How the U.S. measures up to Canada's health care system
January 28, 2009
The Worldfocus signature story Canada’s hospitals cut the paperwork, emphasize care explores Canada’s health care system.
In this extended interview, Uwe Reinhardt, a leading adviser on health care economics and professor of political economy at Princeton University, compares the Canadian and American health care systems. Reinhardt criticizes the U.S. health care culture and expresses his optimism about the Obama administration.
As part of Worldfocus’ Health of Nations signature series, correspondent Edie Magnus conducted this half-hour interview with Uwe Reinhardt on January 20, 2008, the day of President Barack Obama’s inauguration.
Reinhardt blogs at The New York Times’ “Economix” blog. A transcript of the interview is below the video.
Edie Magnus: What do you think of Canada’s national health care system?
Uwe Reinhardt: I think it’s a high performer in the following sense: Canadians spend half as much per capita on health care as we do in the U.S., and yet if you go up there, sure you have to wait for some MRI image or for some heart procedures, but overall the system produces very good health outcomes. People are more satisfied there with their care than Americans are with theirs. So if you diagnosed it like a physician, you’d give that system an A and you’d have a hard time giving more than a B to ours.
Edie Magnus: Why do you think it is that most Americans don’t see it that way?
Uwe Reinhardt: Most Americans, first of all, are bombarded with propaganda. You don’t know how many think tanks are paid by certain industry — insurance, drug, organized medicine — to feed out negative stories about the Canadian health system. They do of course have mishaps, as do we, but there is a whole industry collecting them and beaming them out here. That is one.
Secondly, people are always more comfortable culturally with whatever they have than with some other system.
Third, people imagine having the worst illness, and if you are really very sick in the U.S., you generally do have more hope than in any other country if you are very sick, particularly if you are well insured. But if you sort of live the average life of Americans and have a Canadian system, they have better primary care, easier access to it. They would never go bankrupt over health care, because they don’t do that up there. They would realize what they are missing here.
Edie Magnus: We were in a hospital that was affiliated with McGill University, and it was a regional system that had six hospitals that were affiliated with one another, and they annually have some 39,000 inpatients, and they do about 34,000 surgeries and they deliver about 3,000 babies. And managing all of this is a staff of 12 people doing the billing, the administration. What would an equivalent hospital in the U.S. take to run administratively?
Uwe Reinhardt: You’d be talking 800, 900 people, just for the billing, with that many hospitals and being an academic health center. We were recently at a conference at Duke University and the president of Duke University, Bill Brody, said they are dealing with 700 distinct managed care contracts. Now think about this. When you deal with that many insurers you have to negotiate rates with each of them. In Baltimore, they are lucky. They have rate regulations, so they don’t have to do it. But take Duke University, for example, has more than 500,000 and I believe it’s 900 billing clerks for their system.
Edie Magnus: What are 800, 900 people doing?
Uwe Reinhardt: Well first of all there’s a contract. With each different managed care contract you have different rates. You have different things that need pre-authorization, not depending on the contract. You haggle over every bill. You submit the bill, the insurer rejects it, you haggle, and it may take 90 days to settle one bill. They don’t have that in Canada. You see, we spend in this country an enormous amount of money just administering claims. It’s a huge wrestling match over the payment.
Edie Magnus: When we pay a medical bill, how much of that bill goes to these kinds of administrative costs?
Uwe Reinhardt: Well, in general what you’ll find in our official statistics, we’re spending 7 percent on administration, but that only accounts for the insurers’ administrative costs and that includes Medicaid, which burns only two percent of its money throughput on administration. On the other hand, Medicare and Medicaid both cost the hospitals administrative costs that are booked as medical care, but it’s really administrative costs.
Steffie Woolhandler and David Himmelstein of Harvard did a study comparing Canada and the U.S. looking at what it costs employers, providers, doctors and hospitals and the insurance mechanism and compared Canada and the US, and they found that we in 1999, spent $300 billion on administration for all these three functions, and that was about 24 percent of national health spending there, but they say it was actually 31 percent because of the fraction of spending that they could actually identify and link to administrative costs. So they came to 31. So it’s somewhere between 25 and 30 percent that goes for administration and it doesn’t even include the patients’ time of billing. Anyone who has had anyone really sick in their family knows how much time you spend haggling over the bills and they have none of that in these systems.
Edie Magnus: I know that there’s some dispute about all those numbers, about what percentage of our spending the administrative costs represent, but you have said that with what America could be saving in administrative costs, that it could completely fund universal health care for all Americans.
