Buyer Beware: The Failure of Single-Payer Health Care

Report Health Care Reform

Buyer Beware: The Failure of Single-Payer Health Care

May 4, 2001 40 min read

Authors: David Gratzer, Richard Teske, Timothy Evans and James Frogue

JAMES FROGUE: My name is James Frogue. I'm the Health Care Policy Analyst here at The Heritage Foundation, and I want to welcome you to our panel.

In a remarkable recent development, the Health Insurance Association of America (HIAA) teamed up with Families USA, one of Washington's leading left-wing health policy organizations, to unveil what they call a Common Ground proposal. In it, they call for massive expansion of Medicaid, our country's single-payer health system for lower-income Americans. Specifically, the proposal calls for a required expansion of Medicaid to cover all persons with incomes up to 133 percent of poverty and giving the states the option of using Medicaid and S-CHIP (State Children's Health Insurance Plan) dollars to expand eligibility for persons with incomes up to 200 percent of the poverty level.

Thus, the time has arrived once again to take a long, hard look at the actual results produced by single-payer health care. Many on the left make no secret of the fact that they want a single-payer health care system here in America, or in the several states. Indeed, a well financed effort toward this end is underway right now in Maryland; it is being spearheaded by the Maryland Citizens Health Initiative.

We're fortunate this morning to have assembled a very distinguished international panel of experts.

David Gratzer, M.D., is a graduate of the University of Manitoba Medical School. While in medical school, he wrote Code Blue, which two years later is already in its fifth printing. Code Blue won the Donner Prize in 1999 in Canada for the best Canadian public policy book and carried with it a $25,000 first prize. Dr. Gratzer is also the 1992 World Debate Champion, having won that title in Aylesbury, England.

Dr. Gratzer is currently pursuing psychiatry specialty training at Mt. Sinai Hospital, University of Toronto. In between his 36-hour shifts, he is also a columnist for the Halifax Herald and the National Post, and he is working on a new book as well.

Dr. Tim Evans is Executive Director of Public Affairs for the Independent Healthcare Association of Great Britain. Members of the IHA include independent, acute, elective mental health hospitals, nursing and residential care homes, substance abuse clinics, pathology labs, and screening units. The IHA is the leading representative body of the United Kingdom's independent health and social care sector.

Dr. Evans has served as Assistant Director for Defense Studies at the Adam Smith Institute. He also served as the economic and political adviser to the Slovak prime minister in the former Czechoslovakia and as head of the prime minister's policy unit. Dr. Evans has taught post-graduate studies at London's Guildhall University, as well as a strategic command course at the U.K.'s premier police staff college for Anzio. He received his doctorate from the London School of Economics and Political Science.

Richard Teske is a prominent Washington expert on Medicaid, Medicare, long-term care, and reform for the uninsured. For a quarter of a century, he has advised and worked with international, federal, and state government leaders and many of the nation's largest managed care, pharmaceutical, biotech, medical technology, long-term care, and hospital companies.

Richard served for eight years in the Reagan Administration in a variety of capacities. He represented the United States at the UN Conference on Economic and Social Policy; he also served as official liaison to the White House for the Department of Health and Human Services, principal Deputy Secretary at HHS, and Associate Administrator at the Health Care Financing Administration. Subsequently, he was Vice President for Government Affairs and Public Policy for the international pharmaceutical company Burroughs Wellcome.

Mr. Teske was educated at the University of Minnesota, University of North Carolina, and the London Business School. He is now a writer, consultant, and noted speaker on political and health care policies.


DAVID GRATZER: It's a great honor to be able to speak today at The Heritage Foundation. I'm always impressed by the debates and discussions that come out of Heritage. I think Americans are very lucky to have such a think tank.

Canadians who went to the United States five, 10, or 15 years ago, when they would talk about health care, would speak fondly of the best health care system in the world. Until very recently, Canadians thought they got it right and always looked south and shook their heads.

If Canadians liked to look south and brag, Americans would come north and express awe. It wasn't uncommon to find an article in The New York Times or The Washington Post discussing the health care system where everything is free, where hospitals are brand-new, where doctors and patients are absolutely content.

Losing Favor
Those days have passed. Americans still sometimes come north and express awe; Senator Kennedy was in town a few years ago for a fund raiser. Sometimes Canadian politicians go south and talk up the Canadian system; our Prime Minister lectured your President about four or five years ago. By and large, however, the enthusiasm for the Canadian system has very much waned.

I'm a fan of polls. Of course, one should always take these things with a grain of salt, but a good poll can be informative.

For example, Angus Reid, a well-respected Canadian pollster, asked Canadians to rate their health care system. When they started doing this polling in 1991, a clear majority of Canadians gave the system top marks: excellent or very good. Last year, when they did the poll again, under one in four gave the system that rating.

Angus Reid has done other polls as well. A year and a half ago, a poll sent shock waves across the country when 73 percent of Canadians described their health care system as being "in crisis." Reid actually went back and redid the poll six months later: 78 percent of Canadians now thought the system was in crisis.

