1. Introduction
The present health care system in the US relies mainly on a deregulated and tax credit-
based private health insurance (PHI) based system that accounts for 55 per cent of total
health care expenditure in 2004 and a State-funded system that accounts for the
balance 45 per cent. The
PHI system operates
through private Health
Maintenance Organizations
(HMOs) that contract with
physicians and hospitals for
services, form a network,
and offer individual and
Woolhandler &
Himmelstein, 2002, p.89 group health insurance
Fig.1 American Health Care System
cover; and Preferred Provider Organizations (PPOs) that contract with employers for
providing group health care by physicians. The federal Health Care Financing Agency
(HCFA) administers Medicare and Medicaid. The latter through the states) Fig. 1 shows
the complex relationships that form this system. The system is a multi-payer
one that subsists on a large multiplicity of insurers and diversity of insurance plans
involving thousands of employers and millions of employees and self-employed people, a
million-strong work force that services the health care industry and colossal wastage of
resources, human and fiscal.

2. 1
Sources & Methodology
No original or primary quantitative data has been used in this paper. However, the
paper uses quantitative data from diverse sources including the US National Accounts,
Federal Health Statistics, US Securities and Exchanges Commission, the US Federal
Reserve, US Bureau of Census, US Bureau of Economic Analysis, US Food and Drug
Administration and the US Federal Department of Health. Other sources include the
OECD, World Health Organization, the print media, policy journals and private
nonprofits. While government statistics have been used to primarily analyze the state of
the present health care system, print media and policy community sources have been
used to identify the policy streams and their convergence on the need for universal
health care. Data from nonprofits has supported the analysis of the relative strengths and
past performance of the actors in order to provide an insight into their potential
‘combat’ power during conflict in future.
Based upon current events (of the last 2-3 years) this paper attempts to predict
and build a future scenario and policy that may emerge in 2009. In doing so this paper
generalizes the emergence of a consensus on universal health care to the multiple
streams theory. Based on extensive analysis as stated in the preceding paragraph, this
paper concludes that large-scale reform leading to a paradigm shift is the only way to
achieving universal health care. In doing so, the paper attempts to generalize such
reform to punctuated equilibrium theory in order to bring out the inevitability of large
scale reform and the importance of institutions in implementing universal health care.
Simultaneously, the New Order is also generalized to the IAD framework in defining the
new action arena and situation, actors and implantation rules.
Based upon mainly analysis of current events, this paper finally suggests a
futuristic blueprint of the New Order – universal health care. Accordingly, this paper
causes the analysis of this new action situation within the contemporary and even
futuristic parameters of the Institutional Analytical Development (IAD) framework. In

3. 2
view of the limitations imposed by the present constitution of the US health care system
and Americans’ traditional preference for gradual and incremental policy-making and
non-intrusive government, the implementation model suggested mainly corresponds to
such trends and preferences. While an attempt has been made to define certain variables
in the IAD framework, particularly by laying out the functional arrangements for the
New Order that also would ultimately define the various types of rules and their possible
interaction at various levels and their impact upon the system, future research should
aim at the precise definition of these variables as shown in the diagram at Annexure-B of
this paper.
Multiple Streams & Punctuated Equilibrium
Kingdon (1984), defines four stages of the policy process, viz. agenda setting,
specification of alternatives and choice, authoritative choice from alternatives and
implementation of the decision. Both official and unofficial actors propel agenda from
systemic agenda into governmental agenda either through diffusion of ideas to policy
elites or through change in party control or election-related ideological change. Both the
President and political appointees may propel such changes (such as President Carter’s
deregulation of civil aviation and Joseph Califano’s elevation of health policy). The
process of agenda setting may be determined by focusing events, changes in widely
accepted indicators, accumulation of knowledge and generation of perspectives by
specialists, arm-twisting and swings in public opinion, elections results, etc. Kingdon has
attached much importance to the role of policy communities comprising of specialists,
within and outside of government for generating alternatives and policy leaders called
entrepreneurs who are the key advocates for policy change. The entire policy process
progresses in expectation of the opening of a policy window such as a Presidential
election that may bring with it new governmental agenda or resuscitate old agenda (per
the party election manifesto).

4. 3
Can such congruence of streams lead to major policy change? Baumgartner & Jones
(1993) opined that the American political system moved from one stage of equilibrium
to another as policymakers established new institutions to support the policies they
favored or altered existing ones to give themselves greater advantage. They believed that
while political systems are never in perfect equilibrium, they are not in chaos either.
Stability is maintained by the institutions and by their definition of issues. Such definition
and redefinition of rules introduces new participants into the process causing conflict and
followed by equilibrium. The resultant partial equilibrium is maintained by the allocation
of attention of government to elites and apathy of voters.
In times of instability, a system temporarily moves away from equilibrium but swings
back to equilibrium after a new policy is decided upon. Unlike in the traditional view of
democracy where equilibrium balances citizen preferences and public policies through a
combination of elections and struggle of independence, Baumgartner & Jones stated that
this did not happen; instead policy monopolies backed by powerful images in multiple
venues established equilibrium. Shifts in public apathy, occasioned by the appearance of
new participants in the process of socialization of conflict and conditioned by interest
groups thus affected agenda setting with conflict occurring at every level. The
emergence of new policy communities upsets existing communities through use of
venues – reminiscent of Gaetano Mosca’s dialectical theory of constant competition
among (or circulation of) elites in the 1920s. Thus at any one time there may be little
change, but periods of relative stability may be punctuated by fitful bursts of
mobilization that change the structure of bias for a long time. Thus Kingdon and
Baumgartner & Jones complement each other in their respective interpretations of the
policy process and are on the same continuum although they differ in their
interpretation of the instrumentalities for policy change. Can the issue of health care
reform presently in America be seen as a convergence of multiple streams to bring the
issue of health care reform to the governmental agenda with public apathy gradually
becoming proactive and policy communities building new perspectives and devising

5. 4
alternatives, all in anticipation of the opening of a policy window with a possible
Democratic victory in the US Presidential election in 2008?
Setting the Agenda for Reform: The Convergence of Streams
Although the problem of health care has been defined many a time in the past,
till recently conditions had not deteriorated enough to provide it adequate visibility to
become an active agenda item since 1994. Nor has there been a unifying symbol to
propel this issue onto the governmental agenda (Kingdon, 2003, p. 95). The increasing
budget deficit of the federal government also cast its shadow on reform as the
legislatures sought inexpensive and symbolic solutions (Kingdon, 2003, p. 107).The
failure of the Clinton Plan in 1994 also ensured that this issue remained a condition
than a right between changes in Administration. Is there a convergence of streams on
this issue? For this purpose we need to examine evidence of rising costs, shrinking
coverage and the average performance of the present health care system in improving
the quality of life, evidence of change in public opinion, political postures, industry and
legislative responses. Following this would be critical analysis of the key actors in policy
communities, government, legislature and industry to show their past record, strengths
and weaknesses, to predict the level of reform, conflict, barriers to reform and future
rules of the game.
Accumulated Evidence: Performance of the Health Care System
Health care expenditure has grown by 260 per cent since 1990 of which over
80 per cent has been recorded in the last decade or an average 7.5 per cent per
annum. At current rates of growth, expenditure is projected to rise by another 75 per
cent by 2014 AD to $3.59 trillion, which would correspond to a 2.7 per cent rise (to
touch 18.7 per cent) in its share of GDP from 2006 (Centers for Medicare and
Medicaid Services, 2005). The rise in prescription drug costs in 2004 over 2003 is
estimated at 8 per cent while physician, clinical and hospital services increased by 9 per
cent. Per capita spending on health care was $5711 in 2004 (WHO Health Statistics,

6. 5
2006), the highest in the world. While about two-thirds of the US population is covered
by employer-employee contributory PHI (with business spending on employee health
care at 8.3 per cent in 2003) (Cowan, 2005, p. 8), another fifth have some form of
coverage either thorough government agencies or with HMOs/PPOs. However, 15 per
cent of the population is uninsured (Bureau of the Census, 2005). About two thirds of
the uninsured fell in the less than $50000 per annum income bracket while a sixth of
the uninsured fell in the $75000 income bracket (Bureau of Census, 2005). Finally,
while personal income rose by 3 per cent in 2003, household spending for health care
rose by 7.8 per cent in 2003 burning a bigger hole in family budgets. The declining
value of the US dollar in 2006 computed (with base of $100 in 2001) for six different
benchmarks of US government statistics vis-à-vis health care costs is given in the
following table:
TABLE 1: Declining value of US Dollar
Consumer Price Index 113.41 GDP Deflator 112.74
Unskilled wage 115.61 Nominal GDP per capita 120.96
Relative share of GDP 126.88 Average 117.92
Avg. annual depreciation of $ (%) 3.55 Avg. annual increase in PHI premia 7.0
5-year $ depreciation 17.80 5-year increase in insurance premia 35.0
Williamson, Samuel, H (2006):, "Five Ways to Compute the Relative Value of a U.S. Dollar Amount, 1790 - 2005
While health care expenditure has been more than double that of America’s defense
spending in terms of GDP yet the benefits have not flowed evenly from this system
either in coverage, affordability or infrastructure when compared to many smaller
developed nations as shown in Annexure-A of this paper. The US ranks the lowest
among 19 developed nations in male healthy life expectancy, 18th in female healthy life
expectancy, 14th in the number of physicians and nurses, 18th in the number of hospital
beds and 15th in government expenditure on health care, although it has the highest
percentage of GDP devoted to health care as well as the highest per capita expenditure
in the world (WHO Statistics, 2006).
There is a decline in employers offering health benefits to employees by about 8
per cent since 2000 (Kaiser Commission, 2006, p.1) even as US automakers grapple

