illness, but Congresssoon extended it to all Americans over 65. The creation of Medicare stemmed from the evaluative premisethat healthy, young citizens should pay for the medical care of sick, elderly citizens. A related idea laybehind Johnsonâs creation of the Great Society legislation of the 1960s, which created Head Start, foodstamps, VISTA, and Aid to Families with Dependent Children (AFDC).Medicare gave the elderly a medical security they had never previously known. Before, many elderlyAmericans worried whether they could afford phy- sicians and hospitalization. Before, retired workers wereon their own for medical coverage. Before, entering a hospital terrified the elderly for both medical andfinancial reasons. Medicare also covers about four million people with disabilities under age 65, plus ahundred thousand people on dialysis under the End-Stage Renal Disease Act (ESRDA). The Medicareprogram in 2009 covered about 40 million Americans. 12 Medicare is financed from mandatory payrolltaxesâindicated on paycheck stubs as FICA (Federal Insurance Corporation of America). Medicare in2005 cost $265 billion. 13 In 2006, a Republican Congress under George W. Bush surprised its critics byexpanding Medicare to cover costs of drugs for seniors in both sides of a âdonutâs hole,â i.e., some initialcosts, then a big gap, then all costs after the end of that gap.3. Medicaid A third arm of American health care is Medicaid, which also began in 1965 as part ofJohnsonâs Great Society legislation. As a state program covering medical services, each state funds itdifferently, but federal matching funds guide each stateâs efforts and enforce national guidelines. All stateMedicaid plans costs state taxpayers $35 billion in 1993, but these costs escalated over the next 20 years.14 âEntitlementsâ or âmandatesâ for medical services are the fastest growing part of state and federalbudgets, and unless brought under control, they are predicted towreak havoc on budgets, starting in 2010. Already in 2009, the recession forced state governments tochoose between hospitals and prisons, schools and vaccinations. Medicaid covers medical expenses onlyfor poor people, especially those on public assistance, children of poor parents, poor seniors, people withdisabilities, and adults with mental illness. So Medic aid aids the poor, whereas Medi care cares for theelderly. Eligibility for Medicaid varies with each state. A citizen could qualify for Medicaid coverage with amuch higher income in California than in Alabama. In New York in 2005, a single parent with two childrencould not have resources more than $6,000 or income more than $1,000 a month and qualify for Medicaid.What Medicaid covers also varies from state to state. Over the last two decades, MediCal, MassHealth, andTennCare have covered the most services, and hence, had the most problems with their budgets. Medicaredoes not cover nursing homes and long-term care. Only Medicaid does so. To qualify for Medicaidcoverage for a nursing home, a senior citizen must exhaust all personal wealth, including sale of a personalhome. To avoid sneaking around these rules and transferring assets to adult children, Medicaid now penalizes such transfers in the five years before application for a nursing home.For people with mental illnesses such as schizophrenia, Medicaid pays for their drugs. Because most ofthese people take such drugs for life, state Medicaid plans pay a lot of money for their drugs. Like working,poor parents, people with schizophrenia face a dilemma between not working and getting their drugs freethrough Medicaid versus working a job with poor coverage for mental health and getting no drugs for theirillness. The bailout of 2008 by the federal government of American banks oddly included the MentalHealth Parity Act, requiring insurers to cover by 2010 mental illnesses in the same way as physicalillnesses. 15 This act was motivated partly to reverse incentives not to work. An especially controversialaspect of American medical finance has been coverage for illegal immigrant workers. The DeficitReduction Act of 2005 forbids Medicaid from covering services to noncitizens.4. CHIP Starting in 1997, the federal government began the State Childrenâs Health Insur- ance Program(sCHIP, where the âsâ is a placeholder for each state, e.g., UtahCHIP). Designed for those who earn toomuch to qualify for Medicaid yet are unable to cover their children through employment or privateinsurance, sCHIP works with each stateâs Medicaid program. Under it, children can obtain check-ups,prescrip- tions, dental work, and eye care, as well as services at hospitals and by physicians. The first act ofCongress under President Barack Obama in January 2009 expanded sCHIP to cover 4 million additionalchildren, up from 7 to 11 million, paid for by increasing federal taxes on cigarettes. Before sCHIP, poorworking parents faced the dilemma of going to work, losing eligibility for Medicaid, and then losing drugsand services of physicians for their children. If they became unemployed, they and their children becameeligible for Medicaid. The sCHIP program thus reverses incentives for not working.5. CHAMPUS/Tricare and the Veterans Administration Hospital System A different medical system coversmilitary personnel, their families, and veter- ans. While on active duty, members of the armed services seephysicians through CHAMPUS/Tricare, which pays for them to see military or private physicians.According to its website, âCHAMPUS is a health benefits program that cov- ers medical necessities only. Itprovides authorized in-patient and outpatient care from civilian sources, on a cost-sharing basis. Retiredmilitary people are eligible, as well as dependents of active-duty, retired, and deceased military.