People who have had reservations about the Canadian system have often talked up ideas that are very common in other Western countries: user fees being one and two-tier health care, or the ability to buy private insurance, being another.

There isn't a single politician who advocates user fees. There isn't a single politician who will publicly state that they are in favor of private insurance. And yet, just before the end of last year, a major poll commissioned by Macleans magazine showed that a clear majority of Canadians now support user fees. On private insurance, we're divided.

That may not seem so incredible, perhaps, to outside observers. But in a country where no politician is willing to advocate such ideas, it's quite a remarkable development.

The Health Care Quality Problem
So what has happened in Canada? Why is it that we've gone from being very bullish on this health care system to having great reservations? Part of it is that Canadians read newspapers, and it doesn't much matter whether you're on the west coast or the east coast; it doesn't much matter whether you're a Globe and Mail reader, or a National Post reader; every single day, there are stories describing the system.

I've just randomly chosen a few stories that have come to light recently.

  • The head of trauma care at Vancouver's largest hospital announces that they turn away more cases than any other center in North America. He's quoted as saying this would be unheard of in the United States.

  • In Manitoba, which is my former home province, the premier--the political equivalent of a governor--concedes that his pledge to end hallway medicine has fallen short. Hallway medicine is the phenomenon where the emergency rooms are so filled with patients that people are forced to lie on stretchers in hallways, often for days. Overcrowding is a periodic problem. In fact, the overcrowding is worse than last year. The community is rocked by the death of a 74-year old man who had waited in the emergency room for three hours and had not been seen.

  • New Brunswick announces that they will send cancer patients south to the United States for radiation therapy. New Brunswick, a small maritime province, is the seventh to publicly announce its plans to send patients south. In the best health care system in the world, the vast majority of provinces now rely on American health care to provide radiation therapy. Provinces do this because the clinically recommended waiting time for treatment is often badly exceeded. Ordinarily, oncologists suggest that there should be a two-week gap between the initial consult by the family doctor and the referral to the oncologist, and then two weeks more from the oncologist to the commencement of radiation therapy. In most Canadian provinces, we exceed that by one to two months, sometimes three.

  • In Alberta earlier this year, a young man dies because of the profound emergency room overcrowding. He is 23. On a winter's night, he develops pain in his flank and goes to the local emergency room. It is so crowded that he grows impatient and goes to another. There, he waits six hours. No one sees him. Exhausted and frustrated, he goes home. The pain continues, so he finally decides to go to the local community hospital. It's too late: His appendix ruptured. He dies from the complications hours later.

Those are some of the examples of the cruelty of what goes on in Canada. But they don't give you the flavor of the insanity--and I'll use that term in a nonprofessional sense--of the Canadian system.

MRI scanners are very difficult to get in Canada. There are long wait times. In my book, I talk about a political struggle on Vancouver Island where the wait time for a non-urgent MRI scan was over a year--"non-urgent" being defined by government officials, not by physicians. In the province I now live in, Ontario, there are long wait times for MRIs.

Part of the problem is that we have so few of these scanners. Canada per capita has as many MRI scanners as Colombia and Mexico. It wouldn't be fair to try and compare us to the United States or Western Europe. And the few MRIs that we have tend to run on bankers' hours. MRI scanners are expensive to operate. So if an MRI scanner stops dealing with humans at 5 p.m., there are still hours you could run the scanner.

What many MRI clinics now do to make a little bit of money is rent out their facilities to veterinarians. There was a story, which caused quite a scandal, that a London man was expected to wait seven months for an MRI but his dog could get one in just a couple of weeks. They, of course, addressed this discrepancy in a very Canadian way: by preventing veterinarians from booking the off hours.

They're still renting out in some parts of the country. Where I live now, Toronto, there's an MRI scanner that was renting out to vets. A patient came up with a clever idea: He tried to book himself for an appointment under the name of "Spot." Spot was a good name to choose, because Spot could be seen a hell of a lot faster than a person bearing a less canine name.

The Fairness Issue
We had an election campaign several months ago, and the state of our health care system was an issue. Canadian politicians are a timid lot, and no one was directly willing to criticize the system's structure. One interesting point raised, however, was that despite the emphasis on equality and fairness, many people queue jump. One of the big accusations against the Liberal Party, Canada's government party, was that members periodically queue jump and get preferential care.

The National Post, one of Canada's national dailies, went to a number of prominent politicians and asked if they queue jump. They had done a little bit of work and knew of a clinic where VIPs received faster care. A reporter asked Senator Sharon Carstairs, government leader of the Senate, if it was true that her husband queue jumped. She said that that story was absolutely untrue and unfounded. Actually, she observed that the sort of surgery he needed wasn't available in Canada, so they went to the United States and paid $15,000--an unspeakable act by Canadian standards.

A Clinical Case
I mention these stories, and very often people ask me if this is merely sensational journalism. Is the system really that bad?

I don't just read about the health care system. I work and study in it. Frankly, I'm impressed by the efforts of providers within the system despite the many, many frustrations.