Uwe Reinhardt: Oh yes, I’m totally convinced of that.
Edie Magnus: How is that possible?
Uwe Reinhardt: Well for one, many insurance companies have a nomenclature that when they issue a bill, when the hospital issues a bill, the insurance company can’t understand it. So there are entities, enterprises that translate that from the insurance companies’ nomenclature into the hospitals’ nomenclature and vice versa.
Edie Magnus: Alright, but tell us, I’m not sure my mother would understand this explanation…
Well I mean, just imagine a hospital sees a horse and it says I code that as H-O-R-S-E, and the insurance company uses French for that, C-H-E-V-A-L, and now the computers, they can’t mesh this unless there is a translator in between who says “Oh, horse for that insurance company means cheval.”
Edie Magnus: And this goes on every day between hospitals and insurers?
Uwe Reinhardt: This goes on every day. They don’t understand the way that they “code” things. So I hope Obama will come and say, “You guys had 30 years to figure it out and obviously you couldn’t. I’ll figure it out for you. Here’s a nomenclature. You must use it, and if you don’t, you don’t get paid, period.”
Edie Magnus: Can you talk about that and how it contributes to our administrative headaches?
Uwe Reinhardt: Well, I once did a dumb thing: I asked an insurance executive “What do you pay in New Jersey for a colonoscopy?”
And he just laughed at me and said, “What a silly question. There is no price for a colonoscopy. We have a different price for every hospital. And for the same hospital, we might have six prices depending on the insurance product, is it an HMO, etc.”
So I said, “This is mad. How many could there be?”
He says, “There could be 30, 40 for us, but then with Aetna, they could have another 30, and everyone has a different contract, so a hospital might receive 60, 80,100 different prices for a colonoscopy, depending on which insurance company and what contract it is. So when you say ‘What are the private market prices?’ there is no price.”
And I said, “Well how, when you have consumer-directed health care, where people are supposed to shop around, what are you going to tell them?”
And he said, “We can’t, really. What would you tell them?”
There is no real price, and every price has been negotiated and haggled over. So imagine what it costs compared to a system where a government negotiates with a physician association. Here’s the fee schedule, and that’s it, and everyone uses the same fee schedule. You can put that into a computer. You have a little card like an American Express card. The price list is already there. You swipe it through, the doctor keys what he or she did and here’s your bill. Well here you have to look at what contract was it and the coding turns out to be wrong, and the bill isn’t clean.
I know an entrepreneur who is a multi-zillionaire, and I said, “What did you do before to be so rich?”
And he said, “I can write clean bills for doctors.”
And I said, “What is your product?”
He said, “My computer knows every managed care contract in this area, hundreds and hundreds of them, and if the doctor tells me the product, the insurance contract, and I know what the doctor did, my machine can type a bill that the doctor never could get right, and submit it to insurance, and we get paid 30, 40 days faster and more accurately, and we split — the doctor doesn’t pay me — we just split the extra money and make the doctor.
I have another friend in Princeton. He gets all of these bills, his wife was ill and he says, “I don’t do the claiming, there is a company that specializes in claiming for you. You just turn over all your stuff and they submit the bills.” So you now have companies that help doctors bill, and then you have companies that help patients pay these bills.
There was a company, I think it was a subsidiary of United, that wrote software to help hospitals bill better and get every dime they could from insurance companies and sold other software to help insurance companies that helps them defend themselves against the doctors’ billing. It’s laughable. It’s hard to explain it without laughing, but we do.
I tell you, if you gave a keg or two of beer to six Princeton undergraduates and said “Drink till you fall over, and then design something really mischievous,” they couldn’t come up with what we adults have come up with being sober, or seeming to be sober. This is a totally insane system.
Edie Magnus: And if we could save those administrative dollars, is there an amount that you think we would save?
Uwe Reinhardt: I think we should be able to cut it in half, what we spend. That would still be more than most other nations spend, but we should use other nations as a benchmark and say, “They can do it for this, so let’s at least cut ours in half.” We would still be spending more than these other nations, but Obama should simply set a goal. Like Kennedy said we’ll go to the moon in so many years, Obama said in so many years we’re going to save that much on administration and I’m going to put someone in charge of it and we’re going to keep books.
