CHAPTER 16 Medicine and Inequality
This chapter discusses finance of medical care in the United States. It discusses the history of medical
finance in America and Canada. Its essential question for discussion is: should a just American society
create a medical system to guarantee minimal care to all citizens?
Rosalyn Schwartz Rosalyn Schwartz, age 47, white, lives in Ridgefield, New Jersey, and has a son, Andy.
When she divorced in 1987, she lost the medical coverage from her hus- band’s job. 1 The gift-wrap
company where she works with five other employees (making around $19,000 a year) provides no medical
coverage, though it might do so soon.
When Rosalyn tried to buy an individual policy, because she had an ulcer, a preexisting condition ,
insurance companies offered her only policies that excluded treatment for ulcers and that cost $4,000 a
year. In 1988, she found a small lump in her breast. Her physician said it might be cancerous and
recommended removal, but Rosalyn postponed the lumpectomy, hoping that her employer would soon
provide coverage. In 1989, Rosalyn felt pain tear through her hip. By then her breast cancer had
metastasized and had eaten into her hip, making her bones as fragile as glass. When she slipped and fell to
the floor, her hip socket shattered. In the ambulance, she sobbed and could think only of costs. “Andy,” she
said. “I have no insurance. Tell them [at the hospital] I have no insurance. But you’ve just turned 18. Don’t
sign anything or you’ll be responsible.”
Some cancers are cells gone wild, so they must be excised and radiated as soon as possible. If such cancers
reach the bone, it’s bad. Hospitalized for 23 days, Rosalyn underwent three surgeries. The total cost was
$40,000, half paid by charity. Rosalyn owed the rest, which she paid off at $10 a month to each of 12
physicians and the hospital. Unable to work after her surgery, Rosalyn received disability under Medicare
amounting to $10,500 a year. Attempting now to purchase personal medical cov- erage, she discovered it
would still cost her $4,000 a year, but it would not cover ulcers or cancer. Lacking such insurance, she
forewent physical therapy, as well as bone scans every six months to check whether the cancer had
returned. A decade later, Rosalyn died. 2 Such is the life of one middle-aged working American woman
who got sick and, after her divorce, had no medical coverage. 3 In 2008, filmmaker Michael Moore made
“Sicko,” a devastating, funny cri- tique of the various ways our patchwork system of insurance seeks to
profit by denying coverage and by excluding benefits for sick people who need them (this film can be
easily rented; parts of it are available on YouTube).
Medical Coverage in the United States Universal medical coverage supports basic medical care for all
citizens in a nation. One form is a single-payer system administered by one organization, usually a
governmental agency, and funded by taxes. Most European countries provide single-payer, universal
medical coverage, including Austria, Belgium, Denmark, Finland, France, Germany, the Netherlands,
Norway, Portugal, Spain, Sweden, and the United Kingdom. So do Australia, Canada, Cuba, Japan, New
Zealand, South Africa, and Taiwan. America differs from other developed countries in having high
expenditures per capita on medical care, yet not providing coverage for one-sixth of its citizens. The
Institute of Medicine estimates that this gap leads to unnecessary deaths each year of 18,000 Americans. 4
Another form of universal medical coverage is mandated multi-plan coverage where every citizen must
purchase some form of medical coverage, either from a private or public plan, and all plans work under
some governmental regulations. This is also called a play-or-pay program ; its name comes from focusing
on options for small employers, who must either play by offering medical insurance or pay a fine per
employee for not doing so.
Massachusetts and Vermont recently led the way toward universal coverage. Their programs compromised
between the right, which had pushed medical sav- ings accounts, and the left, which had pushed a
government-managed, single-payer system like Canada’s. They required every citizen to have health
insurance. Begin- ning in 2008, each citizen who filed a tax return had to indicate if he had health
insurance; if he did not, he had to pay $129 extra in taxes. Insurers who did business in these states had to
turn over lists of their clients to the state health department. 5
American’s Patchwork System of Medical Finance Because America lacks one unified system of medical
finance, explaining how the country’s finance works is complex. America essentially has stumbled into a
five- part patchwork system that covers most serious problems for most people most of the time, but which
still allows some people to fall through the cracks. The section that follows describes these six parts. 1.