One story, however, particularly troubled me: a patient on the osteosarcoma ward of a Toronto hospital. Basically, she had an obscure cancer; osteosarcomas are particularly malignant and particularly rare. She had the primary in her foot, and the orthopods decided to begin with amputation, then move on to other types of therapy.

They weren't comfortable with amputation until they got an MRI scan. After they got the MRI scan of the foot, they were willing to go ahead with the surgery. MRI scans are difficult to get, even in hospitals. It was a bad time of year. The hospital was very full, so they planned to do the scan at the end of the week, but she got bumped for another week.

They did the scan and wanted to go ahead with the surgery, except that operating room time is very limited. To complicate matters, urgent surgeries like an amputation are often postponed because emergency cases get priority. The patient was bumped several times. She finally did get the amputation she needed after three weeks. Osteosarcoma is a very aggressive cancer, and she could actually see the lesion growing in her foot. It grew from a sore on her foot to the size of a football.

I should condition all of this by saying that we knew she had metastasis to her lungs. Her prognosis was poor to begin with. But she deserved better.

Of course, all of this is anecdotal evidence. It's very easy to say, "Well, he's given one horror story and a couple of examples drawn from newspapers. Is the system really that poorly off?" I'll just summarize a couple of studies that have gone on recently and then move to my concluding comments.

The Fraser Institute, a major think tank in Canada, does a survey of 2,300 physicians across 12 specialties and asks them to estimate the wait time between the initial visit with the family doctor to the surgical therapy. They do this every year. Right now, the average wait time is 14 weeks. What's very impressive is the extent to which that has grown; 14 weeks marks a 5.3 percent increase over the last year, despite the fact that government spending in health care has grown by 22 percent over the last three years.

The Fraser Institute not only asks physicians how long patients wait, but they ask doctors how long they think patients ought to reasonably wait. In every single category, patients wait too long, in the opinion of the physicians.

There was a recent five-country survey of health care by the Harvard School of Public Health. They asked specialists across these nations if they felt there was a decline in the quality of health care. Canada has the dubious distinction of having highest response rate in the affirmative, 63 percent.

The Harvard researchers also looked at wait times, where Canada faired poorly. There were a variety of scenarios that were given. One of them was a 50-year-old woman with irregular breast mass, without lymph node involvement. Obviously, this woman needs a biopsy. In Canada, patients typically waited the longest; 19 percent waited longer than a month for a biopsy. That was the highest percentage of the five countries. Just to put that in some perspective, in the United States, 90 percent of patients are biopsied within a fortnight.

Just last week, the Heart and Stroke Foundation of Canada, traditionally very supportive of socialized health care, released a major study on heart attack survival. Five-year survival rates in Canada and the United States are extremely comparable, but morbidity, meaning how people felt, was not.

Some of their findings: After 12 months, 31 percent of patients rated their health as being better than the month before the cardiac event. In the United States, 44 percent of survivors felt their health was better. Researchers attributed part of the difference to the ability of Americans to get angioplasty and bypass surgery, which is so difficult to get north of the 49th parallel.

The Cancer Advocacy Coalition of Canada is a not-for-profit group. The entire operation is run out of an office above the garage of one of the member's houses. They look at wait times and availability of chemotherapy.

They decided to try and figure out what impact the dearth of technology and cutting-edge chemo drugs have on cancer survival rates. Drawing on an international database, they compared mortality rates. So how many people in each jurisdiction die of different cancers?

The findings were really quite striking. One finding: In New Brunswick, which is the Atlantic province I mentioned earlier that's sending the patients over the border for cancer care, people are twice as likely to die from colorectal cancer as a person in Utah.

One of the big criticisms of that study is that it doesn't look at incidence. Without getting into biostatistics, what you ought to do is not just look at what people die from, but look at how many people are diagnosed, thus discounting lifestyle. People were critical of the study.

So they did something very sneaky. They actually got a government biostatistician to provide the incidence. They could thus answer a simple question: If you're diagnosed with cancer in Canada, how do you compare in terms of your life expectancy to somebody who's diagnosed in the United States? Canadian provinces ranked close to or at the bottom in every single category.

The Canadian system is ailing. Why? I believe that Canadian medicare suffers from a basic economic problem. We have a free-for-all system, and, as health economists have well shown, costs are driven up. Patients tend to overconsume health services while providers tend to oversupply health services. The only way we can deal with this is to ration through waiting.

It's like the old Soviet system: Everything is free, but nothing is readily available. It's very amusing when you're talking about toilet paper in Moscow in 1975; it's far less amusing when you're talking about cancer treatment in Toronto in the year 2001.

A Message for Americans
I think it would be safe to say that you could have a single-payer system that's smarter than the Canadian system. You could have a single-payer system that has user fees. You could have a single-payer system that allows private insurance. You could hire better administrators. But I think at the end of the day--and this would be my message to you Americans--you have to understand that when the government finances something, it ends up managing it.