Edie Magnus: And to the person who hears that and thinks, “Yeah, but you know, sometime I’m going to be in a jam, I’m going to want some care, and if we go to this other system it might not be available to me…”
Uwe Reinhardt: Mind you, I’m not advocating the Canadian system. It works well for them. I’m not saying we need to have this, but I’m saying whatever we have, if you have government saying there is going to be one computer system, that doesn’t mean one manufacturer, but whatever they make has to interoperable. Whatever language they use has to be the same. We’re going to speak English, so to speak. One nomenclature. You have to call this operation by one code, no matter who it is. There have to be common billing forms. Not every company has its own incomprehensible explanation of benefits, you know. Every hospital bill is just a living insult, when you actually get one as a patient. There has to be something people understand.
And it turns out that after giving it to the industry for 30 years to straighten out and they didn’t, it will have to be the Obama government that says, “Guys we’re going to rig this for you. You can have all the machines you want, all the software. You can buy it from whomever, but it has to obey these rules.”
Just like electric plugs. No matter who makes the stuff, there has to be one plug. But for some reason, the electric industry has been able to settle on one plug. The Cell phone industry has still not settled on one charger. You have to have chargers that vary by thing. The earplugs for the cell phones are different depending on the model. This is nonsense. You give the industry time and if you can’t figure it out, kids, we’ll figure it out for you.
Edie Magnus: Why do you think it is that Canadians are, in large percentages, so much more satisfied with their health care system?
Uwe Reinhardt: I think, for one, you don’t have this constant fear when you go to bed, if whether tomorrow you have health insurance. You know you will. You almost feel it when you go to the airport and you ask these people. That’s not something they worry about. Here you ask any waitress “Are you insured?” Half the time they’re not even insured. If they have it, they don’t know if they have it tomorrow.
One of the interesting things is 250 finance people have been laid off. That industry is going to be small in the future. They’re not going to have health insurance. I think a lot of those people who hated the Canadian system and socialized medicine and so on will discover it might not be a bad idea to have a safety net for some things — education for your kids, health care when you get sick, justice when you are in the courts — and for some reason to think that rugged individualism can cope with this is nonsense.
Edie Magnus: Would national health care work in the United States?
Uwe Reinhardt: Yes.
Edie Magnus: Would Canada’s plan work in the United States?
Uwe Reinhardt: Well, it works. We have a Canadian health plan in America. It’s called Medicare. It works. Don’t tell me medicare doesn’t work. Tell that to the elderly. One way to test it is to say “Let’s take it away.”
Edie Magnus: But it is running out of money.
Uwe Reinhardt: No, it’s not, no way. It’s not running out of money. I mean we still have a surplus in that account. At some point in the future it will run out of money unless we raise premiums, that is, payroll contributions. We’ll have to do this. But the idea that that it runs out of money and General Motors, which is almost bankrupt, doesn’t, tell me about who is running out of money. GM is living on taxpayers’ blood transfusions. Why? Over health care. They ran out of money, not Medicare. I think this is a myth.
Of course, if you keep payroll tax where it is, it will run out money. But the elderly could contribute more to it and they will. Payroll taxes can be raised a little bit. Higher income recipients probably have to contribute more to it. These are really solvable problems, but Medicare is a Canadian style heath care system.
Edie Magnus: If it seems such long odds that we will ever have a single payer system for all of the United States, what’s the point of comparing us to Canada?
Uwe Reinhardt: You have to have benchmarks. You can’t just say, “We’re unique therefore we can simply spend the whole GDP on health care.” You do have to ask how does Canada do it. How does Germany do it? How does Taiwan do it? How do other nations do it? And if you think you are way out of line, if you’re spending twice as much as the people who are culturally similar to us — their income is somewhat lower but not that much lower than ours, we’re really one North America — you’d really have to ask yourself. Now mind you, you could also look within the US. Utah and Oregon are much, much cheaper than Massachusetts or Miami. So you could look at Canada, but you could also look within the U.S. where you have these variations. But why should you not be able to learn from other countries, particularly when you run a huge single payer system, and Obama is going to put in another single payer system, this public “Medicare light” plan for people under 65? So yeah, we can learn something from Canada. They can learn a lot from us.
Edie Magnus: If you don’t have all the free market forces in health care, would you have as much competition, innovation?
Uwe Reinhardt: Innovation, in the pharmaceutical products and devices, maybe not, because the money wouldn’t be as generous. I mean, we’ve had an unbelievable generous… I mean, if you spend twice as much, you will fund a lot of innovation with it and you’ll fund a lot of waste with it, both. We’ve had both, waste galore and innovation galore. You might have less innovation, but I think a good science policy could contravene that.
