Newest Public Utility? Health Care

Henry J. Aaron
Henry J. Aaron The Bruce and Virginia MacLaury Chair, Senior Fellow Emeritus - Economic Studies

January 25, 1996

I have a dream. Well, more of a nightmare, actually. It concerns the future of the U.S. health care system. The era of private market reform is upon is. Managed care is sweeping the world of private insurance. States are increasingly shifting to managed care for their Medicaid programs. And Congress seems disposed to bring managed care to Medicare as well. What lies ahead?

No forecast is reliable, but some trends are clear. The number of uninsured, now over 40 million, will grow. Private employers, who provide insurance for most workers and their families, are curtailing coverage and increasingly buying services they once produced internally from outside suppliers that do not provide health insurance. Budget cutbacks are likely to thin the ranks of Medicaid recipients.

As insurance coverage dwindles, access to care for the uninsured will dwindle. Hospitals and physicians covered the cost of care for the uninsured by charging high prices to the well-insured. The capacity of providers to do so is shrinking as managed care plans negotiate aggressively for discounts.

Even the well insured will feel constraints. To keep down costs, managed-care plans will try to curtail services that produce small benefits related to costs or that patients undervalue. In plain English, these organizations will ration care, husbanding savings so that their members can enjoy some of the fruits of new medical technologies and so that growth of medical costs can be kept to a socially acceptable rate.

What comes next is more speculative. Popular discontent is likely to grow, as the numbers of uninsured increase, their access to care diminishes, and the middle class experience rationing.

The traditional method of dealing with problems of inequality and poverty in the United States has been one form or another of government assistance. This assistance could take the form of publicly supported clinics or hospitals. Or support for public measures to increase insurance coverage could reemerge.

Those same pressures will reduce the number of managed care firms until a few become dominant in each community. Even now, pressures for federal regulation of managed care firms are growing.

People have been reluctant to repose power to ration in government bureaucrats, who have nothing personal to gain from decisions they make. As cost-cutting intensifies, it seems unlikely that people will be willing to cede such sensitive authority to well-paid managed-care executives who make larger profits every time they decide some procedure is not worth what it costs them.

The nation is likely then to see health care delivery as a kind of public utility and to subject it to the regulation usually imposed on utilities. Government also will assume responsibility to assure the delivery of health care to those who are uninsured or who, but for government intervention, would be uninsured.

Through this circuitous route, all Americans will achieve access to health care. Government will play a major part in setting the policies of health-care providers. Although that role will differ from the one envisaged by advocates of government-sponsored national health insurance, it will be far more extensive than that desired by proponents of market-based competition.

Whether the future follows this course is still unclear. What seems clear beyond serious argument is that the long period during which the achievement of national health insurance through government action was part of an unfinished agenda ended with the Clinton health-plan debacle.

The agenda has shifted from one of trying to assure access to care for all to one of limiting spending to what we can afford. How natural, but, in another sense, how puzzling. How do such other developed countries as Canada, France, and Switzerland manage to assure high-quality care to all while spending as much as one-third less than we do?