That is well illustrated by Canadian medicare. Even if we did make the revolutionary reforms that politicians aren't willing to advocate, but we kept it as a single-payer system, we would still have bad health care. Single-payer health care, which effectively means government-run health care, has three consequences. I will list them and then cite a Canadian example of each.

Consequence One: Poor Accountability. There is an extraordinary lack of information about the health care system in Canada. I'm putting together a book now, and I asked one of the big health information experts in Canada to write a chapter for it. As an exercise, he wrote a letter to every ministry of health in the country and asked about wait times for treatment. Not if they were clinically reasonable; not how many people were on wait times; not even the geographic distribution; just a sense of how long people wait for basic therapies, treatments, and surgeries. Not a single ministry of health in the country could respond.

In fact, because our health care system runs into so many troubles, government often obstructs the flow of information. In Toronto, where about a fifth of the population resides, hospitals typically go on redirect and critical care bypass because of emergency room overcrowding. How did the government first address this problem? They stopped publishing data on the frequency of hospital bypasses.

Consequence Two: Politicized Decision-Making. I'm not talking about just small decisions, but every decision, the sort of decisions that should be apolitical and influenced by community needs. In Ontario, where the government is elected by rural constituents, major hospital restructuring was initiated. The first thing the government did was announce that they were going to close hospitals and that there would be no sacred cows. The second thing they said is that no rural institution would be touched.

If it seems unfair to pick on Ontario, we can look at Saskatchewan, a smaller prairie province, where the government is traditionally elected out of the urban centers. They too had a major restructuring of their hospital system, and they started and ended with rural institutions.

Consequence Three: Lack of Innovation. Bureaucrats are very cautious as a lot. They tend not to be aggressive. As a result, innovative people within the system are frustrated. It's difficult to get financial support for cutting-edge treatments and technologies.

Last month, the National Post ran a three-part series on cancer care in Canada. One of the stories focused on a man who was diagnosed with esophageal carcinoma. Given a 10 percent survival rate in Canada, he went to the United States and was treated with experimental medicines. Four years later, he's still alive. He couldn't get that kind of care in Canada, not because the oncologists aren't well-trained or the nurses aren't skilled but because funding for clinical trials and experimental treatments is scarce.

So, in terms of the larger issue, is the single-payer system attractive? I think a single-payer system in the short term is very politically sexy, but I think that there are good lessons to learn from Canada on why you would not want to do this.


TIMOTHY EVANS: I want to give you an overview of the history of British health care, the politics of the National Health Service, its impact on British health care, and the re-emergence and the now substantial growth of the private, or independent sector. I'm going to conclude with an overview of what's happening in the British private health care system and what Tony Blair is doing. There's some good news there, and there's some bad.

I want to go back to the 19th century, away from some of the popular mythology, probably led by Charles Dickens in his novels. The reality in the 19th century was that for every social class, health care was improving. Britain developed in the 19th century an extraordinarily rich tapestry of diverse health care institutions. In the latter stages of the 19th century, there were literally hundreds of charities, trade union friendly societies, mutuals, providence associations, and commercial insurers providing an ever better range of health care products for citizens.

However, as Adam Smith said, when people get together in any profession or trade, they tend to connive, and they tend to want to gain legislative favor. This was certainly the case of the doctors, who in a sense, from their own vested interest point of view, had a huge victory in 1858 when they set up the General Medical Council and it won legislative favor. It could define what a doctor was and what constituted a medical practitioner.

Rise of the Doctors
Then, in the 1890s, the medical profession, having established their legislative monopoly, their barriers to entry, set about trying to persuade the British political class that they were the most important profession of all. They uniquely held the essence of life in people's hands. Forget lawyers; forget politicians; forget anyone else.

The doctors called themselves the British Medical Association. If you read the minutes of their meetings at the time, they said, "We are medical gentlemen, and we are way above any profession. We shouldn't really be held down to having to compete for business, particularly with working-class people who are funding their mutual funds, or their trade union friendly societies. We should be able to deal with the lucrative private heath care market in the middle classes. But surely we should be able to access guaranteed incomes, tax-funded salaries from government."

They really wanted to have their cake and to eat it. They wanted the lucrative private market, and they didn't want to have to serve poorer consumers. This was not just about economics nor the usual corporatism that professional groups try and enter into. This was also about snobbishness at its worst.

The doctors and the commercial for-profit insurers found common ground in the early 20th century. The commercial for-profit insurers were terrified that ever more working people were being covered by the not-for-profit insurers, the mutuals and the friendly societies, and that these institutions were becoming so successful they would soon be competing for the lucrative for-profit middle-class private insured markets. So the doctors got together with the commercial insurers and urged the Prime Minister, Lloyd George, in 1910 to pass a national insurance act which would compel every citizen to pay four pence a month in tax for now-guaranteed government welfare and health.

The argument that was put forward was that the market is messy. It's a market. It's duplicative. For poorer people, surely there should be one rational, national insurance system. Lloyd George went to the country, arguing that if they supported him with this bill, then for every four pence that taxpayers would pay the government, government would give them the equivalent of nine pence in benefits because of lower transactions costs and removal of all the messy and archaic duplication, the economies of scale that would go with government, et cetera. Familiar?

