The “S” Word in the Health Care Reform Debate

Like most of you, I have followed our country’s health care reform debate closely. Unfortunately, the conversation is confusing because the subject is complex and generally not presented in a logical and orderly fashion. The current approach to reform involves tweaking the current “system” rather than starting from scratch to design a rational one. Since the current system evolved in a haphazard fashion, attempts at reforming it will doubtless result in something equally complex.

Because the discussion involves strongly held beliefs about intensely personal and important issues, the discussions around health care reform have become quite heated. Emotions come into play, often vigorously, and can get to a point where objective discussion is no longer possible.

The word that seems to have triggered the most emotional response is socialism (the “S” word). It is used in almost a pejorative fashion, as if it is the worst thing that could possibly happen in America. Students of economics embrace capitalism strongly (others have different reasons) because it has proven unparalleled in raising standards of living for vast numbers of people and for providing innovation in our society.

The “S” word is commonly invoked when the discussion turns to a government-provided public insurance option. Simple definitions can help here. In capitalism, individuals own the means of production for goods and services. In socialism, the government owns them. Curiously, socialism is rarely used to describe Medicare, Medicaid, and the various other government-sponsored plans that account for roughly half of the health care dollars spent in this country, and are bona fide examples of “socialist” services.

My reaction to the use of this word has evolved from frustration to bemusement. First, most people cannot possibly have the facts concerning existing government-funded insurance plans in mind when they drop the “S” word in the context of health care reform. Second, for anyone looking at the matter objectively, it is clear that the United States is not a purely capitalistic country. We have many government-run services such as the military, highways, education, the postal service, social security, Medicare, etc. Thus, the United States contains elements of both capitalism and socialism, a so-called mixed economy.

As has become abundantly clear through our recent financial crisis and the government-sponsored rescue of our financial system, government spending when the private sector couldn’t (or wouldn’t) shortened what otherwise would have been an extended economic downturn. Having a little government (read socialism) mixed in with our capitalism can be a good thing. The flaw in the premise of most peoples’ assumption about capitalism is that free markets are inherently self-correcting. They are not. Simply having a capitalistic system does not guarantee a good outcome.

Similar reasoning can be applied to health care. Let’s examine the facts. The United States occupies 37th place in the World Health Organization’s ranking of healthcare quality in industrialized nations, despite the fact that we pay almost twice as much for health care. Perhaps our “capitalistic” healthcare system could use some “socialist” guidance, since it did not find an optimum outcome on its own. If not the government, who will provide guidance toward better outcomes in health care? As has occurred many other times in health care, the government (in the form of CMS) is leading the way to cost and quality reform through various demonstration projects and programs. Private insurance companies are following the government’s lead.

If we take the possibility of a government provided public insurance option to its extreme, is it so crazy to consider a government run health insurance system?
Let’s examine the premise of how insurance works. With a large number of people in a risk pool, the cost for any one individual is reduced. The larger the pool, the broader the risk is spread, the lower the cost.

How could we spread the risk as broadly as possible? A federal government provided public insurance option covering all Americans would do the trick. In point of fact, many Medicare services are administered by the Blues and other private insurance companies. Combining a single large insurance pool with private administration is a nice mixed economic insurance solution. Certainly not as crazy a scheme as what we endure now as a nation with regard to cost and quality…


Richard Jacoby, MD
Associate Professor
Jefferson School of Population Health