Liberal Benefits, Conservative Spending


Reprinted from JAMA. The Journal of the American Medical Association May 15, 1991, Volume 265 Copyright 1991, American Medical Association

From Physicians for a National Health Program, Cambridge, Mass (Drs Grumbach, Bodenheimer, Himmelstein, and Woolhandler); the Institute for Health Policy Studies (Dr Grumbach) and the Department of Family and Community Medicine, University of California, San Francisco (Drs Grumbach and Bodenheimer); the Department of Medicine, the Cambridge (Mass) Hospital and Harvard Medical School (Drs Himmelstein and Woolhandler); and the Public Citizen Health Research Group, Washington, DC (Dr Himmelstein) Dr Grumbach is a Pew Health Policy Fellow.

Reprint requests to Physicians for a National Health Program, 1493 Cambridge St, Cambridge, MA 02139 (Dr Grumbach)

The Physicians for a National Health Program proposes to cover all Americans under a single, comprehensive public insurance program without copayments or deductibles and with free choice of provider. Such a national health program could reap tens of billions of dollars in administrative savings in the initial years, enough to fund generous increases in health care services not only for the uninsured, but for the underinsured as well. We delineate a transitional national health program budget that would hold overall health spending at current levels while accommodating increases in hospital and physician utilization. Future national health program spending would be indexed to the growth in gross national product adjusted for demographic, epidemiologic, and technologic shifts. Financing for the national health program would transfer funds into the public program without disrupting the general pattern of current revenue sources. We suggest a funding package that would augment existing government health spending with earmarked health care taxes. Because these new taxes would replace employer-employee insurance premiums and substantial portions of current out-of-pocket expenditures, they would not increase health costs for the average American.

THE AMERICAN approach to financing health care has gone awry. From physicians to patients, from The Heritage Foundation to the AFL-CIO, there is agreement that the system needs reform. But what kind of reform? Although all concur that the system is ailing, proposals diverge in their therapeutic approach. Many advocate adjustments of familiar regimens: larger doses of employment-based insurance and greater infusions of public funds to expand Medicaid or to subsidize risk pools for the uninsured.1-4 Because such measures do not confront the interdependent problems of rising costs and declining access, they cannot ensure health services to all at a cost the nation can afford. A lasting remedy requires basic restructuring of the way we pay for care.5, 6

The Physicians for a National Health Program plan would cover all Americans under a publicly administered, tax-financed national health program (NHP). A single public payer would replace the present array of more than 1500 private insurers, Medicaid, and Medicare. A unitary program could initially pay for expanded care out of administrative savings without adding new costs to the overall health care budget and would establish effective mechanisms for long-term cost control. Although consolidation of purchasing power in a public agency may cause apprehension among some physicians, the program could free them from the myriad administrative intrusions that currently plague the practice of medicine.


We have previously described the design of the NHP in some detail.7, 8 It would create a single insurer in each state, locally controlled but subject to stringent national standards. States could experiment with the precise structure of the single insurer. Some may place it within a government agency, while others may choose a commission elected by the citizens or appointed by provider and consumer interests.

Everyone would be fully insured for all medically necessary services including prescription drugs and long-term care. Private insurance duplicating NHP coverage would be proscribed, as would patient copayments and deductibles. Physicians and hospitals would not bill patients directly for covered services. Hospitals, nursing homes, and clinics would receive a global budget to cover operating expenses, annually negotiated with the state health plan - based on past expenditures, previous financial and clinical performance, projected changes in cost and use, and proposed new and innovative programs. Itemized patient-specific hospital bills would become an extinct species. No part of the operating budget could be diverted for hospital expansion, profit, marketing, or major capital acquisitions. Capital expenditures approved by a local planning process would be funded through appropriations distinct from operating budgets.

Fee-for-service practitioners would submit all claims to the state health plan. Physician representatives (probably state medical societies) and state plans would negotiate a fee schedule for physician services. The effort and expense of billing would be trivial: stamp the patient's NHP card on a billing form, check a diagnosis and procedure code, send in all bills once a week, and receive full payment for virtually all services - with an extra payment for any bill not paid within 30 days. Gone would be the massive accounts receivables and the elaborate billing apparatus that now beleaguer private physicians. Alternatively, physicians could elect to work on a salaried basis for globally budgeted hospitals or clinics, or in health maintenance organizations capitated for all nonhospital services.


To estimate total costs, we start by using the Health Care Financing Administration's projection of 1991 costs under current policies as our "baseline" figure. The Health Care Financing Administration estimates that $567 billion will be spent on personal health care services and products in 1991, excluding nursing home costs and insurance overhead and profits (Table 1).9 (Although long-term care is covered by the NHP, we have omitted these costs to permit comparison with other acute care proposals.)

Universal coverage should increase the use of health services by the uninsured. According to the Lewin/ICF Health Benefits Simulation Model, approximately $36 billion of the $567 billion in 1991 spending projected under current policies will be accounted for by care for the uninsured, including free care at public hospitals, uncompensated care at private facilities cross-subsidized by insurance revenues, and services purchased out-of-pocket. The Lewin/ICF model estimates that an additional $12.2 billion would be required to increase the utilization by the uninsured to levels commensurate with those of the insured (Needleman et al10 and J. Sheils, oral communication, October 1990).

The NHP will not only assist the uninsured, but will also cover services (eg, preventive) and payments (eg, deductibles) that many insurers currently exclude. Would this more extensive coverage "induce" a surge of utilization among those currently insured? The RAND Health Insurance Experiment found that costs for persons assigned to a plan with no cost sharing were approximately 15% higher than the age-adjusted, per capita health care expenditures for the United States as a whole." However, a more natural experiment, a study before and after the implementation of an NHP in Quebec, failed to detect the overall utilization surge predicted by the RAND experiment.12, 13 Although the use of physician services in Quebec rose among those with lower incomes, the increase was counterbalanced by a decrease in utilization among the affluent. The net effect was convergence of utilization rates (adjusted for health status) among income groups, with no change in the overall rate.

Would an across-the-board increase in utilization be desirable? In the RAND experiment, lower-income patients with medical problems who received free care had better outcomes than those in cost-sharing plans.14 At the same time, many medical services currently provided are of no or of extremely marginal benefit,15-17 and it is not the intent of the NHP to inject an additional bolus of such unnecessary care into the health care system.

All these factors make it difficult to predict the level of overall utilization that would result from the NHP. For this analysis, we have added on the full $12.2 billion cost of bringing utilization rates of the uninsured up to those of the insured. We will discuss in the "Budgeting Under the NHP" section below how the NHP budget could also accommodate increases in utilization among the currently insured.