Well, the bill was passed. It entered law. Now the doctors could keep their lucrative private insured market with the middle classes. The poorer people had to pay their tax to government so they could no longer afford to pay into the mutual funds or the trade union friendly societies.

Between 1911 and 1915, now accessing tax funders' money, doctors' salaries on average doubled. The British left in the 19th century had not been about what we would today call state socialism. They were heavily influenced by the Rochdale Pioneers and by the cooperative and mutualist traditions, which I think sits comfortably with a broad market approach.

Growing Government Role
The British government, now involved in health care and welfare, decided it had to establish a Department of Health, which it did in 1919. But by the time of the general strike in 1926, the entire friendly society-mutualist movement was in peril. Now the British left turned their backs on their own heritage, on the idea that worker ownership of health care in a sense was literally about workers owning their own institutions and their own funds. Now the idea of public ownership in health care, was equated with state ownership, and a middle-class, quasi-Fabian Marxist agenda unfurled.

We then move on to the 1940s and the establishment of full-blooded health nationalization. For most British people, when you talk to them, it's almost as if the NHS simply arrived one day on a UFO: In 1948, there was British health care. There were magically hundreds of hospitals. In fact, to create the NHS, the government had to take into public ownership--it had to nationalize 3,118 independent hospitals, homes, and clinics.

Many of those previously independent institutions had been built up over many hundreds of years. The oldest hospital in Britain, St. Bartholomew's in central London, was created in the year 1123. It was in the independent sector well over 800 years. It was nationalized in 1948-1949, and recently the government wanted to close it down. It was in the market for over 800 years; it's taken politicians less than 50 to try and destroy it.

Creation of the NHS
When the National Health Service was launched in 1948, the politicians were stupid enough to put in black and white their promise to the British people. They promised that the NHS would provide all medical, dental, and nursing care. Everyone, rich or poor, could use it. That was what they put on the leaflet sent to every home in the country. The promise was, the government was going to do it all.

However, there was a financial crisis within six months of its establishment. The government had believed in 1944 and 1945 that if they were going to create this system, it would probably cost about £132 million. In its first year of operation, it cost over £400 million, and the Cabinet had a crisis meeting.

The architects of the NHS believed that if you could have a free service and people's health care needs were dealt with swiftly by the state, after a few months the demand on the services would actually go down: that if people could have their spectacles and their inoculations and the surgery they needed, people would be cured. Then the demand would go down so it would be cheaper.

This was a remarkable view of economics: truly unique, I think, in the developed Western world. By 1948, the first full year of operation, they had to introduce prescription charges, which were again revived in 1951 and 1956. So we had rationing by price signaling. Over the years, we've seen rationing by cash limits; rationing by queuing, people waiting; rationing by exclusion, all kinds of services simply not provided on the National Health Service.

The NHS did not build one new hospital in the 1950s. In fact, it didn't build anything until around 1963 and 1964. There was no capital investment to speak of. Then, in the 1960s and 1970s as rationing got worse, government found it difficult to pay for the service, so industrial relations problems abounded. By the mid-1980s, there truly was a capital crisis.

The Waiting Lists
In the late 1960s and the 1970s, the government had scraped together a few pennies, and it did manage to build a few hospitals or a few new wings on some of the Victorian institutions that they had nationalized. So the politicians began to talk about getting the private sector to invest capital to build new hospitals. For every ten years of the existence of the NHS, on average, waiting lists have gone up by about 200,000 people every decade.

Today, the National Health Service costs the taxpayers some £50,000 million. Over one million people are waiting for treatment and surgery and often waiting reasonably lengthy times: months, and for some surgery, years. There are probably another 300,000 to 400,000 people waiting to get on the waiting list because, of course, there's a definition about waiting lists. If you're on a waiting list, when you've seen a consultant and you're waiting for surgery, you're not really on the government waiting list when you're waiting to move from the GP to see the consultant.

This is out of a population of some 60 million people. If there are a million, maybe a million and a half people waiting, when I wander around London, most people are well. Anecdotally, I almost ask myself the question, "Where is the £50,000 million going?" Today, the NHS by international comparison has a very, very poor record in all kinds of important areas such as cardiology, cancer treatment, and survival rates. Today, rather like corks bobbing on the tide of history, our political classes in Britain are trying to manage a service; but whatever they do, the sand just runs through their fingers, and they're desperately trying to reform the system and to deal with ever higher consumer expectations.

"Internal Market" Reforms
In the early 1990s, the government introduced what they called the purchaser-provider split, which is a kind of internal market. The NHS hospitals were given what was called trust status, and general practitioners were freed up somewhat to purchase their services from different hospitals, hospitals out of their area, and in some cases do a little bit of purchasing from the private sector--although if you were an NHS manager and you really wanted to be a high flyer and have a good career, that probably wasn't advisable.