Employment-Based Coverage and Private Medical Plans About half of Americans get medical coverage
though their employment. 6 This includes their spouses and children (including adult children up to their
mid-20s). Coverage in retirement varies according to the largesse of the employee’s former employer.
As a benefit to employees, employers provide medical coverage. Employers with many employees can
negotiate lower rates than employers with few workers because larger numbers spread the costs of illness
over more people. Because of their discounts, large employers usually offer the best medical plans. Since
World War II, private insurance plans have multiplied to over 300, each with its own rules, qualifications,
reimbursement rates, and forms to be filled out by patients and physicians. 7 For the average physician, two
full-time clerks deal exclusively with billing and insurance. One disadvantage of employer-based coverage
comes with small employers. As said, employers with fewer than 25 employees pay the highest rates. Small
businesses trying to allocate capital for expansion, or struggling to make profits, or that cannot obtain
inexpensive coverage, often cease to provide medical cover- age to employees.
A second disadvantage of an employment-based plan is that when workers leave jobs, medical coverage
eventually ceases. In 1985, Congress passed COBRA, 8 allowing employees to continue medical insurance
at group rates for 18 months by paying their share plus the employer’s share of their former premiums.
COBRA also covers spouses after divorce and also covers adult children. 9 Even with COBRA, many
employees cannot afford to continue their coverage because (like Rosalyn Schwartz, who was eligible) they
must now bear all this cost themselves, including the employer’s former share, which may have been as
high (for Ameri- can auto workers) as 95 percent of the policy.
In 1996, the federal Health Insurance Privacy and Portability Act (HIPPA ) required portability (i.e.,
transferability) for workers between similar plans and banned excluding preexisting conditions in such
transfers (without this ban, workers with any medical problem would be trapped in their existing job). A
third disadvantage of employer plans is cost shifting. American hospitals are not reimbursed for providing
medical care to the poor, but federal law for- bids them from turning patients away in emergency rooms
because of inability to pay. To compensate for losses from this care, hospitals shift costs and charge more
for services for insured patients. Large employers resent such cost shifting, because it forces them, but not
small employers, to subsidize the indigent. For this reason, large employers favored universal coverage in
Oregon, Vermont, and Massachusetts. A fourth disadvantage of employer-plans is that American employers
claim the cost of insuring their employees is too high. In 1990, over $675 of the cost of each new Ford
vehicle went to pay for medical coverage for employees. 10 Ford’s retired employees had such generous
coverage, with neither co-pays nor deductibles, that Ford and GM could not compete with foreign car
companies. 11 In 2008, the huge financial burden of medical coverage for their employees and retirees
helped cause the collapse of American automobile companies. Because of such high costs, some big
employers (like many universities) created a two-class system with regular employees with salaries and
good benefits versus part-time employees with no benefits.
A fifth disadvantage of the employment-based system occurs when illness or injury dislodges workers into
chronic unemployment. Many people became poor
because of medical conditions (cancer, schizophrenia, car accident) that then made them less desirable to
employers who seek to reduce medical costs. People who are unemployed or who work for a small
company that offers no medical insurance may buy individual policies. About 7 percent of Americans do
so, including the self-employed, seasonal workers, adult students, and people between jobs. However, as
Rosalyn Schwartz discovered, individual policies usu- ally are expensive and exclude just what is needed.
2. Medicare When Americans reach age 65, Medicare covers about 80 percent of their expenses for
hospitals and physicians. Medicare in 2005 covered 35 million Americans. Medicare is a single-payer
system run by the federal government. In creating it in 1965, Congress moved toward universal coverage.