7. 6
with a $1300 add-on cost on account of employee health benefits to every automobile
manufactured in the US (Clinton, Hillary, 2004, p.28, Wall Street Journal 01/25/07
p. A.1). As people remained uninsured, credit card medical debt too went up (Zeldin
& Rukavina, 2007, p.5), while 1.9-2.2 million Americans (filers and dependents)
experienced medical bankruptcy in 2001 (Himmelstein, et al. 2005, p. 63) and about
12 per cent remained underinsured ( Schoen, et al, 2005, p.293). Clearly “America's
health care system is neither healthy, caring, nor a system” (Walter Cronkite); the crisis
encompasses not only costs but efficient delivery of health care services and available
human resources too. Many solutions ranging from universal government sponsored and
funded health insurance, extension of the coverage by government agencies to more tax
credits, HMOs maintaining paid doctors and running hospitals and drug price
regulations, have been mentioned while some states like California and Massachusetts
have recently started their own coverage programs.
Accumulated Evidence: Colossal Waste in the Health Care System
The National Coalition of Health Care (2006, pp. 14-16) estimated that
universal health coverage would reduce $600 billion by 2015 from employer
expenditure on health care and $200 billion from employee share of insurance. After
accounting for disproportionate share savings, higher indirect tax receipts linked to
employee savings and payroll tax receipts, it is estimated that the federal government
would have to contribute only $21 billion in 2006 to keep health care expenditure in
America to approximately 15 per cent of GDP in 2005. Presumably this estimate takes
into account the total federal and state tax expenditure of $209.9 billion in 2004 by
way of revenues foregone for various deductions and exemptions for health benefits
under personal income tax and Social Security and Medicare hospital insurance payroll
taxes. However, this proposal does not appear to take into account the ability of the
federal government to sustain such large budget support. It may be mentioned that the
average health benefit tax expenditure was about $1482 per family in 2004, although

8. 7
this was heavily skewed toward higher income families with incomes greater than
$100,000 per annum and whose average tax benefit was $2,780 while those below
$100,000 derived an average benefit of only $102. Thus only 28.4 per cent of all tax
expenditures went to families with incomes below $50,000 even though they formed
57.5 per cent of all US families. Families with incomes above $100,000 who formed
14 per cent of the population accounted for 26 per cent of the average tax benefit
(Shells & Haught, 2004, p. 109-110). That a single-payer system would save on costs
is apparent from another study (Kahn, et al, 2005, pp. 1633-37) in California which
showed that billing and revenue-related (BIR) functions account for 7.5 per cent of the
work time of non-physician clinical staff and 5 per cent of physicians’ time is spent on
BIR work.
In fact, BIR administration consumed an average of 81-85 per cent of total
administrative costs of HMOs while for physicians it was 52 per cent and 31-51 per
cent for hospitals. Overall BIR administration in California represented 19.7-21.8 per
cent of total expenditure of all these types of health care service providers. This figure
too is understated since costs on external brokers’ fees, oversight and administrative
costs of independent practice associations (IPA) have not been taken into account in this
study. In 1999 the average overhead costs of insurance companies at 11.7 per cent
exceeded that of Medicare at 3.6 per cent and Medicaid at 6.8 per cent. US employers
spent $15.9 billion while nursing homes spent $17.3 billion, physicians $ 90 billion,
home care agencies $11.6 billion making for a total of $294.3 billion on overhead
costs alone. Even if this gross figure is reduced by the administrative costs of the
Canadian health care system in the same year, yet the US system overspent $209
billion. It is not surprising to note that the proportion of administrative and clerical
personnel among the health care labor force grew from 8.2 per cent in 1969 to 27.3
per cent in 1999 (Woolhandler, et al, 2003, p.771-72). Therefore, even a 20 per
cent subsidy to the price of individual insurance would reduce the number of uninsured
people by at most 5.5 million only (Marquis, et al, 2006, p.232). It is therefore

9. 8
evident that among most policy communities who have authored these studies, the
fundamental absence of equity in an income-level related system and the failure of tax
credits as an instrumentality of state health policy and heaviness of administrative costs,
impels some form of state-sponsored universal health coverage for Americans.
Reaction of Businesses & Health Care Industry
Business too has been adversely impacted by rising costs of health care. The
national grocery chain Safeway stated that the $1 billion it spent on employee health
care last year exceeded its net income (Freudenheim, New York Times, 01/25/07).
General Motors spent $4.8 billion last year providing health care to 1.1 million
employees, retirees and dependents in 2006 (Bunkley, New York Times, 03/29/07)
that added $1,500 to the price of every General Motors automobile (Nocera, New
York Times, 11/08/2006) affecting the company’s global competitiveness. Similarly,
The National Association of Realtors stated that 28 per cent of its 1.3 million members
were without health insurance (Pear, New York Times, 03/05/2007). An IBM estimate
stated that while in 1985, 91 per cent of all companies offered health insurance benefits
to their employees; in 2000 it declined to 70 per cent. In 2007, only 61 per cent of
companies are expected to offer employees health care benefits (IBM, 01/01/2007).
Wal Mart, America’s biggest retailer of consumer goods that employs 1.3 million people
has, in an unexpected move, sided with the Service Employees International Union, in
support of universal health coverage (The Wall Street Journal, 02/07/2007).
The launching of a joint initiative by the Business Roundtable and Service
Employees International Union and the health insurance industry’s America’s Health
Insurance Plans (The Washington Post, 01/17/07 p. D.1) and the introduction of
universal health care in California (Wall Street Journal (Eastern Ed.) 01/19/2007. p.
A.10) and partial state health coverage in Massachusetts in 2006 (The Washington
Post, 01/31/07. p. A.15) and New York’s proposal to make available affordable
insurance to 400,000 uninsured children (New York Times, 02/01/07. p. B.5) and

10. 9
the relatively lukewarm reception to President Bush’s recent tax-credit enhancements for
health care also point to the agenda once again make a comeback to the mainstream
agenda. Major employers like Marriott International, Pitney Bowes, the carpet maker
Mohawk Industries and Maine’s state government have introduced free drug programs
to avoid paying for more expensive treatments down the road. Working with Anthem
Blue Cross and Blue Shield, a unit of Wellpoint, Maine, has started offering free drugs
and supplies to employees with diabetes who take part in a face-to-face interview with
nurse educators and agree to a year of follow-up telephone sessions. At the Mohawk
Industries carpet factory in Dublin, GA, about 200 of the 750 employees signed up for
free blood pressure and heart drugs in summer of 2006 after the company held
meetings to describe the benefits of lowering blood pressure and cholesterol. Eastman
Chemical, Kingsport, TN, offered free mammograms for its workers and free vaccines
for employees’ children and now also provides free drugs and supplies for diabetics
under its health plan. (Freudenheim, New York Times, 02/21/07). Big drug makers
like Pfizer and Merck, which could benefit politically and financially from the employer
drug programs, are also supporting the effort. Richard T. Clark, the chief executive of
Merck stated that “If we all don’t do a better job, the private employer-based market
will continue to weaken and the country will move forward toward rationing of care and
greater government control, with greater pressure for a single-payer model with price
controls,” (American Journal of Managed Care quoted in Freudenheim, New York
Times 02/21/07). Perhaps mirroring such apprehensions are reports of large campaign
contributions from the health care industry to Sen. Hillary Clinton (D-NY) of
$854,462 of which $431,000 has come from doctors and health care professionals
and $142,000 from hospitals and nursing homes in 2005-06. At the same time Sen.
Rick Santorum (R-PA) collected $977,354 from the same industry. (Hernandez &
Pear, New York Times, 07/12/2006). Clearly, having realized the inevitability of
universal health care, the industry is seeking to placate both the Democratic and
Republican parties and their candidates/policy entrepreneurs.

