We already have a pretty good case for healthcare reform. Under our old employer-based insurance system, the cost to provide healthcare to those who need it was growing at two to three times the rate of GDP.
That’s clearly unsustainable.
So we are faced with a couple of choices.
Before we discuss those choices, let’s first look at what other countries around the world have chosen to do.
The vast majority provide some form of universal healthcare to whomever needs it whether they are citizens, immigrants, or tourists.
That clearly isn’t the only choice, but it is a choice that most of our global competitors have chosen and almost all of them have demonstrated that their versions of universal healthcare deliver better outcomes at lower costs than we do.
That’s because in part we have a lot of people who depend on care through the emergency room rather than primary or preventative care. Some have suggested that we just turn away those who can’t afford to pay for their own care. That opinion has deep ethical issues for a country so steeped in Christian values, but it isn’t a good economic or political solution either.
It’s not a good economic model because our growth depends on how effective we are at leveraging our basic assets which are capital, infrastructure, and people. If we commit to a path where only rich people are healthy, then we will have an economy where a significant portion of our consumers can only buy the bare necessities of life because they are too ill to either improve their skills or work at better paying jobs. We will, in effect, be trying to compete with other countries with one hand tied behind our back. That’s because their health systems allows a higher percentage of their population to be economically productive than we do.
It’s not a good model politically either. Building a permanent underclass that has a significantly compromised quality of life both in terms of income and health is going to have serious political repercussions in a country that calls itself a democracy. The ultimate political outcome of this model has been the grist for science fiction writers for decades.
Some have also suggested that our cost differential is because of an aging population, but that turns out not to be the case. The population across the world is aging, but our costs are growing much faster than any of our competitors. According to a recently released study most of the money in this country is being spent on people UNDER 65 with chronic conditions like diabetes and heart disease.
“In 2011, chronic illnesses account for 84 percent of costs overall among the entire population, not only of the elderly. Chronic illness among individuals younger than 65 years accounts for 67 percent of spending,” they found.
“Price of professional services, drugs and devices, and administrative costs, not demand for services or aging of the population, produced 91 percent of cost increases since 2000.”
When you dig into the numbers of what is really driving cost in the healthcare system today, another dramatic reality emerges.
The reason healthcare is so expensive in this country is because we are one of the few industrialized countries that treat it as a business rather than a service. The result is that our prices for comparable services are the highest here because there is no effective economic counter to the basic capitalistic drive to maximize profit.
“Other countries negotiate very aggressively with the providers and set rates that are much lower than we do,” Anderson says. They do this in one of two ways. In countries such as Canada and Britain, prices are set by the government. In others, such as Germany and Japan, they’re set by providers and insurers sitting in a room and coming to an agreement, with the government stepping in to set prices if they fail.
In America, Medicare and Medicaid negotiate prices on behalf of their tens of millions of members and, not coincidentally, purchase care at a substantial markdown from the commercial average. But outside that, it’s a free-for-all. Providers largely charge what they can get away with, often offering different prices to different insurers, and an even higher price to the uninsured.
Moses points to a very big culprit – the standard fee-for-service system that encourages doctors and other caregivers to give lots of tests, individual treatments and to prescribe drugs, instead of keeping patients well. It’s not a new idea, but Moses says his team’s study shows it very clearly.
“This is a very myopic country,” he said. “There are lessons to be learned from other countries. Chronic illness is where the misery is, it is where the money is and it is where the greatest opportunity lies.”
Some have suggested that we are the innovation engine for the rest of the world and if our business model changes, that innovation will cease. Well that’s not exactly true either. Most of that money is just pure profit.
Many researchers are skeptical that this is an effective way to fund medical innovation. “We pay twice as much for brand-name drugs as most other industrialized countries,” Anderson says. “But the drug companies spend only 12 percent of their revenues on innovation. So yes, some of that money goes to innovation, but only 12 percent of it.”
What’s the solution?
Universal healthcare so that everyone has access to preventative care which can prevent the onset of the chronic conditions which drive most of the cost in this country.
A change in the business model where physicians are compensated for outcomes rather than transactions. That will provide significant financial incentives for both patients and physicians to make the sort of lifestyle changes required to prevent the onset of diabetes and heart disease.
Greater awareness of the real costs of care by those who are paying for them. It is possible that consumerism might help drive costs down, but it is likely going to be greater government involvement that will ultimately be required to bring our costs for comparable services in line with the rest of the world. That’s because the medical industry represents a huge lobby and they are not going to willingly live with lower profits. You don’t have to look any further than the Medicare Prescription Drug program where Congress expressly prohibited Medicare from negotiating lower prices.
As just one example, the health insurance lobby secretly funneled over $100M to the Chamber of Commerce to oppose the Affordable Care Act while they simultaneously were trying to cut the best deal they could with the White House on how the marketplace would be structured.
The consequences of inaction are not just felt by those who are sick. It affects everyone.
“There are opportunity costs,” says Reinhardt, an economist at Princeton. “The money we spend on health care is money we don’t spend educating our children, or investing in infrastructure, scientific research and defense spending. So if what this means is we ultimately have overmedicalized, poorly educated Americans competing with China, that’s not a very good investment.”
When Russia beat us to space with Sputnik, it was a wake-up call for the country. We invested in education, funding research, and promoting technology. The result was ultimately the growth of a whole new industry that revolutionized the world. We are facing a similar crisis today. The only difference is that we are talking about human capital rather than technology. Unfortunately we don’t appear to have to the same political will that we did 60 years ago to confront that issue and agree on a path forward. There is at least one reason that might not be obvious. I’ll cover that in a future post.