Lyndon Johnson wrangled it into law and aimed at helping poor, elderly people during illness, but Congress
soon extended it to all Americans over 65. The creation of Medicare stemmed from the evaluative premise
that healthy, young citizens should pay for the medical care of sick, elderly citizens. A related idea lay
behind Johnson’s creation of the Great Society legislation of the 1960s, which created Head Start, food
stamps, VISTA, and Aid to Families with Dependent Children (AFDC).
Medicare gave the elderly a medical security they had never previously known. Before, many elderly
Americans worried whether they could afford phy- sicians and hospitalization. Before, retired workers were
on their own for medical coverage. Before, entering a hospital terrified the elderly for both medical and
financial reasons. Medicare also covers about four million people with disabilities under age 65, plus a
hundred thousand people on dialysis under the End-Stage Renal Disease Act (ESRDA). The Medicare
program in 2009 covered about 40 million Americans. 12 Medicare is financed from mandatory payroll
taxes—indicated on paycheck stubs as FICA (Federal Insurance Corporation of America). Medicare in
2005 cost $265 billion. 13 In 2006, a Republican Congress under George W. Bush surprised its critics by
expanding Medicare to cover costs of drugs for seniors in both sides of a “donut’s hole,” i.e., some initial
costs, then a big gap, then all costs after the end of that gap.
3. Medicaid A third arm of American health care is Medicaid, which also began in 1965 as part of
Johnson’s Great Society legislation. As a state program covering medical services, each state funds it
differently, but federal matching funds guide each state’s efforts and enforce national guidelines. All state
Medicaid plans costs state taxpayers $35 billion in 1993, but these costs escalated over the next 20 years.
14 “Entitlements” or “mandates” for medical services are the fastest growing part of state and federal
budgets, and unless brought under control, they are predicted to
wreak havoc on budgets, starting in 2010. Already in 2009, the recession forced state governments to
choose between hospitals and prisons, schools and vaccinations. Medicaid covers medical expenses only
for poor people, especially those on public assistance, children of poor parents, poor seniors, people with
disabilities, and adults with mental illness. So Medic aid aids the poor, whereas Medi care cares for the
elderly. Eligibility for Medicaid varies with each state. A citizen could qualify for Medicaid coverage with a
much higher income in California than in Alabama. In New York in 2005, a single parent with two children
could not have resources more than $6,000 or income more than $1,000 a month and qualify for Medicaid.
What Medicaid covers also varies from state to state. Over the last two decades, MediCal, MassHealth, and
TennCare have covered the most services, and hence, had the most problems with their budgets. Medicare
does not cover nursing homes and long-term care. Only Medicaid does so. To qualify for Medicaid
coverage for a nursing home, a senior citizen must exhaust all personal wealth, including sale of a personal
home. To avoid sneaking around these rules and transferring assets to adult children, Medicaid now penalizes such transfers in the five years before application for a nursing home.
For people with mental illnesses such as schizophrenia, Medicaid pays for their drugs. Because most of
these people take such drugs for life, state Medicaid plans pay a lot of money for their drugs. Like working,
poor parents, people with schizophrenia face a dilemma between not working and getting their drugs free
through Medicaid versus working a job with poor coverage for mental health and getting no drugs for their
illness. The bailout of 2008 by the federal government of American banks oddly included the Mental
Health Parity Act, requiring insurers to cover by 2010 mental illnesses in the same way as physical
illnesses. 15 This act was motivated partly to reverse incentives not to work. An especially controversial
aspect of American medical finance has been coverage for illegal immigrant workers. The Deficit
Reduction Act of 2005 forbids Medicaid from covering services to noncitizens.