11. 10
Public Reaction
The release of a report by the US Bureau of the Census in 2005 that showed
45 million Americans as being uninsured, reignited the debate and served as a catalyst in
refocusing public attention to the health care system. A recent survey poll showed that
15 per cent people saw heath care reform (after the Iraq war and economic issues) as
the most important issue that they would like President and Congress to act on in 2007;
35 per cent of those who polled for health care reform wanted to expand coverage for
the uninsured while 30 per cent said that reducing health costs were their priority
(Kaiser Family Foundation/Harvard University, 2006). About 61 per cent of a
surveyed population believe that prescription drugs would be cheaper if the Democratic
Party won the Presidency in 2008 while 48 per cent said they did not intend to join the
liberalized Medicare prescription drug benefit (New York Times-CBS poll,
05/10/2006, p. 29, 39) that would seem to imply popular support for state
intervention in the health care market. A Gallup poll similarly showed that 25 per cent
and 17 per cent of people polled stated that their first concern was health
care/insurance costs and access to health care respectively (Gallup Poll, Nov. 7-10,
2005). Other polls have showed that 69 per cent people think it is the responsibility of
the federal government to make sure all Americans have health care coverage (up from
59 per cent in 2000) while 55 per cent felt that there were major problems in the
health care system and 16 per cent felt the system was in crisis (Gallup Poll. Nov. 9-12,
2006). A survey showed that 53 per cent of people were also willing to pay higher
taxes if every one was insured while 55 per cent supported a Massachusetts-like plan
(NBC News/Wall Street Journal Poll, Jan. 17-20, 2007). Another survey showed 62
per cent Americans felt that the federal government should guarantee health coverage
for them while 56 per cent felt fundamental changes were required in the present health
care system and 34 per cent believed the system should be rebuilt (CBS News/New
York Times Poll. Jan. 20-25, 2006). Yet another survey showed 77 per cent of people

12. 11
would be willing to vote for a candidate who supported a plan for national healthcare
coverage (AARP, 2006, p.4).
Reaction in Politics & Policy
Politicians of all hues such as Sen. John Kerry (D-NC), Hillary Rodham Clinton
(D-NY) and Sen. Barack Obama (D-IL) too are jumping on the reform bandwagon.
With the Democrats in a majority in the Senate (2007), Democratic Senators like Ron
Wyden (OR) are attempting a return of health care to the governmental agenda (Los
Angeles Times. 12/14/06. p. A.18). Democratic hopefuls for the Presidency such as
Barack Obama, John Edwards, Bill Richardson echo Sen. Hillary Rodham Clinton (D-
NY) in that health care reform would be “the No. 1 voting issue in the 2008
election.”(Clinton, Hillary Rodham, New York Times, 01/25/07). The insurance
industry’s recent proposal, although made with its own benefits in mind, also endorses
“universality as a moral imperative” (Klein, Los Angeles Times, 2006, p.A-35 &
11/14/06. p. A.1). Sen. John Conyers Jr. (R-MI) introduced a bill (HR 676) on
January 24, 2007 titled the United States National Health Insurance Act that would
establish the United States National Health Insurance (USNHI) Program to provide all
individuals residing in the United States and in U.S. territories with free health care that
includes all medically necessary care, such as primary care and prevention, prescription
drugs, emergency care, and mental health services. This bill has been supported by 63
co-sponsors up to March 31, 2007, all of whom are Republicans. Other health care
reform sets include AmeriCare proposed by Sen. Pete Stark (R-CA). Recent actions of
the Bush Administration in augmenting health care tax credits and the likely revival of a
plan akin to the ill-fated Clinton Plan (1994) by the Democrats, post-2008 Presidential
election, points to a broad political convergence on the need for reforming the health
care system urgently. It is therefore evident that the political stream has reached a
broad consensus on the need for introducing universal health care.

13. 12
Apart from these are influential activist groups such as Families USA, limited
insurance industry associations such as the Kaiser Permanente Group, Commonwealth
Fund, AARP, Universal Health Care Action Network, American College of Physicians,
Physicians for a National Health Program, Brookings Institution and the National
Coalition on Health Care. A recent report of the Commonwealth Fund (2006) that
took a poll of health care opinion leaders came up with a range of remedies for
reforming the US health care system as shown in Graphic 3.
Fig. 3
It is therefore evident that fragmented policy communities in the health care
arena are not too far from agreement on the need for universal health care. America’s
middle class being the worst affected, bureaucrats, small business owners, company
employees and many others would support such a move. Perhaps the “rebirth of ……….
dissent, of irreverence, of an uncompromising insistence that phoniness is phony and
platitudes are platitudinous” (Arthur Schlesinger, Jr.) is finally dawning upon all the
streams.
While both the national mood and the political stream, as Kingdon defines it,
and Baumgartner & Jones’ policy communities having moved to an agenda-setting stage
with congruence of opinion on the need for universal health coverage, unanimity in
arriving at its final shape may be expected to cause conflict between interest groups,

14. 13
particularly those from the HMOs/PPOs, pharmaceutical companies and major service
providers such as hospital and laboratory chains, chemists and druggists and citizens in
income brackets of over $100,000-150000 per annum. Such conflict would thus form
the new action arena while the new legislation and its rules would form the new action
situation. Since such a paradigmatic shift arising from large-scale reform is predicted to
occur, the success of the New Order would hinge on its successful implementation.
Therefore the role of the new emerging institutions and their operating environment and
rules would be crucial in establishing and maintaining the new system.
The Actors
The present action arena comprises of four main sets of actors, viz. 1)
pharmaceutical manufacturers, HMOs/PPOs, service provider networks and their special
interest groups 2) legislature 3) executive and 4) citizens and their common interest
groups that would stand to derive some advantage by aligning themselves with the
second and third categories of actors. Since the actors in the action arena are relatively
few (if we consider them in clusters of interests), it is important to discuss at some
length and fact their full ‘combat’ potential in the succeeding paragraphs, before heading
into the new action situation.
The Unofficial Actors – Health Care Industry
The American pharmaceutical industry is a limited one of around 20-30 major
companies and their subsidiaries. Some leading companies are Pfizer Inc., Johnson &
Johnson, Merck & Co. Inc., Abbott Laboratories, Bristol-Myers Squibb Company,
Wyeth and Eli Lilly and Company. SEC data showed that these companies had a
combined turnover of $193.08 billion in 2004 of which they spent $61.54 billion on
marketing, advertising and administration (32 per cent of net sales) and $26.24 billion
(14 per cent) on research and development and retained $34.35 billion (18 per cent)
as profit. In some cases, such as for Pfizer the profits equaled 22 per cent of revenue. In

15. 14
all cases the allocation to research and development fell well short of administration and
insurance costs as Graphic 4 shows.
Naturally, the companies’ top executives were well looked after. The value of
unexercised stock options for the chief executives of these companies was, on an
average, more than $19 million in 2004 with a median value of about $24 million. The
total reported (to SEC) value of unexercised stock options for the seven chief executives
was around $135 million in 2004. Largesse flowed further down the line with the 36
top executives having total reported value of stock options of about $297 million in
2004 (Families USA, 2005). Similarly, the CEO of Tenet Hospitals in 2002 drew
$117 million in stock options and salary (Bartlett & Steele, 2004, p. 103). An
independent study showed that these companies also incurred the major percentage of
the total industry lobbying costs of around $123 million in 2004 (Ismael, 2005).
Indeed pharmaceutical companies were ranked as America’s most profitable enterprises
from 1995-2002. Drug advertising increased to $ 11.4 billion in 2005 that was a five-
fold rise from 1996. Even in 2005 they ranked fifth with profits of 16 per cent
compared to 6 per cent for all Fortune 500 firms (Fortune, April 2006).
The number of prescriptions in America increased by 71 per cent from 1994-
2005, i.e. from 7.9 to 12.3 per capita. Sixty one per cent of those under age 65 and
91 per cent of those above age 65 had prescriptions. Against this, spending on
pharmaceuticals rose by about 375 per cent from 1994 to 2004. New drug approvals
do not appear to have contributed to reduction in drug prices. While co payments for
non-preferred drugs have doubled since 2000, the rise in preferred drug prices has been
about 70 per cent (Kaiser Family Foundation, 2006, pp. 1-4). As a result imports of
drugs through Internet sales and by travel to Canada have totaled about $700 million in
2003. An equivalent amount of prescription drugs was estimated to have entered the
US from the rest of the world, mostly through mail and courier services (US
Department of Health, 2004, p. ix). The companies have also taken advantage of the
absence of any bulk drug purchasing mechanism (except Veteran Affairs - VA) and