Also in the 1990s, we continued to see the increasing contracting out of services. First it was laundry in state hospitals that went to the private sector. Today, it's all kinds of things: path services, some diagnostics.

We also have a program now attached to the NHS called the Private Finance Initiative. The government has owned up to the fact that it can no longer afford to build any new hospitals. If the NHS actually wants to build a new hospital, it has to seek finance from the private sector. Then, when the private sector has built a new NHS hospital, the NHS will effectively rent it under a lease for a certain number of years. It's a kind of off-balance-sheet accounting model.

I think there is a case that, sometimes in Britain, whereas the Conservatives on the right are trusted with industry and they tend to be trusted historically with economic issues, the Labor Party is trusted with the human services: education, health, policing in many ways. In that sense, if you are going to continue to perform the NHS, it has to be done perhaps under a Labor government because if they contract out a service, if they want to perform a partnership with private banks, if they want to perform a partnership with the private sector, Mr. Blair says, "It's okay because you know we in the Labor Party believe in health care." The British public are more prepared to buy that than perhaps they would from a wicked, cold-hearted Conservative.

Historic Change
It's with that in mind that my organization has signed a historic deal with Tony Blair and his minister of health recently which is called the Concord Act. The Financial Times called this the most important document in the 50-year history of our National Health Service. It's called "For the Benefit of Patients." What it really means is that if you are an NHS patient and you need an intensive-care bed, or you need some form of elective surgery or whatever and you can't, perhaps, get it in time, the NHS is now encouraged to mobilize the services available in the private sector.

There's a huge agenda of clinical governments, a revalidation for medical professionals, but there is, fundamentally, a broad acceptance of the mixed economy in health and social care now in Britain. I want to touch very briefly on the size and scope of the independent sector.

Rise of the Independent Sector
Under the radar of popular politics and the crisis that has over the years befallen the NHS, we have indeed seen the re-emergence and the growth of an independent sector. If I now look at 230 independent hospitals that we have, the 70 independent mental health and substance-abuse units, or the 15,000 nursing and residential homes, then I see we again have a total of 460,000 beds in the independent sector.

That compares with the National Health Service and with local authorities on long-term care provisions. They have a total of 356,000 beds. So in a world away from the promise of 1948, when the government was going to do it all, you can see there has been a significant evolution on the side of provision.

  • The independent sector now employs three-quarters of a million people. It provides over 85 percent of all residential community care, and it undertakes 20 percent of all elective surgery.

  • Some 14 million people in Britain make some sort of regular financial contribution to health care. There are 7 million people who have private medical insurance; in addition, there are another 7 million people who have what are called the health cash benefit funds, or critical illness, or permanent health insurance, or they simply self-fund. This is not to mention the vast number of people who now seek private dentistry or alternative therapies.

  • In 1981, the independent sector was doing around 200,000 surgical procedures a year. In 1997, when Tony Blair was elected, we were doing around 900,000 surgery procedures a year. Today it's over a million.

Today, in the cultural wake of what has already happened, in a sense, the Prime Minister accepts the individual's right to choose independent health and social care. There is a commitment to keeping the purchaser-provider split in the National Health Service, and through the Concord Act, the NHS can contract ever more with private providers. Ever more private finance is going into the NHS under new forms of public-private partnerships. Labor even encourages local authorities now to turn to the private sector to provide long-term care.

Consider the rhetoric of the left and right. If you get any British Conservative politician to talk about health care, the Conservative will talk about the importance of individualism, personal responsibility, choice, enterprise, building a property-owning democracy. Any New Laborite will talk about community, the importance of self-help, their belief in diversity, in welfare provision and health care provision, how everyone must have a stake in the society they're a part of, and how the government wants to build a partnership with the private sector.

Diversity or choice: How could you have choice without diversity? Self-help or personal responsibility: What's the difference? Have you ever known an enterprise that didn't enter into partnership with consumers that have contracts? The rhetoric that the left are overlaying on our health and welfare debate is a rhetoric that is enabling the continuation of positive reforms.

  • Today in the U.K., we're seeing a dramatic increase in the number of people who are turning away from the NHS, and many people who have no private medic insurance are simply self-funding. One in five people who go into British private hospitals just take their credit card or cash, or it's the family clubbing together to buy Mom a heart bypass or Dad a hip replacement. Probably nearly 200,000 surgical procedures a year now are done on that basis.

  • We're seeing a dramatic increase in number of people covered by the health cash benefit schemes. Five years ago, 3 million people were covered by those schemes. Today it's probably between 5 and 6 million.

  • We're seeing a continuation in the growth of private medical insurance, probably about 2 percent a year in coverage.

  • We're seeing recently the launch of private prescriptions for even NHS patients. For example, if you want Viagra, the NHS will no longer pay for it. You have to go private in many instances.

  • We've seen the NHS independent-sector Concord Act. We're seeing the continuation of contracting out of NHS work. I believe in the next few months we're going to see the introduction of private management teams into what will be called or deemed the failing of National Health Service hospitals.

