Reorganizing The Financial Flows In American Health Care

Prologue: When American health policymakers discuss health care reform, what they really are discussing is reform of the financing and delivery of health care, not of the care itself. Most of health care financing deals with the flow of funds from U.S. households into health insurance funds (both governmental and private), whose responsibility it is to disburse those funds to various providers. As Uwe Reinhardt describes the process, American employers enter the picture as “pumping stations” for this flow of funds. “Whatever contribution private employers may have made to American health care is tempered by the deception, inadvertent or not, that probably has served to indoctrinate millions of American workers with a firm belief in the free lunch,” Reinhardt writes in this essay. The myth of the free lunch—that is, that employers are paying for the health care of their employees—has been the basis for “an unseemly pas de deux among employers and employees that may well have been one of the major cost drivers in American health care,” he continues. The funds that businesses spend on health care are recouped in the form of higher prices, lower returns, or reduced wages. Whatever their shortcomings, employers are firmly settled in their position in the U.S. health care system. Given this, Reinhardt argues, they should be limited to tasks for which they are well suited: collecting payroll-based premiums and passing them on to health insurance funds. In the context of managed competition, employers would simply remit payroll-based premiums to health insurance purchasing cooperatives. A governmental “fail-safe” plan would ensure universal coverage. Reinhardt is James Madison Professor of Political Economy at Princeton University. He is a prolific and often irreverent commentator whose views appear often in the nation s medical, economic, and policy journals and the popular press. Abstract: The essays in this volume concentrate heavily on “managed competition,” which is merely a particular form of controlling the flow of funds from an insurance pool to the providers of health care. By contrast, this essay emphasizes the funneling of money into the insurance fund. It is argued inter alia that American business has been a quite unreliable partner in the financing of American health care and also a major cost driver. A reformed health system should reduce the role of business to the mere collection of premiums at the nexus of payroll.