16. 15
made large profits on this account alone. In April 2006 a drug, Zocor (40 mg) for
which the lowest VA price for a year’s treatment was $190.76 had a Medicare Part D
price of $1275. 36, a 670 per cent difference! (Families USA, 2006, p. 9). Bartlett
and Steele (2004, p. 36-37) estimated that in 2002 the profits made by Pfizer Inc.
was 2.5 times that of General Electric, nine times better than Wal-Mart and 32 times
better than General Motors Corporation.
Medical service providers too are a major source of high costs plaguing the health
care system in America. While physician fees have more than doubled from 1993-2005
and are expected to double again by 2014, nursing home care will have tripled from
1993-2014 while health insurance rates would more than quadruple from 1993-2014.
The incidence of overcharging by hospitals, amongst other malpractices, has also been
on the rise as would be seen from Table 3 that follows.
Table 3
Name of Medical Institution Geographic Nature of treatment Amount Medicare PHI cost %age Difference
Location charged cost payable by patient
over PHI/Medicare
University Medical Center Oklahoma City, Craniotomy $85400 $13900 $15600 447/514
OK
Florida Hospital Orlando, FL Appendectomy $35200 $6200 $7000 403/468
Medical Center of Aurora Aurora, CO Cranial & Peripheral nerve $24100 $4100 $4600 424/488
disorder treatment
Our Lady of Resurrection Chicago, IL Removal of cyst in neck $74396 $6100 $6900 978/1220

17. 16
Medical Center
Source: Bartlett, Donald, L. & Steele, James, B.(2004): Critical Condition. Doubleday, New York. pp. 15-18
It is apparent from the above discussion that the pharmaceutical manufacturers may
pose to be among the biggest threats to the implementation of any price control regime.
Having had a virtually unfettered run on profits and health policy relating to
pharmaceuticals for the last several decades, these companies would invariably unleash
their strong organizational capacity and fiscal resources in unethical ways to block UHC
legislation unless such legislation is backed by strong collective political leadership,
commitment and will both at party and legislative levels.
It is evident that the conflict over health care has so far remained a private conflict,
with the unofficial actors having mobilized bias in their favor (Schattschneider, 1983,
p.39). Although periodic socialization of conflict (Schattschneider, 1983, p.38)
between the detractors of the unofficial actors and political parties resulted in legislation
that, inter alia, led to the creation of Medicare and its subsequent widening, the
continuing competitive advantage being enjoyed by the unofficial actors shows that the
conflict has mainly remained in the private realm. Although pharmaceutical
manufacturers such as TAP Pharmaceutical Products, Inc. ($875 million for Lupron),
Pfizer ($49 million over Lipitor and $430 million over Neurontin), Glaxo SmithKline
($88 million over Paxil), Bayer ($257 million for Adalat) and Astra Zeneca ($355
million over Zoladex) have been indicted on criminal charges of fraud periodically and
arrived at settlement agreements, yet their malpractices are legendary (Bartlett & Stele,
2004, pp. 63-69). (Kingdon (2003, p. 8) rightly stated, previous national health
insurance failed primarily because of budgetary constraints, a national mood that
preferred a smaller government and the inability to line up a unified coalition behind the
proposals. Therefore put together, the unofficial actors constitute a disproportionately
powerful set of special interest groups that would have as their sole negative incentive to
prevent the new legislation ushering in universal health care and partial regulation.
Writing over four decades ago, EE Schattschneider pertinently noted “The flaw in
the pluralist heaven is that the heavenly chorus sings with a strong upper-class accent”

18. 17
(1960, p. 35). For him the essence of political conflict was the scope of participation.
Since in any situation the number of apathetic outnumber those involved, competition
between winners and loses in the original policy dispute gave incentives to the losers to
enlarge the scope of conflict. Given the groundswell of opinion in favor of universal
health coverage, political parties may have to “capitalize on the public hostility toward
many of these groups than woo them” (Schattschneider, 1960, p. 53). The increasing
definition of alternatives for achieving universal health coverage is “the supreme
instrument of power” (Schattschneider, 1960, p. 66) and therefore may well become
“the power of irrelevance which transmutes one conflict into another and turns all
existing alignments inside out” (Schattschneider, 1960, p. 72) by pitting the
groundswell of opinion against the health care industry.
Unofficial Actors: The Media
Over six decades ago, Herbert Simon made an apt observation on the limitations of
human cognitions thus, “People are endowed with very large long-term memories, but
with very narrow capacities for simultaneous attention to different information …..Of all
the things we know, or can see or hear around us, only a tiny fraction influences our
behavior over any short interval of time” (1983, p. 301). In a similar vein, McCombs
(1981, p. 22) stated that “the public agenda seems to be an oligopoly limited to
approximately a half-dozen major concerns at any particular moment”. The media
therefore plays a key role in bringing together or fragmenting public opinion, knitting
together policy venues, or causing shifts of policy venues and creating powerful images.
For Baumgartner & Jones (1993, p. 105) the media served as a major vehicle for
change of venues by policy entrepreneurs. The ruinous run of the Harry and Louise
campaign on television in 1993-94 spelt doom for the Clinton Plan by an effective use
of metaphors of big and intrusive government that was not matched by any strong
governmental response. The media would therefore play a very significant role in
providing positive feedback on the reignited debate for reviving universal health care

19. 18
reforms up to and well beyond 2009. Indeed effective media management by policy
entrepreneurs such as Sen. Hillary Rodham Clinton (D-NY) and positive feedback by the
media may be a key factor in the implementation of health care reforms in 2009 and
beyond. Already the print media is taking close interest in views on health care reform
aired by all Presidential candidates and is also being used by various policy communities
as is evident from 869,000 links showing up on web search string “media reports on
universal health coverage in USA” on the Yahoo web search engine on March 31,
2007.
Official Actors: The Political System
Bartlett and Steele have estimated that from 1989-2004, the health care industry
contributed $479 million to political campaigns, more than the energy industry ($315
million), commercial banks ($133 million) and large tobacco ($52 million) have done.
From 1997 to 2000, the health care industry spent $734 million lobbying Congress
and the executive branch, second nationally to the finance, insurance and real estate
lobby that contributed $823 million and in contrast to $211 million spent by the
defense industry (2004, p. 69). Political appointments to posts in the state health care
system have also arisen indirectly from such large investments. Barlett & Steele (2004,
p. 69-71) pointed out the appointment of Thomas A. Scully as the Administrator of
the Federal Centers for Medicare and Medicaid Services (CMS) in 2003. Scully who
was president of the Federation of American Hospitals prior to his appointment in the
CMS played a central role in drafting the final version of the Medicare Bill that blocked
imports of low-cost drugs from Canada (to benefit the US drug industry) apart from
imposing a $534 billion burden on taxpayers (2004, p. 72). A significant role was
played by the then Senate Majority Leader Bill Frist (R-TN), whose family founded the
Hospital Corporation of America (HCA) that derived about a third of its revenue from
Medicare and Medicaid. HCA was involved in large settlements of $840 million in
2000 and a further $631 million in 2003 mainly for false claims preferred on

20. 19
Medicare and Medicaid. Considering the physical size of HCA at 2000 revenue level of
$11.4 billion with more than 100,000 employees in 111 hospitals in 17 states, it is
evident that such interest groups would have a strong political influence in the framing
of health care policy in America. Even though HCA may enjoy what Lindbolm (1977)
called the “privileged position of business” yet business interests have not been able to
establish an equilibrium point as the current debate over universal health care shows.
Legislatures have also not been above board while extending patents for drugs. US law
provides for a six-month extension of a monopoly patent provided the manufacturers
prove by clinical trials that the drugs are safe for pediatric use as well as “pediatric
exclusivity” provided in the Food and Drug Administration Modernization Act
(FDAMA, 1997). Public Citizen, a consumer rights group founded by Ralph Nader in
1971, estimated in 2001 (2001, p.i) that Bayer would gain additional revenue of
$358 million for Ciproflaxcin while expending an average of $3.87 million per drug for
such trials (Tufts Center for the Study of Drug Development). Cumulatively, tests on
188 drugs requested by FDA in 2001 would cost the industry a total of $727 million
against FDA estimates that pediatric patent extensions are worth at least 40 times that,
or $29.6 billion, or $592 million per annum in added sales for the patent-holding
companies.
This patent extension bill faced a major test on October 4, 2001 in the Health
Subcommittee of the House Energy and Commerce Committee. However, several
amendments aimed at reducing the cost of the patent extension to consumers were
defeated. Republicans (with the help of some Democrats) rejected proposals that would:
guarantee drug companies a 100 percent return on pediatric test expenditures; limit
drug companies to a 10,000 percent return on certain drugs; and curtail the incentive
only for the best-selling drugs (those with over $800 million in annual sales). The
subcommittee members who voted to leave the six-month patent extension untouched
received far more in campaign contributions from the drug industry (an average of
$64,691 since 1990) than those voting for the amendments to reduce the patent