Progress Toward Privatization
When you have hospitals in the NHS that are built with private money, when you have lots of services contracted out, when you have a partnership with private providers, and then you bring in private management teams, you are in my book entering the privatized world. You are really beginning to return the NHS to some sort of independent-sector order.

So I see the future of the NHS as a funder. It will remain as an important funder in the U.K. for many years. A lot more services will be purchased by people themselves for insurance or self-funding. But the NHS as a provider will go into decline. I think most provisions will return to the independent sector.

Problems with the single-payer system, to follow what David was saying, include the politicization of health care, the vast amounts of producer capture, resource misallocation, irrational rationing, vast amounts of regulation, services not really reliant upon reputation, but only on position, on uniformity rules and poor consumer focus. But in an age dominated by the psychology of consumerism, as in so many other areas of daily life, the British people are learning to empower themselves in the market. This is particularly true of younger people in their 20s and 30s who are no longer prepared to wait for a year for surgery. Certainly, they don't believe the NHS will be there for them in 10 years time. In the U.K., therefore, the health care system is evolving away from its "Sovietized" past.

If I could just briefly, as my last comment, read from a book that I discovered a little while ago called The British Socialist Illfare State, written by Cecil Palmer. He wrote this book in 1950 or 1951. It was published in 1952. Very sadly, he died just before it was published, and he died just before he was going to come to the United States that year to give a series of lectures on what he believed the NHS was going to do in Britain and to warn Americans to keep away from Sovietized nationalized medicine.

He dedicated this book "In humble tribute and admiration to libertarians everywhere, but especially to those whose friendship and loyalties I possess in Great Britain, the United States of America, and Canada. Forward, guardians of liberty." And he wrote:

The degradation of British medicine under socialism is becoming more obvious every day, even to those who initially and sentimentally gave the National Health Service Act their enthusiastic support when it became operative in July 1948. This progressive disillusionment reflects the financial, structural, administrative, and social limitations of socialistic legislation in a hurry. The trouble with theoretical socialism is that although possibly it makes pleasant reading on an unpleasant Sunday afternoon, it just will not work in a society which still retains and cherishes the principles of individualism. As long as I am capable of writing and public speaking, I will continue to iterate and reiterate that if socialism will work at all, it will only work under compulsion. Liberty and socialism are incompatible.

In less than three years of nationalized medicine in practice, doctor and patient have discovered, perhaps too late, that social reform and socialism are not necessarily one and the same thing. I have never met anyone anywhere prepared to deny that the detection, prevention, and cure of disease are palpably inescapable obligations imposed on any society that claims to be civilized. There is no quarrel about the existence of the problem. The challenge arises from the method and the manner of its solution.

I'm so proud to be able to read those words from Cecil Palmer, who I know would love to have delivered that warning in 1952, to Americans and to Canadians, but he wasn't able to do it. As you've heard from my talk, we've had to go through many decades of pain and suffering, and there are over a million people in Britain waiting today for treatment and care. Please, please heed the warnings today that he wanted to give you half a century ago.


RICHARD TESKE: It's always an honor to address an audience at The Heritage Foundation. I think you'll all agree that we have just heard two fascinating presentations.

In talking about national health care systems, I'm reminded of a favorite Monty Python routine. Eric Idle walks into an office. Behind the desk sits Michael Palin, and Idle--let's call him Mr. Smith--comes in and says, "I'd like to make a claim on my auto insurance." Michael Palin says, "Well, what's your name?" Idle answers, "Mr. Smith."

Michael Palin walks over to the file cabinet, looks for the policy, and says, "Oh, yes, Mr. Smith, this is our very finest policy." And Mr. Smith says, "That's fantastic." Palin says, however, "There is a clause here that this policy shall remain in effect until such time as a claim is made." Smith says, "Well, it isn't very much of a policy then, is it?" And Palin says, "Oh, no, it's our finest policy, unless you have to use it."

Promises of a single national health system always sound so much better than the reality. That is the Faustian bargain of all socialized economic systems. Those systems may start out in different places, as we've heard, but they always end up in the same place: price controls, rationed access, and second-tier quality.

The reason for this is very simple. The problem is structural. There are three essential elements to every health system: cost, access, and quality. How you handle those three elements determines your structure, and it determines your outcome. For example, in the old Soviet-style health systems, in order to preserve egalitarian communist access and to control costs, quality suffered. Look at Cuban health care today.

In socialized systems of democratic countries, in Canada and Western Europe, in order to control costs but keep quality high, access to care had to be rationed, as we just heard. In America, we wanted both universal access and high quality for both Medicare and Medicaid. The result was inevitable: Costs soared.

Those two programs, from being essentially $1 billion programs in their first year of operation, which was 1967, have now soared to almost $300 billion for Medicare and over $200 billion for Medicaid. As I said, it was inevitable because it was structural.

