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Dr. William C. Hsiao, who helped design Vermont’s proposed single payer health care system, spoke about the links between access to health care and economic vitality at a presentation on Friday at the Marlboro College Graduate School in Brattleboro.


Hsiao: Better health care access helps economy grow

Architect of Vermont’s new health care system outlines findings

BRATTLEBORO—There is a direct relationship between health and economic vitality, and the lack of good health care has a significant affect on Vermont’s economy and the lives of its residents.

That was one of the main points made by Dr. William C. Hsiao, an economics professor at the Harvard School of Public Health who is advising Vermont as it designs a new health insurance system for the state’s residents.

Speaking before more than 70 people at the Marlboro College Graduate School on Friday, Hsiao outlined the economic impacts of the current health insurance system, and how changing that system would have a big impact on the state’s physical and economic health.

“We know through research that health has major impacts on the economy and the welfare of the people, and having health insurance does affect people’s health,” he said.

The main effects, he said, can be seen in workers’ ability to work, the type of work they can perform, and how long they can work.

Oregon recently did a study to confirm this, Hsiao said. The state wanted to expand its Medicaid coverage, but didn’t have enough money to cover everyone. “So they randomly selected who was going to be covered, and not covered,” he said. “The ones who got health insurance saw a significant impact on their health, and their ability to work.”

Chronic illness has an effect on the earnings and workforce participation of adults, Hsiao said. He gave diabetes as an example. The Centers for Disease Control predicts that 1 in 4 American adults will have diabetic conditions by 2030, which is more than triple the current rate.

A person afflicted with diabetes will earn $8,000 less each year, or 29 percent less than the average U.S. median income, compared to those with the same educational background. They will also be in the labor force on average 1.1 years less. Those figures are similar for other chronic conditions, such as arthritis, bronchitis, and asthma.

With better access to health care, he said, workers will be healthier, which in turn increases their earnings potential over their lifetimes.

Studies show better access to health care also has an effect on childhood development, Hsiao said. A child with a chronic digestive or pulmonary illness at age 7 will see a 4 percent decrease in the probability of being employed at age 33 if the condition persists at age 16.

A 10 percent increase in birth weight leads to a 1 percent increase in the probability of graduating from high school, and a 1 pound increase in birth weight for babies born under 5 pounds is linked to a 7 percent increase in adult earnings. Conversely, a child whose birth weight is under 5.5 pounds will earn 12.5 percent less over his or her adult work life.

“This tells you how important pre-natal care is,” said Hsiao.

‘Chain reaction’ on economy

Hsiao said the current U.S. health care system, which is employer-based, is inefficient and its negative effects on the national economy are easy to see.

He said there were hundreds of studies that show it limits employee mobility, since many workers are reluctant to change jobs, or start new businesses, if they can’t be assured of getting the same or better health coverage than what they already have.

It also has an affect on wages, he said, since most employers pass on the rising cost of health insurance to employees by limiting wage increases to workers.

Hsiao said these two things taken together cause a “chain reaction” of effects on the economy. If workers are spending more on health insurance, they are spending less on other things, which in turn, decreases demand for goods and services. Employers who spend more on insurance have less money to invest in workers and infrastructure, which further drives down demand.

And, contrary to what opponents say, Hsiao said expanded health insurance coverage creates jobs. He pointed to a just-released article by The New England Journal of Medicine that shows the effects of the Massachusetts health care law passed in 2006 that requires all residents to have health insurance, and offers subsidies to low-income people.

The Journal’s researchers found a nearly 20 percent increase in health care employment per capita in Massachusetts over the past four years. By comparison, the rest of the nation saw an average increase of 14 percent.

There’s a simple reason for this, he said. “If people were uninsured or under-insured before, now that they have insurance, they are going to demand health care. That means more doctors, nurses, and technologists will be employed.”

Political unrest

Political stability is also affected by access to health care, he said.

Hsiao said he does most of his work outside of the United States. He said about 40 nations are trying to overhaul their health care systems, including India, China, Indonesia, Egypt, South Africa and Nigeria. This accounts for nearly half of the world’s population.

Why are so many countries looking at fundamental reforms to their health care systems? Hsiao said it is because people are “dissatisfied, unhappy, and demand that their political leaders do something,” adding that people are choosing the “political market, where everyone has an equal vote” to pursue reforms, rather than the “economic market, where the more money you have, the more votes you have.”

Whether it is an authoritarian state like China, or a democracy like India, Hsiao said leaders have come to the same conclusion: a dysfunctional, unequal health care system can lead to political unrest.

Hsaio argued that these countries look at the United States, and see what happens when a country decides not to deal with the problem of access to health care.

“We let the problem go on for so long, and we created such powerful stakeholders in America, that when President Obama tried to push through his plan, you see what kind of emotions he aroused, how much money got pumped into the campaigns, and the political situation we have now. Other countries are learning from this, and they don’t want to let it go that far.”

Despite many U.S. public opinion polls that show that health care, mainly cost and access to health care, rank No. 2, behind the current state of the economy, among the top public issues, Hsiao sees little hope for changes to the U.S. health care system.

“I’ve given up on the United States,” he said. “I do not think that any research I can do can contribute to the policy debate because the process has gotten so politicized. That’s why I’ve turned my attention to other countries. Except for Vermont.”

The Vermont model

Hsaio and his team was hired by the Vermont Legislature last year to come up with a new model for delivering health care to Vermonters.

He credited the Legislature with diagnosing the problems of Vermont’s system — a lack of affordable health insurance, a fragmented health care system with inefficiency and duplication of services, and a lack of equity and access to quality health care.

As a result, the cost of health care as a share of the gross state product is nearly 20 percent, Hsiao said. “That means there is less money for everything else.”

Balancing cost control with universal coverage is difficult, but Hsiao said a single-payer system — which he defines as providing everyone with a common benefit package, and channels payments through what he calls “a single pipe,” with uniform payment rates for providers, a commons claims process, and a common adjudication process — will work best.

This doesn’t mean having a government-run program. He said he left that out of his definition because he believes that single-payer does not necessarily involve government.

The key, he said, is the single pipe. He said this would reduce fraud and waste by identifying who are the good providers and who are the providers who are abusing the system. His studies found that a system with multiple payers provides more opportunities for providers to bend the rules.

On average, about 10 percent of providers commit fraud in multiple payer systems. With single payer, he said “we can focus on these people, and leave everyone else alone.”

Hsiao said that, if enacted, a single payer system could reduce Vermont’s health care costs by more than 25 percent. It would also improve the overall health of Vermonters, since more would have access to health care. This, in turn, would improve the state’s economy.

The right values

Over the past few months, Hsiao has warned that the process of reforming health care in Vermont will take years, and it is subject to the same political forces that stymied health care reform on a national level.

Just the same, he said he is glad he took on the job of coming up with a health care plan for Vermont.

“Vermont has high ambitions,” he said. “I think you have a noble vision, and I don’t find that among many other states, or among the people. It is really a pleasure, and an honor, to be engaged in this exercise.

“You want universal coverage that’s equitably funded. This reflects your social ethics. You worry about equity, and most American states don’t worry about equity, or consider fairness. They don’t worry about their neighbor and if they have health insurance, and [they don’t say] I will help pay for part of it, if I am wealthy.

“These simple statements reflect the social values of society, and you have it.”

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Originally published in The Commons issue #119 (Wednesday, September 21, 2011).

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