21. 20
extension (an average of $25,493 since 1990). It is pertinent to note that Congress
could have passed a law requiring pharmaceutical companies to test their products in
children as a condition of gaining new drug approval by the FDA that would have
provided children the drugs they needed and consumers their much-needed price relief
(Public Citizen, 2001).
Despite their innumerable failings, legislatures and their committees/sub-
committees remain the favorite venues for conflict expanders primarily for their law
making powers and for the confidentiality arising from the legislatures’ opaque
institutional operating environment. Their relative porosity to influence stems from a
fractured political system and compounded by a weaker party system, that would be
fully exploited by the HMOs/PPOs and pharmaceutical manufacturers for their benefit
for blocking UHC legislation. Courts are another venue where the power of judicial
review aids losers in a conflict with existing policy communities. The HMOs/PPOs and
manufacturers would also take recourse to courts to sabotage the UHC legislation as also
to preserve their cartels. As Cobb and Elder (1983, p. 104-29) stated, the process of
successive mobilization of larger and larger groups, as if in a series of concentric circles,
destroys existing policy monopolies by expanding conflict from “specialists, to attention
publics, to the informed public, and finally to the general public”. The present
mobilization in favor of universal health reform thus has every potential of destroying
the laissez faire complexion of the health care market – a distinct apprehension of which
is presently being voiced by influential industry representatives as mentioned elsewhere
in this paper. An analogy to this situation was the decline of the nuclear power industry
as a policy monopoly that initially prospered by powerful images of harnessing “the
world’s most dangerous technology” but the possibility of accidents and subsequent
public outcry and regulatory legislation led to the industry losing control of the issue.
This eventually led to utilities ordering only 15 more power plants after 1974
(Baumgartner & Jones, 1993, p. 70).

22. 21
Official Actors: The Government
In the 1980s, the Reagan Administration introduced market-like forces in the
health care market. This was in stark contrast to the 300-strong HMO system (the
pioneer was Kaiser Permanente in California) that had been introduced by the Nixon
Administration and that had functioned on a no-profit basis with partial government
financial assistance and kept medical costs down. Deprived of government funding with
change in policy, these HMOs had to turn to the market for their survival. The creation
of national physician practice management (PPM) and hospital networks marked the
beginning of large monopolies in the American health care system. Market forces also
engendered the rise of more interest groups such as the Professional Association of
Healthcare Reimbursement Specialists, National Association for Claims Assistance
Professionals or the 35000-member strong American Academy of Professional Coders
(Bartlett & Steele, 2004, p. 159) and fostered the creation of a vast bureaucracy to
cater to a multi-payer and fragmented payment system.
At the same time, enforcement by statutory public agencies has been slow as is
evident from the example of the FDA opening the door to direct drug advertising to
consumers on television. An understaffed FDA found it impossible to cope with
misleading advertisements that was further diluted by the US Department of Health and
Human Services in November 2001 that removed the notification period on misleading
advertisements (Bartlett & Steele, 2004, p. 229-231). FDA’s enforcement of laws also
appears to have been lax as is evident from its agreement to allow drug companies to
mention side effects in fine print and in technical and largely incomprehensible terms to
customers. The FDA that in the 1950s had kept thalidomide off the US market has
presently approved its use for leprosy patients with a warning (Bartlett & Steele, 2004,
p. 230). The FDA’s effectiveness in curbing off-label use of prescription drugs has also
been very limited. While Parke-Davis earned over $2.7 billion in 2003 alone from
Neurontin, they paid $430 million as one-time settlement damages. Among the charges

23. 22
brought against Parke-Davis by the FDA was that it had bankrolled research journal
articles in praise of Neurontin which were then sent to prescribing physicians.
Surprisingly, FDA rules did not prohibit this practice of circulating selective research
articles. In another case the FDA permitted Bristol-Myers Squibb Company to continue
marketing the antidepressant drug Serzone for another three years (when it was removed
from the market by the manufacturer) even as reports of it being unsafe and often fatal
poured in from Canada while Turkey and Spain banned its sale (Bartlett & Steele,
2004, pp. 41-42). The FDA estimated that the pediatric incentive under FDAMA,
1997 and the six-month extension of monopoly patents would cost consumers $695
million per year by delaying access to lower-priced generic drugs. This however,
downplayed the impact of pediatric patent extensions on individual consumers. For
instance, a senior who took Glucophage (diabetes), Vasotec (high blood pressure) and
Prilosec (heartburn) would see their prescription drug bill increase by $425 because of
the added patent protection given to those three drugs. That $425 increase represented
a 45 percent hike in such a senior’s drug bill was a far cry from one-half of one percent
stated by FDA (Public Citizen, 2001, p. 10). Therefore even public agencies were not
above willful misrepresentation although the power of enforcement of compliance laws
was vested in it. Thus statutory institutions by their enforcement powers would be an
important cog in the wheel of government in establishing and maintaining the
equilibrium in the New Order.
Though not as porous as the legislature to outside influence, yet the government
bureaucracy would continue to suffer from the imposition of political appointees (as part
of the spoils system and also as department Secretaries) and their professional infirmities,
and also the appointees’ propensity to be influenced by the private sector from where
most of them are appointed. Yet the bureaucracy would play a very significant role in
the implementation of the UHC scheme and would thereby constitute a major pillar,
along with other new institutions, that would eventually sustain the New Order.

24. 23
Medicare, Medicaid, Veterans’ Administration and SSCHP were institutions
created by past governments to support programs arising from waves of popular
enthusiasm. Although many issues fade away temporarily, these institutions silently
continue to discharge their roles. Baumgartner and Jones have argued that “these
institutional legacies of agenda access may structure participation so that a powerful
subsystem can remain relatively independent of popular control for decades” (1993, p.
83). Over the years Medicare and its sister institutions have maintained partial
equilibrium in policy outcomes by adopting an incremental policy outlook. However,
with the issue of universal health care once again emerging as a frontline agenda, these
institutions may be dismantled in the second period of agenda access to make way for
new institutions as has been suggested in the latter half of this paper. Waves of
enthusiasm that resulted in Medicare and Medicaid’s creation several decades ago may
now be overwhelmed by popular disenchantment with their coverage and make way for
new institutions such as the Universal Health Care Agency amidst a wave of criticism.
Conflict & Equilibrium
Any comprehensive reform of the health care system would result in winners and losers.
Prospective big-buck losers would naturally be much more involved and effective in
stopping change than the prospective winners would be in promoting it. Indeed, as
Machiavelli said nearly five centuries ago (1517, 1532), “There is nothing more
difficult to carry out, nor more doubtful of success, nor more dangerous to handle, than
to initiate a new order of things. For the reformer has enemies in all those who profit by
the old order, and only lukewarm defenders in all those who would profit by the new
order.” Which would therefore be the likely areas of conflict in the new legislation?
The first likely area would be the reformation and state regulation of the health services
market. Shorn of their unbridled power to dictate prices and terms in the market and
forced to reckon with consumers represented by powerful government single-payer
agencies commanding great collective power, HMOs/PPOs, pharmaceutical

25. 24
manufacturers and partly, hospitals and nursing homes would pose a major source of
conflict. Another area would be the limited geographic market for each PHI although
they would be allowed to apply for all geographic regions across the country. The
pharmaceutical industry too would strongly resist any regulation and creation of
monpsonic markets as this would adversely impact their profitability. Another area of
conflict where citizens groups would be involved is the creation of geographic zones for
insurance purposes that are likely to be viewed as an intrusion into privacy. Higher
income groups would be affected since they would perceive the system as being a source
of additional taxation for a service they may not like to use. Well-worked out economics
of taxation would also be required to impose an UHC tax on businesses and corporate
entities. A final major area would be the merger of agencies and their staff where
resistance would be encountered. In the final analysis, as Napoloen Bonaparte put it
aptly, “Man will fight harder for his own interests than for his rights.”
Barriers to Reform
Jacob S. Hacker rightly
opined that health care
policy is “not an
outgrowth of
industrialization or the
growth of medical
complexity
Fig. 2 Effect of Health Savings Accounts on Health Insurance Coverage
nor “… a reflection of distinctive national cultures or the power of prominent societal
groups.” (1998, p. 127). Rather it is the efficacy of political institutions through which
national health policies passed, in creating incentives and constraints and inherited
legacies of past policies that structure the health care sector and which sets the agenda
for reform.