4. CHIP Starting in 1997, the federal government began the State Children’s Health Insur- ance Program
(sCHIP, where the “s” is a placeholder for each state, e.g., UtahCHIP). Designed for those who earn too
much to qualify for Medicaid yet are unable to cover their children through employment or private
insurance, sCHIP works with each state’s Medicaid program. Under it, children can obtain check-ups,
prescrip- tions, dental work, and eye care, as well as services at hospitals and by physicians. The first act of
Congress under President Barack Obama in January 2009 expanded sCHIP to cover 4 million additional
children, up from 7 to 11 million, paid for by increasing federal taxes on cigarettes. Before sCHIP, poor
working parents faced the dilemma of going to work, losing eligibility for Medicaid, and then losing drugs
and services of physicians for their children. If they became unemployed, they and their children became
eligible for Medicaid. The sCHIP program thus reverses incentives for not working.
5. CHAMPUS/Tricare and the Veterans Administration Hospital System A different medical system covers
military personnel, their families, and veter- ans. While on active duty, members of the armed services see
physicians through CHAMPUS/Tricare, which pays for them to see military or private physicians.
According to its website, “CHAMPUS is a health benefits program that cov- ers medical necessities only. It
provides authorized in-patient and outpatient care from civilian sources, on a cost-sharing basis. Retired
military people are eligible, as well as dependents of active-duty, retired, and deceased military.” 16
Veterans may utilize a national system of hospitals and clinics run by the Veterans Health Administration
(VHA). Founded after World War II in apprecia- tion to America’s veterans, the VHA is based on the moral
premise that no one who served in the armed forces should later lack medical care. The second-largest
department of the federal government, with a budget of more than $60 billion, the VHA employs more
physicians and nurses than any other institution in America. In recent decades, it has shed its reputation for
shoddy care and has emerged as a national leader of good, efficient, electronic, medical care. 17
The VHA covers veterans not only for surgery, drugs, and visits to physi- cians, but also for mental illness
and long-term care in nursing homes. The Armed Services also run their own medical schools and pay for
their members to attend nursing and medical schools in regular programs.
6. Health Care in Emergency Rooms Part of America’s medical system is the Emergency Medical
Treatment and Active Labor Act (EMTALA) of 1986, which forbids emergency rooms from turning away
patients who are medically unstable. All ER patients, regardless of coverage or ability to pay, must be
stabilized before they are released. This federal requirement means that emergency rooms serve as a
national safety net for the uninsured and for illegal immigrants. States with large numbers of these kinds of
patients face escalating costs for such coverage.
Medical Coverage in Canada Canada has a fund for national medical coverage that functions much like
Social Security in America. It covers every Canadian and all medically necessary services. It is also
universal, portable, and publicly administered through a single payer. High taxes on cigarettes, alcohol, and
gasoline finance Canada’s system. Each Canadian province sets its own policies by regulating the supply of
services. For example, each province funds only a small number of hospitals with CT scanners and
lithotripters (expensive machines that break up kidney stones with sound waves). The Canadian system
became national in 1962. Unlike America, private insur- ers do not restrain what tests Canadian physicians
can order. Such physicians order whatever tests they want for patients and the tests are covered.
It is a myth that physicians in Canada work for the government. Like American physicians, they work for
themselves and bill on a fee-for-service basis. Unlike American physicians, Canadian physicians cannot
collude to raise fees. The Canadian system for two decades has cost less than $2,000 American dol- lars per
capita and covered all Canadians, whereas the American system has cost over $6,280 per capita and left 46
million Americans uncovered. 18 Canadians boast about their medical system, especially when contrasted
with the American system. Why? Here are some reasons. First, Canadians live to about 80 years of life,
Americans to about 77. Second, every pregnant Canadian woman gets free care, so Canada has one of the
lowest infant morality rates of developed countries. In the United States, 17 percent of women experiencing
childbirth undergo not only the natural fears of birth but also the anxiety of having no medical coverage to
pay for their physicians or possible hospitalization. 19 Third, all Canadians can purchase affordable, longterm care in nursing homes. In the United States, virtually no one has this coverage.