Customer Reviews

The Healthcare Fix: Universal Insurance for All Americans

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Book Review: The Healthcare Fix

Laurence Kotlikoff is an economics professor at Boston University. Mr. Kotlikoff thinks he's the Man with the Plan for universal healthcare in the U.S. The book he's written is a short, fast read which presents a straightforward message:

Medicare and Medicaid, because of their billing policies are bankrupting the country by feeding healthcare inflation. The fix, according to Kotlikoff is to scrap the two federal programs and replace them with universal health adjusted medical insurance vouchers. A young healthy individual would receive a small voucher say $5000 per year while an older less healthy individual would get a voucher of say $50,000 to buy a full private insurance policy.

This would incentivize private insurers to write policies for these insured as follows. If the oldser only needed $10,000 in health spending for the year the insurer profits by $40,000. OTOH if the youngster was hit with a $30,000 medical expense the insurer would take a -$25000 hit. The latter is less likely than the former. Also, the vouchers would be health history adjusted so that the older patient might get a lower voucher for having a good year.

What's attractive about Kotlikoff's fix is that the voucher system has a built in mechanism for monitoring spending, it eliminates cherry picking of patients and it's universal. However, as is the case with a short somewhat glib book Kotlikoff glosses quite a bit. He even glosses in error.

In one example he mischaracterizes Mitt Romney's role in signing a law that charges $300 per employer annually to fund health insurance for all in Massachusetts. The $300 fee was passed OVER Romney's line item veto. The main part of the bill is a punitive mandate that requires all taxpayers* acquire health insurance. Those who don't face monthly penalties enforced by Massachusetts' version of the IRS. The MA health insurance law funding comes in part from the $300 fee but mostly from shifting uncompensated healthcare funds to subsidizing premiums for poor and lower wage workers. The Massachusetts law does little to contain the soaring costs of the commonwealth's pet industry.

This kind of glossing is what troubles me about this otherwise interesting and provocative book. Kotlikoff is hardly naive about the economic and political realities facing his proposal. Libertarians don't like government programs. Healthcare professionals feel entitled to unlimited compensation. Patients want the best healthcare others' money can buy. Hospitals love their high tech profit centers. Then there are the miriad of big and small suppliers that profit from over priced products, waste and techno-churn.

America's healthcare problem is not the lack of universal healthcare. It's the lack of universal fairness in health insurance. Employer ensured workers, especially high income professionals, have their premiums paid. But they pay no taxes on this imputed income. An uninsured taxpayer showing up at the hospital had better have a bunch of high balance credit cards and be prepared for bankruptsy. Yet his taxes compensate for the lower taxes of his fortunate and better paid neighber. Kotlikoff would do away with this asymmetry and use the 'higher taxation' to help fund his scheme. One could expect Republicans to rail agaist this while Democrats knee-jerk against vouchers. He also suggests savings and thus funding could be found in reducing administrative costs in the healthcare system. Good luck on reducing hospital fat and red tape. One other loose end in Kotlikoff's plan is where do the insurer's profits go? Shareholders? High CEO pay? Into lower premiums?

Notwithstanding its holes and loose ends Kotlikoff has made a provocative case that is a must read piece of food for thought. Regardless what you think of his proposed fix, Kotlikoff is right about one thing ... Our profligate healthcare industrial complex is threatening our fiscal future.


* In Massachusetts a young tax cheat can earn buy one of the special subsidized young person's
policies which doesn't require proof of income.

Healthcare is driving America to ruin, says author Kotlikoff. Today's Medicare/Medicaid/Social Security (MMS) payment per elderly is $30, 304 - 79% of current per capita income. In 1965 it was only 28%, and by 2010 it is expected to be 83% - about 10% of GDP in total. Medicare and Medicaid represent just over half the total MMS spending, and rising. Meanwhile, 47 million, almost one in five of working age and younger) have no health insurance.

Fee-for-service payment is the primary factor in excessive MM growth. The other is the amount of treatment received. One study found 31% of Medicare participants in 1987 were treated for 5 or more conditions, accounting for half of Medicare spending; in 2002 it was over half. This treatment growth, in turn, is acerbated by poor health habits - in 1987, less than 10% of Medicare recipients were obese, it's now over 20%. Variation in Medicare spending have little impact on prolonging life, per Wennberg et al.

Managed care has helped. In 1991, 9.5% of Medicaid enrollees were in managed care, not it is 64%. The annual growth in real Medicaid expenditures/year/enrollee during 1970-90 was 5.33%; only 1.02% since the early 1990s. Unfortunately, giving Medicare participants discretion in choosing whether to join an HMO has encouraged adverse selection, with good risks joining HMOs. In turn, the meant the HMOs were overpaid since they were reimbursed the average costs of all Medicare enrollees.

U.S. healthcare is the most expensive in the world, our outcomes aren't commensurate, and overheads consume 31% of spending (vs. 17% in Canada). Kotlikoff proposes universal coverage, with each American given an annual voucher to cover their expected costs. Tax breaks would be eliminated. Plans could offer rebates for healthy behaviors and acceptance of deductibles and co-pays.

Kotlikoff's recommendations are simple and sensible; my one wish is that his book incorporated information from other nations regarding how excessive payments, overheads, and service utilization are discouraged. For example, per material from Kaiser Permanente, U.S. providers are paid about 2X those in Canada.

As a nurse who is always looking for things to read about how to fix our healthcare system, this book is a must read. It is a short quick read and in my opinion, this author knows what he is talking about

There are essentially 2 parts of this book: the problem and the solution. I almost completely agree with his diagnosis of the health care disaster that is our system. Costs are out of control, many people are uninsured, and the various "solutions" being proposed won't help the problem (mandates, for one). He argues persuasively that the employer based system we presently have is unfair and inefficient.

As for his solution, it is better than our current system, but it is not the one I would choose. He would have the government be a "single payer" of health insurance, by giving every American a voucher they can use at any insurance company. The amount would be adjusted according to the cost of the insured person. I prefer a single-payer system, which would be much less complicated and costly than the voucher idea. As he himself points out, we waste far more health care dollars than any other country. Most of that is the insurance companies' cut.

At the end of the book, he says his plan would keep the insurance industry strong, competitive, innovative, and private. I can't say I care about those things--I worry a lot more about the quality of health care for Americans than the strength of the insurance companies. Like France, they should only be involved as voluntary supplemental insurance.