26. 25
The American political system creates several barriers to passing of reform. On
the one hand were powerful Congressional committees like the Ways and Means
Committee in the House and the Finance Committee in the Senate that have, in the
past, been gateways for health insurance legislation. On the other, were a set of weak
political parties which ensure that partisan congressional majorities seldom translate into
policy majorities. Thus a fragmented political system in which Committee chairpersons
have their own fora to raise health care issues different from those of the President and
of the party they belong to makes passage of any reform legislation extremely complex
and time-consuming. Another barrier that reform legislation faces is from PPOs, HMOs,
drug manufacturers, etc. all of whom have a vested interest in keeping the status quo
alive. Unlike the political system, these interests are very well organized and funded and
willing to take advantage of the fragmented political system and the power of the media
(e.g. the Harry and Louise advertisement issued by the Health Insurance Association of
America in 1993-94) to block any reform legislation (a negative incentive for them).
Adding to the advantage of the special interest groups, are an amorphous body of
apathetic Americans, particularly the uninsured, who are a diffused group that cannot be
easily organized. Public opinion too in favor of the uninsured or the underinsured or
even the employed middle class is centered on the issue of additional taxation for
redistributive justice and fluctuates in direct response and apprehensions of additional
taxes being imposed. An additional disincentive to reform is the traditional dislike of big
government by Americans. Therefore, “the political contest for national health
insurance has never been played on a level field and it never will be” (Marmor &
Oberlander, 2004). To perpetuate the tax credit system would not serve the purpose as
about 55 per cent of people would not be covered as Graphic 5 shows.
Next is the fact that the health care industry in America employs over 1.5 million
people who would be out of a job if the private sector’s role in health care is substituted
in toto by government, which too would not have the personnel required for this
magnitude of operations. Nor would large-scale employment of support personnel by

27. 26
government be financially sound and administratively feasible. Notwithstanding public
opposition, skepticism and budget deficits Medicare and Social Security were translated
into law. Last, but not the least, is the federal government’s burgeoning budget deficits.
The GAO (2007) has estimated that in 2006 Medicare and Medicaid accounted for
19 per cent of federal spending while social security (including these agencies) rose by
147 per cent from 2000-06 while the unified budget deficit was $248 billion in 2006.
By 2040 while government spending would equal 40 per cent of GDP, yet revenue
would be able to sustain only about 18 per cent of such expenditure. By 2080
expenditure on Medicare and Medicaid (at current physical levels) would rise to over
22 per cent of GDP. This would imply cutting federal spending by 60 per cent or
doubling taxation from today’s levels. Universal health care too therefore appears to be
headed in the same positive direction as Medicare over a half century ago, but as a
private-public partnership. Clearly there is no option of establishing UHC as a federal
government funded system and it follows that whatever is the final complexion of UHC
it would remain a quintessentially public-private funded system.
Limitations of Replicating European Health Care Systems in
America
However, before proceeding with the analysis of implementation, it is necessary that
the limitations of state funded universal health care as in Europe and Canada are
discussed since these countries’ system has been popularly viewed as the appropriate
panacea for America’s ailing health care system. A hybrid (private-public) planned,
though monopsonic, market has played an important role in the UK, Sweden and
Finland. Saltman & Figueras stated that “reform experience in Europe has shown that
the greater the reliance on market mechanisms, the greater the need for a reinvigorated
state role.” (1998, p. 102). Thus the state has come to assume the role of a monitor
of outcomes directing broad strategic objectives for the health system while discharging a
regulatory function over public and private providers. In doing so, both supply and

28. 27
demand side measures have been adopted. However, there are some fundamental
differences between Europe and America – the market in America is unregulated and
comprised entirely of private players (except for Medicare and Medicaid, VA and few
others). The infrastructure of the health system too is almost entirely in the private
sector and there is no equivalent of the NHS (except for the defense services). While
there is no denying the central role of the state as the principal regulator, yet expecting
a fully federally funded and regulated system to emerge may be unrealistic considering
the huge transition, powerful interests involved and governmental budget deficits.
Therefore any system for universal health coverage must necessarily involve all the
private players and governments conjointly for optimal utilization of resources and
infrastructure, minimizing costs of operation and maximum economy of expenditure.
However, the European practice of running a hybrid market (government as monpsonic
buyer but private sector as supplier of health care services) has its appeal in America
primarily for its universality of coverage and relatively sound economics. It is perhaps
this option that would be the most politically acceptable solution that would sustain the
broad convergence of streams of opinion to introduce universal health care.
The IAD Framework
According to Ostrom (1999, p. 41) the first step in analyzing a problem is to
identify a conceptual unit, which she calls the action arena to “analyze, predict and
explain behavior within institutional arrangements”. The action situation is a subset of
the action arena and is characterized by seven clusters of variables, viz. (1) participants,
(2) positions, (3) outcomes, (4) action-outcome linkages, (5) the control that
participants exercise, (6) information and )7) the costs and benefits assigned to
outcomes. Thus the action arena “refers to the social space where individuals interact,
exchange goods and services, solve problems, dominate one another or fight” (Ostrom,
1999, p.43). Obviously, such interaction of individuals is governed by sets of rules, the
operating environment and the structure of the community. The interaction of

29. 28
individuals is also based upon the level of information available to them on an issue at
any time. Limited information and information-processing capabilities of humans ensure
that decisions with the highest return are not always taken, rather such decisions come
by experience and more information that leads to what Schattschneider called “the
mobilization of bias”. Given the multiplicity of actors with high financial and political
stakes in the health services sector in America, the action arena and the situation leading
up to possible reforms in 2008 and beyond, the action arena would be the dependent
variable and independent variables for comprehensive health care reform would center
on new legislation and institutional structures arising therefrom. Therefore this paper
examines the implementation of legislation only at the macro institutional level.
The Implementation Model
Since this paper is of a prescriptive and futuristic nature, the implementation model
of analysis proposed and followed in this paper is shown in the diagram in Annexure-C
of this paper.
Action Situation - The New Order
Having discussed the background, the groundswell of opinion in favor and the need
for universal health coverage, I will now outline my proposal for what I believe would be
a paradigmatic shift to a New Order – universal health care. The New Order would
redefine the limits of the presently unregulated health care market by consolidating the
major players, viz. implementing government agencies and the private health care
industry. Incremental legislation would authorize the merger of Medicare, Medicaid,
Veteran Affairs and all other state and local government health care agencies and their
replacement by a single Universal Health Care Agency for each state (and for federal
the HCFA could be converted to the UHCA, limited to their own employees and
coordination, etc.) as a part of prescribing position and scope rules. Repeal of the
restrictive provisions of the Employees Retirement Income Security Act that would shift
the onus for implementing universal health coverage from the federal to the state

30. 29
governments and consolidate the implementing agencies as part of prescribing the entry
rules. All these state agencies would conform to rules to be formulated by the Federal
Department of Health which would also decide on budgetary allocations to each state on
the basis of population. The federal department would also draw up a standard basic
health care plan (with no co pay or out-of-pocket expenses and deductibles).
The Agencies would group people on a geographically contiguous basis in groups of
75,000-100,000 or more and no individual consent would be required. With market
competition having been preserved, a major source of conflict with the HMO/PPO
industry would be avoided. The HMOs/PPOs could offer a limited range of plans with
the consumer left to choose from amongst them. For the HMOs the risk would be more
evenly spread out in the population that would lead to appreciable decline in insurance
premia, apart from volumetric discounting of premia. Such an arrangement would also
alter “the relationship between insurance companies and service providers, allowing a
negotiation approach to cost containment strategies” (Diamond, 1992, p.1240). This
would also cause a decline in administrative costs. A Congressional Budget Office report
(1991) cites a Hay-Huggins Company estimate relating administration expenses to
benefit costs for different employee groups and stated that while for groups of size 1-4
the ratio was 40 per cent, for groups of 10,000 or more it declined to 5.5 per cent.
The problem of guaranteed renewability of policies too would not arise since the market
would remain stable with individuals not switching insurance companies frequently. The
pooling of risk over a large population would also aid stability of the market. The need
for individual medical examination would be obviated and lead to further reduction in
administrative costs. At the same time this system would afford a standardized though
limited choice to individuals and assure a satisfactory level of universal coverage. For
those in higher income groups the same insurance company may provide add-on options
that would be paid for by subscribers without any tax benefit. However, such subscribers
would be mandated not to buy insurance from other companies. Based upon
competitive bidding, HMOs/PPOs would be identified and allocated to pre-defined

31. 30
geographical areas of a state so as not to allow a preponderance of a single insurer in any
state as part of the new entry rules. Thereafter the state agency would pay the
HMOs/PPOs directly for the premia to insure all its residents. Thus prescription of rules
of entry, authority and aggregation would establish a competitive managed though
primarily monopsonic market. Keeping in view the equity and fairness of such a system
the level of conflict would be minimized that would make passing of the enabling
legislation easier.
At the state level a Board of Directors may be constituted to administer the State
Fund with the State Universal Health Care Agency forming its permanent establishment.
The composition of this Board would also include a representative each from the public,
pharmaceutical manufacturers and service providers, not to exceed 10 in total number
of members. This Board would also negotiate prices with pharmaceutical and other
supplies manufacturers and place caps on maximum charges of service providers
including physicians. State agencies may be extended the benefit of prices of the Federal
Supply Schedule, Restricted Federal Supply Schedule, Big4 Prices program run by the
Veterans Administration and National Contract prices. In order to ensure fair play in
the market, each state would appoint a statutory regulator and an ombudsman and
tribunals to adjudicate in dispute between PHIs, service providers and beneficiaries as
part of the payoff rules.
Financial Arrangements for the New Order
The base for all calculations remains the present level of expenditure of health care
of 15-16 per cent of GDP per annum from where I have attempted to create the
superstructure of a model structure for the future. The broad ratio of sources of funds
would be government budgetary support (including states and local govts.) $750
billion, UHC business tax $750 billion, $250 billion from individual contributions and
$250 billion saved from waste and economies of scale of the New Order, making for a
total of $ 2 trillion, the same level as that of 2006. In 2004, the federal and state