In other words, you could fund and support drug companies, not through the price of the drugs, but by giving them grants, government grants. We need a drug for Alzheimer’s, and like the defense contractors — we need a jet that can do these missions — we need a drug that does Alzheimers. And the government is going to lend research contracts to the pharma. industry, and you get your cost reimbursed, but the winner who has the best product — you have a fly by like you do with jets — and the winner gets the contract. So there are other ways of funding devices and of funding drugs and other innovations than just through the price, you know? We have to think of other ways to do this. There is no reason why we couldn’t have a flourishing innovative high tech industry, even if we stepped down on prices, which the private sector will too.
You look at what the Bush administration has done with drugs, turning the Medicare Part D to private industry, and what did they do? They persuaded millions of the elderly to switch out of brand name drugs into generics, totally devastating the drug industry. This wasn’t done by the government. It was done by private enterprise, by private, competitive enterprise.
Edie Magnus: You’ve sort of alluded to this, but are you optimistic that America, starting today with a new president, can get it right with health care?
Uwe Reinhardt: Well, “get it right…” that’s partly an ideological thing, but get it done in this sense… You could say there are certain requirements we have of our health system. An American family where a member is stricken with cancer shouldn’t go broke. That’s easy to achieve. Do you have to do it the Canadian way? No. We can do it our way, even if it’s a little pricier.
A requirement that when somebody thinks they have major illness they should able to get access and not have to worry about whether they can pay the bill. There are certain things you can write down that health systems should achieve, and you say “We’re going to go there our own way. We’re not going to copy Germany, we’re not going to copy Canada, but we want to end at the same point,” and that is that you can go to bed and not worry about losing your health insurance when you lose your job. And those things are achievable, and the Obama plan, if you look at it, has all that in it. It says we keep the system we have, but we put some new things in, like this government program for the people under 65 such that when you lose your job, you don’t lose your family’s insurance, and we can do this. I’m optimistic.
Now a year ago I would have said we’ll never do it, because we’re a bunch of spoiled children.
Edie Magnus: Now we’ve been slapped upside the head…
Uwe Reinhardt: We’ve been slapped upside the head, and in fact people are talking about it, T-shirts, “Grow up America.” I’ve always told my wife “I never understood Americans till our kids became teenagers, and then I understood this whole culture.” It’s a teenage culture. That’s all I really know about Americans, people who want the best health care, they don’t want to pay high premiums, don’t want to pay taxes — this is juvenile. And I think Obama’s inauguration speech was basically very serious, saying, “You know, we have to grow up. We now have to grow up.” I’m much more hopeful now that children in distress will rediscover the virtue of mothers.
In fact I wrote a piece, “I hate Mom and the Government Too,” and I say that it’s amazing, given how teenagers curse mothers, that mothers somehow, that evolution didn’t do away with them, that the reason evolution kept them there is that when the kids get in trouble they run to Mom. And look at what happens now. GM driving overnight, begging mom, that is, government, to help them. The bankers of New York, you know, who used to sit in their golf carts cursing government regulation, running to Washington, to Mom, “Please help us.” And I think, like teenagers at some point discover the virtue of moms who can give them help, the American people will discover, “You know what, there are good things about government, like there are about moms. When you get in trouble they’re really cool to have around.” And I think we’re at that moment, and that is why I believe health reform has a hope. We could literally get this done this year.
Edie Magnus: And just to be clear, Obama’s plan is not national health care, right? It’s not a single payer system…
Uwe Reinhardt: If you mean a nationalized health care with a single…
Edie Magnus: Yes. Government funded, government run, the taxpayers pay, everyone gets it…
Uwe Reinhardt: No. It’s not that. It says you keep whatever you have as long as they’ll give it to you, but if they don’t give it to you anymore, Mom is here for you. You can go out there. You can ride your bike, but if you get hurt you can come here. If the private sector has not sold you a private health insurance policy, we will.
I can’t see what could be fairer that to say to everyone you can play all these games, but there are certain rules. You have to, in the end, cover people. And if you, the private health insurance agency, are not able to do it, we can do it. The government can do it.
And we’ll discover this more and more. Our banking system, you’d be surprised what that’ll look like. It will be highly regulated, like a utility. It’ll be small. It’ll do what it was supposed to do rather than being a gambling casino, which is what it became. You know, they too behaved like teenagers. In fact, this piece I just wrote, it’s actually only for the student newspaper, “I Hate Mom and the Government Too,” the Financial Times printed it, the German Zeit printed it, because everyone understood that that’s what it really was. We had all become teenagers, irresponsible, naughty, and so on, and I think we will become a much better nation because of this calamity.