Exploding Costs
Wilbur Cohen, a former Secretary of Health, Education, and Welfare, and also one of the chief architects of the Social Security Administration, Medicare, and Medicaid, explained the reason for Medicaid's uncontrolled growth: "Many people since 1965 have called Medicaid the sleeper in the legislation. Most people did not pay attention to that part of the bill. It was not a secret, but neither the press nor the health policy community paid any attention to it."

The inevitable result: President Lyndon Baines Johnson, the author of the Great Society programs, was calling attention to the cost overruns before he even left office in 1969. In fact, we were spending by 1970 what was projected that we were going to be spending in 1990.

So in the 1970s, typically, we instituted health planning areas, certificates of need, peer review, wage and price controls, and construction moratoriums on hospitals and nursing homes. In the 1980s, it was new federalism, program swaps, deregulation, and hospital and physician fee freezes, and then national fee schedules. In the 1990s, we tried targeting specific new populations that greatly expanded government coverage--pregnant women and children, the uninsured, and the children's health program, for example.

Bureaucracy and Red Tape
We looked for "managed competition" to be the solution du jour in the early 1990s. In reality, managed competition was neither managed nor competitive. What it was, was the ultimate conclusion of all socialized entitlement programs: rationed care. This is because these programs are defined benefits programs. Again, this problem is structural. The bureaucratic levers to control access, quality, and costs are changes in eligibility, benefits, and reimbursement. Bingo, whoever said "bureaucracy."

In a defined benefits program, eligibility and benefits are fixed and universal. It's costs that are variable. This means that if you are eligible, you are entitled to all the benefits, regardless of the costs to the government or the taxpayer. Thus, the name "entitlement program." Politically, it is almost impossible to cut benefits or eligibility, as we heard earlier today. Note the present pressure for expanded benefits like pharmaceutical coverage, or moves to guarantee access like the patients' bill of rights.

So it usually falls on providers and reimbursement to control costs. But wage and price controls, no matter what their name, always have an impact on quality, again as we heard today.

We are a long way from the 1970s attempts at cost controls. Eventually, we must ration access to care because it is inevitable. This devolution into a rationed and price-controlled system with poor quality has already occurred in America. It is called Medicaid. As John Iglehart, the editor of Health Affairs, has said, "Medicaid's architects," of which Wilber Cohen was one,

envisioned a program that would provide poor people with mainstream medical care in a fashion similar to that of private insurance. As the decades have passed, that vision has largely faded and several tiers have emerged. Mainstream medical care is provided to people with Medicare, or private insurance, but poor people must continue to rely on providers that make up the nation's medical safety net.

Remember: Because it is structural, Medicare is following Medicaid into rationing.

Future Shock
In addition to working in health care, I've also worked in the information technology field. We are witnessing a brave new world where, as I call it, the chip marries the cell. Most troubling is that the financing of our entire health care system may collapse with the cost of new scientific discoveries such as the mapping of the human genome, stem cell research, slowing the aging process, and cloning. The costs will be as astronomical as the philosophical questions.

Finally, the aging of the population means an absolute and real fivefold increase in long-term care spending by the year 2020. Note that half of all long-term spending comes from Medicaid. Also note that one-fifth of all present state spending is for Medicaid. If you multiply 20 percent times 5, you come up with 100 percent for Medicaid for state budgets. This means that the Medicaid program and long-term spending alone could bankrupt every single state government within a generation.

For Families USA and the Health Insurance Association of America to put an increased burden on this already overburdened government program is unconscionable. We should be looking at creative ways to stimulate private sector coverage. It appears that the arrogance and snobbery of the British physicians in the late 1800s who didn't want to treat the poor has now been transferred to the Health Insurance Association of America because they don't want to cover the poor. That's the only way I can rationalize that.

A New Approach
At the end of the day, there is only one philosophical alternative to single-payer systems: a consumer choice-oriented, market-based plan called the defined contribution approach. In the defined contribution approach, costs and eligibility are fixed. It is the benefit that is variable.

We have already seen changes in the private pension field like this. In the old days, everybody's pension plan was being calculated, and it was a defined benefit. So many years, so many this, so many that: one size fits all. Employers had to get away from that, and they went to a defined contribution approach where they gave you a defined contribution, called a 401(k) in most instances, and said, "Okay, here is your money. You invest it the way you want to. This is my contribution to your retirement. I'm not going to guarantee it through this old defined benefit program."

We've already done it in pensions, it's now time to do it in health care. A system broadly similar to the Federal Employees Health Benefits Program for private and public health care programs is the only philosophically coherent and politically viable alternative to single-payer plans.

Make no mistake: There is no halfway measure in between. As Dr. Evans noted, socialism and liberty are incompatible. If we don't turn to this defined contribution approach, we will be stuck with a socialist, defined benefits welfare entitlement approach. It will be our very best plan--unless you have to use it.


David Gratzer

Policy Analyst, Transportation and Infrastructure

Richard Teske

F.M. Kirby Research Fellow in National Security Policy

Timothy Evans

Professor of Business and Political Economy at Middlesex University London

James Frogue

Senior Fellow and Director of Government Finance Programs