â 16Veterans may utilize a national system of hospitals and clinics run by the Veterans Health Administration(VHA). Founded after World War II in apprecia- tion to Americaâs veterans, the VHA is based on the moralpremise that no one who served in the armed forces should later lack medical care. The second-largestdepartment of the federal government, with a budget of more than $60 billion, the VHA employs morephysicians and nurses than any other institution in America. In recent decades, it has shed its reputation forshoddy care and has emerged as a national leader of good, efficient, electronic, medical care. 17The VHA covers veterans not only for surgery, drugs, and visits to physi- cians, but also for mental illnessand long-term care in nursing homes. The Armed Services also run their own medical schools and pay fortheir members to attend nursing and medical schools in regular programs.6. Health Care in Emergency Rooms Part of Americaâs medical system is the Emergency MedicalTreatment and Active Labor Act (EMTALA) of 1986, which forbids emergency rooms from turning awaypatients who are medically unstable. All ER patients, regardless of coverage or ability to pay, must bestabilized before they are released. This federal requirement means that emergency rooms serve as anational safety net for the uninsured and for illegal immigrants. States with large numbers of these kinds ofpatients face escalating costs for such coverage.Medical Coverage in Canada Canada has a fund for national medical coverage that functions much likeSocial Security in America. It covers every Canadian and all medically necessary services. It is alsouniversal, portable, and publicly administered through a single payer. High taxes on cigarettes, alcohol, andgasoline finance Canadaâs system. Each Canadian province sets its own policies by regulating the supply ofservices. For example, each province funds only a small number of hospitals with CT scanners andlithotripters (expensive machines that break up kidney stones with sound waves). The Canadian systembecame national in 1962. Unlike America, private insur- ers do not restrain what tests Canadian physicianscan order. Such physicians order whatever tests they want for patients and the tests are covered.It is a myth that physicians in Canada work for the government. Like American physicians, they work forthemselves and bill on a fee-for-service basis. Unlike American physicians, Canadian physicians cannotcollude to raise fees. The Canadian system for two decades has cost less than $2,000 American dol- lars percapita and covered all Canadians, whereas the American system has cost over $6,280 per capita and left 46million Americans uncovered. 18 Canadians boast about their medical system, especially when contrastedwith the American system. Why? Here are some reasons. First, Canadians live to about 80 years of life,Americans to about 77. Second, every pregnant Canadian woman gets free care, so Canada has one of thelowest infant morality rates of developed countries. In the United States, 17 percent of women experiencingchildbirth undergo not only the natural fears of birth but also the anxiety of having no medical coverage topay for their physicians or possible hospitalization. 19 Third, all Canadians can purchase affordable, longterm care in nursing homes. In the United States, virtually no one has this coverage.In one poll in 1990, only 3 percent of Canadians considered the American medical system superior to theirown. In the same poll and in contrast, nearly 30 percent thought Elvis Presley might still be alive. TheCanadian system doesnât cover everything. While paying most costs of hospitalization or physicians, itpays almost nothing for drugs or dentistry. Canadians must wait for specialized care. In Nova Scotia, onlyone lithotripter exists, so patients there wait three months for an appointment. However, most stone bustingis preventive and most kidney stones eventually drop and pass safely on their own. Surgery is available asan emergency alternative to lithotripsy. Furthermore, the only way to diminish the waiting list would be tobuy more machines at enormous expenseâeach one costs millions of dollars. Waits for specialized servicesare annoying. Because Canada limits the number of physicians in specialties, patients in Canada must waitlonger than in America between initial referral and first appointment for oncologists and ortho- pedicsurgeonsâ5.5 weeks to see an oncologist and 40 weeks to see an orthopedic surgeon. 