Checking In With Victor Fuchs

Victor R. Fuchs is a Stanford University Health Policy core faculty member and the Henry J. Kaiser, Jr., professor of economics and of health research and policy, emeritus.

In 2005, Fuchs and Ezekiel Emanuel, an oncologist and Ph.D. who now serves as a special adviser for health policy to the director of the White House Office of Management and Budget, proposed the current U.S. health care system be replaced with a voucher system for universal health care. Under the proposal, every American household would receive a voucher entitling its members to choose and enroll in a private health plan that would be required to provide coverage for basic health care needs such as doctors’ visits, hospitalization, pharmaceuticals and catastrophic coverage. People would be able to supplement that coverage by buying additional insurance or paying for services on their own.

To Dr. Fuchs’ frustration, the voucher proposal is not being considered as part of the current national debate about health care reform. Despite being a supporter of President Barack Obama, Dr. Fuchs suggests that the president and Congress are more interested in getting a reform proposal that can pass than getting a plan that will curb health costs over the long run. Dr. Fuchs spoke recently about health care reform with Laurie McGinley, KHN Executive Editor for News.

Q: How do you think things are going?

A: I was an early and enthusiastic supporter of Obama… He’s smart, articulate and politically adept. But I’m quite disappointed with what he considers a major overhaul of the system. I give him leeway in some things… but I don’t give him leeway on the things he says that I know are basically wrong.

Q: What’s he wrong about?

A: You start off with the way he’s going to save money: prevention. There have been hundreds of studies showing you don’t save money on that stuff.

Then he says he’s going to save a lot of money through electronic medical records. If you are pushing out electronic medical records within the existing system, the way it’s organized now, fragmented, with a lot of people in solo practice, small groups, fee-for-service, you are just throwing money away…

Most of these stories he tells about the way he’s going to save money don’t ring convincing to me when they are accompanied by the repeated insistence, “If you like what you have, you can stay with what you have.” A big part of the problem of the high cost of medicine is precisely because of the system we have. If you don’t contemplate changing that system, everything else is kind of a pretense.

Q: You are no fan of the public plan? What’s your argument against it?

A: I have nothing against the public plan. I think it’s a mildly good idea. But it’s not the same thing as reforming health care…

Cost shifting doesn’t do anything about the real cost of health care…People say the employers should pay some, the government should pay some…It’s families and individuals who end up paying for it…either in foregone wages or in higher prices on what business sells or…in higher taxes. It’s just us out there. The name of the game in Washington is to try to hide who is bearing the cost.

Take the idea that insurance companies shouldn’t charge different premiums [based on health status]…From the point of view of equity, that has a lot of appeal. Why should a person who is sick have to pay more? But it’s an example of cost shifting, … healthy people will end up paying more.

Q: What do you do about that?

A: First you look at why are costs in the U.S. roughly double the cost of the average [country in the Organization for Economic Co-operation and Development.] The first reason I would point to is administrative costs which … are far more excessive than what you would have if you had a more straightforward system…You have brokers, you have the insurance companies administrating and marketing, you have the bureaucracy set up to determine eligibility… And the insurance companies keep it complicated because it works out better for them.

We have a much higher ratio of specialists to primary care physicians than every other country… The spending on care is very highly correlated to the ratio of specialty care to primary care.

We have too much standby capacity. We do three times as many MRI scans as Canada, but we have four times as many MRI machines… In the U.S., you are more likely to find what you want quickly, have less of a wait to get specialty service and it might be more conveniently located. Those may be considered good things, but they contribute to higher costs.

The way they constrain spending in some other systems, they have a fixed budget… and we have in some ways, open-ended financing… Medicare guarantees certain benefits to seniors but doesn’t say what the total cost should be.

Q: Explain the voucher you and Zeke Emanuel proposed.

A: You have a single dedicated tax, I prefer the VAT (value-added tax) because it’s more difficult to evade when you have to pay on what you buy… Objections that liberals raise is that it’s a regressive tax, but they aren’t looking at the total package… If you are a person with $20,000 in income and the tax is 10 percent, and you pay $2,000 in taxes a year but get a policy worth $7,000 to $8,000 a year, that’s very progressive.

It’s a virtual voucher. You have a choice of a variety of plans that agree to provide a defined package of benefits for the risk-adjusted value of the voucher. People enroll in the plan, the plan itself gets paid the risk-adjusted value of the voucher by the government.

If the public wanted a more generous basic plan, then they have to be willing to have a higher tax to pay for it…

And you have to let people buy more [coverage] if they are willing to pay for it with their after-tax dollars.

Q: You have said that people are polarized–that on one side, there’s a pathological hatred of the insurance industry and on the other, a pathological fear of the government. What’s the answer?

A:…The American public is very loath to sacrifice anything to achieve universal coverage… The only way you can get this through is to make the average person think that it isn’t going to cost them anything. So unfortunately… I think [Obama] hasn’t done the kind of long, hard work that needs to be done. I think it’s going to take several years of hard education work…to come up with a really good reform plan.

What we’re seeing with health care reform is what we saw with the stimulus package. It wasn’t targeted, timely and temporary. It was a stimulus package you could pass… Remember what [White House Chief of Staff] Rahm [Emanuel] said… the only nonnegotiable thing is success. But it all depends on what you mean by success.