32. 31
governments spent $847.3 billion on health care, $85.7 billion was spent on capital
investment and $39 billion on research while PHI premia and out-of pocket expenses
totaled $903.36 billion. Therefore the figures that have been proposed for the New
Order are in tune with such trends published by CMS (National Health Accounts, Fig.
9, Tables 120 &124, 2004).
Employers and small businesses would no longer have to pay PHI premia for
employees; instead the Federal government would constitute the Universal Health Care
Fund into which all employers and businesses would be mandated to deposit 5 per cent
of their gross annual turnover as UHC tax (small businesses employing less than 75
workers would have to pay 2 per cent), irrespective of their employee strength (above
75 employees). The self-employed would similarly be mandated to deposit 10 per cent
of the HMO/PPO premia paid by them up to 31st December 2008 with a 10 per cent
escalation annually thereafter. The employed would similarly pay 10 per cent of the new
premia (that would be be substantially lower than present levels) as part of personal
income tax. These deposits may be collected by the IRS as part of corporate/personal
income tax and then re-appropriated back to the Federal fund for disbursement to the
state agencies. No income tax deductibles would be available for such payments on the
logic of there being no co-pay, deductibles and out-of-pocket expenses in the new
system. States would similarly constitute their own Funds with their self-allocated
moneys and also to receive budget allocations from the federal Fund. In addition, a 5
per cent tax surcharge (as a percentage of the existing sales tax) would be imposed on all
share market transfers, animal and vehicle racing, gambling, escort services, alcohol and
tobacco products, etc.
Of the total funds thus received by the Federal Agency annually plus federal and
state government budgetary support, 60 per cent would be devoted to universal health
insurance coverage and 10 per cent each to R&D (and capital investment), medical
education assistance, administrative costs and public awareness (and related wellness
programs) to improve the quality of health care. Of these moneys, expenditure on

33. 32
HMOs/PPOs would be around $1.25 trillion (assuming per capita per annum premium
of $4,000 for a 300 million population) while $150 billion each for R&D, capital
investment and administrative costs, medical education assistance and public health
awareness programs. Although nearly $2 trillion has been spent on health care in 2006,
the above break-up is close to the same figure but qualitatively much better and would
provide better coverage.
To support capital investment in health care, 50 per cent bank interest subsidy to
agencies that make capital investments in medical equipment, hospitals, etc. would be
allowed. Similarly, financial incentives for pursuing education in medicine would be
limited to the reimbursement of 50 per cent of the interest charged by banks on student
loans to banks, in exchange for which the banks would charge a correspondingly lower
rate of interest from the loanee. The state agencies would process and pay these claims
directly to the banks.
A Federal Health Care Regulatory Authority would be established to introduce state
control in the new system. However, to offset criticism of such a move being harmful to
R&D efforts, a Federal Health Care R&D Fund may be established with 10 per cent of
the total annual collections above that would assist the industry in R&D efforts by
providing grants to researchers and manufacturers, subject to annual review by an
independent group of observers to be nominated by the Federal government. This
would also obviate loan administration by government. By tying down premia costs and
placing caps on health care professional charges, yet by providing for add-on insurance
options, the new order would make demand more price sensitive that, in turn, may
provide an increased incentive for R&D on less expensive substitutes for medical
treatment and technology. At the same time, this Fund would substantially reduce
criticism from pharmaceutical and equipment manufacturers about high prices of drugs
being essential to support R&D activity. This set of entry rules for the industry would
also deprive it of reason for raising drug prices arbitrarily in future.

34. 33
However, this may be the most difficult part of implementing the new order since
the economic stakes are perhaps the highest and most concentrated and pricing least
transparent in this segment of the industry. It would therefore be this segment that
would attempt reruns of Harry and Louise advertisements, damaging media coverage
and try to influence the Congressional Committees and sub-Committees by means foul
and fair. As stated elsewhere in this paper, the fragmented nature of polity in America
compounded by a relatively weak party structure and a President whose party may or
may not command a political majority in Congress (even if this majority is available it is
not a well-knit one) would work to the advantage of the industry. The intensity of
conflict here would be the sharpest and bitterest.
The Rationale of the New Order
“Rules are shared understandings among those involved that refer to enforced
prescriptions about what actions (or states of the world) are required, prohibited or
permitted. All rules are the result of implicit or explicit efforts to achieve order and
predictability among humans by creating classes of persons (positions) that are then
required, permitted or forbidden to take classes of actions in relation to required ,
permitted or forbidden states of the world” (Ostrom, 1999, p. 30). Applied to a state
or political system this implies the observance of legislative, constitutional and
administrative law that demand and receive compliance. Thus a series of interlocking
legislation would prescribe the rules or laws that are to be followed for implementing
universal health care. These rules or laws would then structure the complex action arena
In rationalizing the market by accepting a single-payer norm and pitching large
state agencies against service providers and pharmaceutical manufacturers (saving
indirect costs such as publicity, legal costs, etc.), apart from ensuring a level playing field
for all service providers, this legislation would create a hybrid market that would be
evenly balanced in terms of negotiating capabilities and capacities and be largely self-
regulating. By simplifying the corporate and personal income taxation process,

35. 34
introducing a single-window collection and assessment point for health care funds and
substantially reducing administrative costs both in state and federal IRS tax collection
and assessment systems, this legislation would make governance relatively simpler and
less expensive.
Thus the establishment of the Federal and States’ Universal Health Care
Agencies would not only prescribe their position rules but also structure their authority
rules. The Federal Drug Regulatory Authority on the basis of its legislative mandate that
would determine its position rules, would continuously monitor information flowing to it
from the industry, market and consumers and impose sanctions wherever required in
terms of the payoff rules prescribed by the legislature. Sanction rules could be modified
if the feedback shows the system is excessively restrictive or liberal. Similarly, the State
and Federal Funds in exercise of their scope and authority rules determine the eligibility
of private agencies preferring R&D and capital investment subsidy claims. R&D
subsidies, capital investment interest subsidies and wellness program costs would include
screening equipment for influenza vaccine, pneumococcal vaccination, and breast,
cervical and colorectal cancers.
A study has also estimated that an additional $147 billion per annum could be
saved by reduced incidence of disease attributed to long-term prevention and
management and reduced acute care due to disease management and assuming 100 per
cent participation, i.e. covering the entire affected population. The same study has also
estimated that by adoption of Health Information Technology (HIT) at 90 per cent
adoption level may save another more than $ 77 billion per annum of which $ 23
billion would accrue to Medicare while Medicaid would benefit by $31 billion against an
estimated capital investment of $28 billion per annum over a decade long deployment
period (Hillestad, et al, 2005, p.1103-15). Capital equipment interest subsidies to care
giving agencies to install Computerized Physician Order Entry (CPOE) systems as part of
Electronic Management of Records (EMR) can be made from the capital investment
subsidy allocation of the agencies.

36. 35
The scope rules having been clearly defined, the HMOs/PPOs would be have to
abide by the entry rules for the new hybrid market restricting their access by way of
absence of monopoly in a single state or across states. They would also have to rejig
their portfolio of services to conform to the entry rules. Similarly, consumers would be
restricted to the ceiling limit of their insurance policy and have no additional tax rebates
in purchasing supplementary insurance. While the Federal Drug Pricing Authority would
enforce the scope rules, yet the entry rules would permit it to pay R&D subsidies to the
pharmaceutical industry. This order would provide universal health coverage to the
entire US population with a single and portable all-America insurance cover and minimal
administrative cost to governments. Competition within the private sector for providing
medical services would intensify with no HMO/PPO able to corner any state to itself
bringing down premia substantially and augmenting extent of coverage. Duplication of
administrative functions in HMOs/PPOs (caused by multiplicity of insurance plans) and
in government agencies like Medicare and VA would be minimized and save around $
300 billion per annum (incremental benefit).
Policy Models & Future Research
This paper, with its limited research primarily on account of length restrictions, has
attempted a futuristic policy model that although is grounded in the current debate and
environment, looks to the future and proposes the blueprint of a policy that meets the
ends of equity and distributive justice. Although conflict is endemic to policy change,
yet such conflict restructures and/or creates new intermediary institutions that would
direct government attention to the achievement and maintenance of a state of near
equilibrium. It would therefore be useful to devote scholarly effort to creating policy
situation models and derive variables for each sub-part of a scenario. Analytical tools
may include sophisticated statistical tools or event history analysis. Policy modeling need
not always involve complex tools; the need is to project a vision of the future that, by its
very nature, would be normative but grounded in current events and not in the distant