20In 2005, Canadaâs Supreme Court struck down a crucial law that previously outlawed citizens from buying,or physicians or private insurers from selling, essential medical services. 21 That opened Pandoraâs box,and institutions such as Vancouverâs Cambie Surgery Center began to perform knee surgeries for cash,without the usual two-year wait. 22 Rich Canadian patients then flocked to private clinics and hospitals.Like America and Massachusetts (more later), Canada failed to recruit enough physicians in primary care.This will be a continuing problem for all countries with universal coverage. Some critics also want a mixedhealth care system in Canada and America, like most European countries, where citizens could go toprivate clinics for some services. Canadian officials worry that such a system would drain specialists fromits public system.Clintonâs Health Care Security Bill of 1993â1994 In 1993, President Bill Clinton proposed his Health CareSecurity Act to expand Medicare for all Americans. This act assumed two tenets: first, an employer mandate : all employers had to pay something toward medical insurance for their employees; second, formationof large managed care plans . The act assumed that such plans would compete against each other and thatsuch competition would lower costs of health care. Under managed care, a gatekeeper determines whetherpatients go forward to see a specialist or get admitted to a hospital. The gatekeeper is often a physician inprimary care, but can also be a nurse or bureaucrat for the plan. Both assumptions faced opposition. Smallbusinesses fought the employer mandate because they feared being made to pay too much (at the time,thought to be between $1,600 and $1,900 per employee). Many said that, rather than provide suchmandated medical coverage, they would not hire workers. Second, many Americans dislike managed care.They dislike gatekeepers who may deny them the medical services to which they had become accustomed.Elderly Americans especially feared being forced into managed care. They liked Medicare and wanted tokeep it as it was. Because they voted in large num- bers, politicians feared their power. Medicare has oftenbeen called by politicians the âthird railâ: touch it and you die (like the third rail of New York subways,which carries electricity).The actâs greatest financial problem was that it tried to simultaneously expand medical services and reducecosts. Not only did it hope to expand Medicare to cover 46 million uninsured Americans, it also planned toincrease the number of services covered by Medicare. Moreover, the Americans with Disabilities Actmandated other kinds of expansion. All this contradicted the idea of lowering costs. Also, as said, owners ofsmall businesses feared exorbitant taxes on them to pay for everything for everyone. After a year ofnational discussion, the act failed to get to the floor of Congress for a vote. Perhaps the greatest reason forthis failure is that President Clinton failed to clearly justify why a rich nation such as America should coverthe medical needs of all its citizens. Instead of concentrating on this question, he got bogged down indetails of how the plans would work, which soon bored most Americans.Three States Fund Universal Coverage In 1987, Oregon broadened its Medicaid plan to cover allOregonians. Under its Oregon Health Plan (OHP), all employers, even small businesses, had to offer basiccoverage by 1995 or pay a new payroll tax (âpay or playâ). Oregon did not fund some expensive medicalservices such as in vitro ferti- lization, experimental therapies for people with AIDS, heart or livertransplants, or services in intensive care units for premature babies (later, to comply with the Americanswith Disabilities Act, the OHP reversed this). Although Oregon democratically developed OHP, when theparents of 7-year- old Coby Howard learned in 1988 that OHP would not pay for a bone-marrowtransplant for his leukemia, they appealed to the news media for an excep- tion. Surprisingly, Coby died afew months later, a rare failure of the rule of rescue. In 1993, OHP had spent $84 million, but only $34million had been allocated for it; overall, it faced a predicted $1.2 billion shortfall. 23 To save money, OHPin 2003 reduced benefits and required higher deductibles and co-payments. 24 Between 2003 and 2005,two-thirds of its members lost their insurance coverage, and over three-fourths went uninsured for morethan six months. Despite a resto- ration of some coverage in 2004, many of those dropped continued toexperience problems obtaining medical care. In short, OHP proved more expensive than Oregonians couldafford. Twenty years after Oregon did so, Massachusetts and Vermont cranked up their own systems ofuniversal medical coverage. Beginning in 2008, each citizen of these states who filed a tax return had toindicate if he had health insurance. 25 In Massachusetts, the poorest residents (making under $10,000) gotaccess to medical coverage with no premiums and no d…