37. 36
past. Hannah Arendt stated that “Predictions of the future are never anything but
projections of present automatic processes and procedures, that is, of occurrences that
are likely to come to pass if men do not act and if nothing unexpected happens
(emphasis mine); every action, for better or worse, and every accident necessarily
destroys the whole pattern in whose frame the prediction moves and where it finds its
evidence.” What if men were to act and unexpected things happen? The tendency to
analyze the past as a guide for the future may be self-defeating in many cases. History
does not necessarily repeat itself, particularly in contemporary times with its emphasis on
technology, education and awareness. Even a relatively small change in the environment
can produce large-scale systemic change and vice-versa.
Prediction by way of creating models and scenarios on a sub-sector basis may
therefore be a good place to start for policy researchers. Scenario creation may involve
simulation and economic techniques based on data, a large part of which is already
available in Federal government published reports. Thus census data can be manipulated
to create geographically contiguous groups of beneficiaries or by income, sex or age
against the dependent variable of insurance premia pricing. Similarly, published data
from the Securities and Exchanges Commission and company accounts can be used in a
time series study to determine the effect of universal health care on companies’
profitability, executive income, new formulations, R&D effort, advertising, stock prices,
market capitalization, etc. Equally, quality of life parameters periodically published by
CMS and the US Bureau of Census can be compared internationally with published
OECD and WHO statistics and controlled by sex, religion, race, etc.. The impact of
educational loan interest subsidy on the numbers of physicians and paramedics vis-à-vis
the OECD and other countries and their impact on overall health parameters may be
another sub-area worthy of prediction. Ultimately, scenario creation and modeling
would form a much more useful basis for policy formulation/reformulation. Although
such analysis, like all other, may not be entirely free of errors of judgment or researcher

38. 37
biases or political affiliations, yet such methods would bring policy research closer to
policy making for the future.
Conclusion
On November 19, 1945, President Harry S. Truman addressed the United
States Congress proposing a new national health care program. In his speech, Truman
argued that the federal government should play a role in health care, saying "The health
of American children, like their education, should be recognized as a definite public
responsibility." One of the chief aims of President Truman's plan was to insure that all
communities, regardless of their size or income level, had access to doctors and
hospitals. Medicare which "all started really with the man from Independence"
(President Lyndon B. Johnson) on July 30, 1965 (Truman Presidential Museum &
Library, 2007), took two decades to be translated into reality. Truman’s analysis of the
situation and the opposition to this proposal in the politically surcharged era bears an
uncanny resemblance to the current scenario. Truman said in 1948, “We have met
everything else in this mechanical age. Now let us see if we can't make the greatest
machine--the machine that God made - work as he intended it.” (Truman Presidential
Museum & Library, 2007). Favorable circumstances may, after six decades, finally
propel universal health care into all American homes as a matter of right than privilege
and income, finally translate Truman’s dream into reality as also make for closer friends
of politics and economics at both political and academic levels.

39. 38
ANNEXURE –A
STATEMENT SHOWING COMPARATIVE HEALTH CARE STATISTICS
BETWEEN DEVELOPED COUNTRIES AND THE UNITED STATES
Country HALE1 HALE Physicians/ Nurses/ Hospital Health Govt. Per
(Male) (Female) 1000 1000 beds exp. as exp. As capita
pop. pop. /1000 %age %age of exp.
pop. of tot. exp. (intl. $
GDP rate)
Australia 70.85 74.32 2.47 9.71 39.89 9.50 17.7 2874
Austria 69.28 73.55 3.38 9.38 83 7.50 10 2306
Belgium 68.93 73.32 4.49 5.83 68 9.40 67.20 2828
Canada 70.06 74 2.14 9.95 36 9.90 16.70 2989
Denmark 68.55 71.14 2.93 10.36 40 9.00 13.50 3534
Finland 68.67 73.51 3.16 14.33 69 7.40 76.50 2307
France 69.32 74.73 3.37 7.24 76 10.10 76.30 2902
Germany 69.64 74 3.37 9.72 86 11.1 78.20 3001
Iceland 72.06 73.64 3.61 13.63 75 10.50 83.50 3821
Italy 70.73 74.68 4.20 5.44 41 8.4 75.1 2266
Japan 72.27 77.71 1.98 7.79 129.37 7.9 81.00 2244
Netherlands 69.74 72.59 3.15 13.73 46 9.8 62.40 2987
New Zealand 69.48 72.19 2.37 8.16 59.92 8.1 78.3 1893
Norway 70.41 73.58 3.13 14.85 43 10.30 83.70 3809
Sweden 71.87 74.77 3.28 10.24 30 9.40 85.20 2704
Switzerland 71.08 75.25 3.61 10.75 59 11.50 58.50 5035
UK 69.14 72.09 2.30 12.12 40 8.00 85.70 2389
USA 67.22 71.30 2.56 9.37 33 15.2 44.60 5711
Source: Health Statistics (2005) World Health Organization, Geneva
1
Healthy Life Expectancy

40. 39
ANNEXURE- B
THE MULTIPLE STREAMS APPROACH FOR UNIVERSAL
HEALTH CARE FRAMEWORK ADOPTED FOR THIS PAPER
Issue emergence Agenda Setting Alternative Selection
• Rising insurance costs • Increasing profitability of • Incremental reform by
insurers and drug majors extending tax credit system
• Rising business costs
• Limited FDA approvals for new • Series of incremental reform
• Increasing employer drugs
reluctance to provide leading to large scale reform
• Patent Extensions through universal health
health insurance
• Large price disparities between coverage
• Rising no. of uninsured VA and • State sponsored and operated
• Rising no. of HMO/Medicare/Medicaid
underinsured • State sponsored and private
• Ineffectiveness of enforcement
sector operated
• Rising family debts by public agencies
• • Regulatory or Facilitative
• Rapid increase of premia Malpractices by HMOs & drug
and drug prices manufacturers
• Decline in quality of • Rising administration costs F
• Convergence of policy, political
health care and healthy E
life parameters and problem streams
• Rising demand for universal E
PUNCTUATED EQUILIBRIUM
MULTIPLE STREAMS health coverage D
& ACTION ARENA (IAD)
B
A
Evaluation Implementation Enactment C
K
• Rule configurations
• Entry and Exit rules • Legislation
• Financial Audit
• Position Rules • Regulatory-Coord. Agencies
• Technical
Inspection • Scope rules • States as UHC program managers
• Regulatory • Authority Rules • Federal govt. as collector of
authority • Aggregation Rules revenues and facilitator
• SEC for • Information Rules • Administrative reorganization of
companies • Payoff Rules state health care agencies
COMMON POOL/IAD ACTION SITUATION &
COMMON POOL/IAD
FEEDBACK

41. 40
ANNEXURE –C
UHC IMPLEMENTATION MODEL ADOPTED FOR THIS PAPER
AND DERIVED FROM IAD FRAMEWORK
POLITICAL, POLICY AND PROBLEM STREAMS
OBJECTIVES OF LEGISLATION ACTION ARENA INTEREST GROUPS
• Universal health care THE ACTORS • Pharmaceutical mfrs.
• Policy communities • PPOs & HMOs
• Mandatory participation for all • Policy entrepreneurs • FDA & SEC
• Congress • US Dept. of Health, CMS,CDC
• Hybrid monopsonic market
• The Presidency • Consumer rights nonprofits
• Private health care industry • Political Parties
preserved • The Civil Service
• Merger of Medicare, Medicaid, NEGOTIATION/CONFLICT
VA and local govt. health depts
• Basic health care plan + add- OUTCOME/EQUILIBRIUM
ons • SERIES OF RELATED
INCREMENTAL REFORM
• PHI by geographically
ACTION SITUATION LEGISLATION LEADING TO
contiguous communities
EQUILIBRIUM AGAIN
• Creation of R&D Fund THE VENUES • MAINTENANCE OF EQUILIBRIUM
• MEDIA THROUGH NEW STATE
• Rep eal of ERISA INSTITUTIONS
• COMMITTEES &
• Medical education assistance SUBCOMMITTEES OF
CONGRESS
• Capital investment assistance • CIVIL SERVICE
• CMS
• Withdrawal of all tax credits
and exemptions • US DEPT. OF HEALTH IMPLEMENTATION
• STATE LEGISLATURES & • RULE CONFIGURATIONS
• Stoppage of all employer COMMITTEES • FEEDBACK LOOP FOR
contributions for PHI • POLITICAL PARTY HQs RULES MODIFICATION
NEGOTIATION/CONFLICT • EVALUATION
CONFLICT & NEGOTIATION
Feedback Feedback