Rethinking the healthcare system - Part one

US healthcare outlays currently account for some 18% of Gross Domestic Product, and the percentage is headed up. CMS: US healthcare spending to reach nearly 20% of GDP by 2025,, 2/16/17.

Healthcare spending runs much lower in most countries. See this chart based on data compiled by the World Bank. Chart of the day: Healthcare spending as a percentage of GDP, Kevin Drum,,

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The US government (federal + state) spends more on healthcare programs than any other major government including those that provide universal (aka "single payer") healthcare coverage - a liberal goal that has yet to be achieved in this country. Government funds nearly two-thirds of US healthcare costs: American Journal of Public Health study,, 1/21/16.

•Tax-funded expenditures accounted for 64.3 percent of U.S. health[care] spending - about $1.9 trillion - in 2013, according to new data published today [Thursday, Jan. 21] in the American Journal of Public Health. The Affordable Care Act will push that figure even higher by 2024, when government's share of U.S. health[care] spending is expected to rise to 67.3 percent.

•Direct government payments for such programs as Medicare, Medicaid and the Veterans Administration accounted for 47.8 percent of overall health[care] spending. The analysis also identified two commonly overlooked tax-funded health[care] expenditures - government outlays for public employees' private health insurance coverage ($188 billion, or 6.4 percent of total spending) and tax subsidies to healthcare ($294.9 billion, or 10.1 percent of the total). Together, these public expenditures put the U.S. in first place for healthcare taxes.

Are Americans getting their money's worth? The US healthcare sector is probably the world leader in terms of the sophistication and availability of medical technology, training and competence of top healthcare professionals, etc. Yet in many respects (e.g., average life expectancies), other countries achieve comparable or better results at substantially lower cost.

Thus, it is common experience that drugs tend to be over-prescribed (perhaps by several different doctors, none of whom is aware of all the drugs being taken, medical procedures are employed in cases where they have limited benefit, and people overlook the health benefits of regular exercise, adequate sleep, a sensible diet, etc. The US spends more on healthcare than any other country, but not with better health outcomes, Melissa Ethehad & Kyle Kim,,

Nonstop growth of healthcare outlays has been a prime driver of the overall fiscal problems of the federal and state governments. It's hard to imagine a solution to the fiscal problem that wouldn't entail some major adjustments of the government policies that are driving up these outlays, as newly elected President Barack Obama noted over a year before the Affordable Care Act (ACA) was enacted.

Not only was healthcare reform a matter of social justice, the president stated at a White House summit meeting on healthcare, but healthcare reform could also reduce the burden of Medicare and Medicaid on the federal government's budget (and in the case of Medicaid, state budgets as well). A tale of two summits,

. . . healthcare reform is no longer just a moral imperative, it's a fiscal imperative. If we want to create jobs and rebuild our economy and get our federal budget under control, then we have to address the crushing costs of healthcare this year in this administration. Making investments in reform now, investments that will dramatically lower costs, won't add to our budget deficits in the long term. Rather, it is one of the best ways, in fact maybe the only way, to reduce those long-term costs.

Nice words, but the ensuing legislation didn't measure up. The ACA extended "free" or subsidized healthcare insurance (HCI) to tens of millions of Americans that lacked such coverage - which obviously wouldn't be free. The ACA made the healthcare system more complicated to administer, and it did little if anything to motivate patients to make better healthcare choices or demand lower prices from healthcare providers. In order to project that the ACA wouldn't increase government deficits, numerous tax increases were embedded in the legislation (to cover additional spending, not to reduce deficits).

SAFE proposed a healthcare reform plan at the time, which could have contributed to the government's fiscal health. The key points are recapped below, and the full plan is posted on our website. In search of real healthcare reform,
May 2009.

1. Scrap proposals to use the government's clout (and our money) to mandate near universal healthcare. The problem with healthcare that needs fixing is not the number of Americans without insurance per se, it is soaring costs that penalize everyone.

2. End the tax exemption for employer-provided healthcare benefits with the idea that private sector and government employees should make their own arrangements for healthcare services and insurance. In any case, those whose employers provide healthcare plans should not continue to receive this unjustifiable tax preference.

3. Encourage the use of catastrophic coverage insurance combined with Health Saving Accounts to cover outlays for routine healthcare services. As an exception to item 2, premiums for such plans should be payable out of pretax income or tax deductible, which would put all taxpayers on an even footing. Also, to break the state-by-state stranglehold on healthcare insurance (precisely what treatments should be covered, etc.), people should be permitted to purchase coverage from insurance companies located anywhere in the country.

4. Have the states take full responsibility for Medicaid and CHIP (Children's Healthcare Insurance Program) with the federal government providing block grants. Once established, the aggregate amount of federal grants would be indexed for inflation, but not allowed to continue growing in real economic terms.

5. Repeal the federal statute requiring hospital emergency rooms to admit all comers, which inflates hospital costs and has been much abused, while supporting other measures (such as walk-in clinics) to more efficiently respond to the medical needs of the poor and disadvantaged.

6. End traditional Medicare coverage for all seniors retiring after a given date, e.g., January 1, 2012, providing capped funding for private insurance coverage of future retirees.

7. Cap punitive damage awards for medical malpractice, which are driving up insurance premiums and inducing doctors to order every medical test known to man whether needed or not.

None of our suggestions were incorporated in the ACA, and by now - having survived legal challenges and a Republican "repeal and replace" effort - this legislation appears to be here to stay. The only material GOP victory was a repeal of the individual mandate to acquire HCI (enacted as part of the tax bill, this change will become effective in 2019).

Eliminating the individual mandate seems right in principle; why should anyone be fined for not acquiring HCI coverage they don't want? Other changes (e.g., bigger subsidies for high risk patients, more flexibility in the definition of acceptable insurance coverage) may be needed to shore up the individual policy segment of the HCI market, but predictions of an inevitable collapse seem overstated. Doomsday will not follow repeal of Obamacare's individual mandate, Robert Moffit,,

In general, government policies to mandate and/or subsidize healthcare insurance or services for many Americans have contributed to the high cost and relative ineffectiveness of our healthcare system. Healthcare has come to be viewed as a "right" rather than a service, and there seems to be more energy for preserving or even liberalizing the system than for attempting to address its deficiencies. Poll: Obamacare more popular than GOP health[care] bill, Max Greenwood,,

The survey, released Thursday as Senate Republicans unveiled a draft of their own healthcare reform legislation, found that 41 percent of Americans say Obamacare is a good idea while 38 percent say it is a bad idea. By comparison, just 16 percent said they see the House GOP plan as a good idea - a 7-point drop from the 23 percent approval it had shortly after it was passed in April.

Liberals agree the US healthcare system is high cost and produces results that are not noticeably better than (or perhaps not even as good as) those in other countries. The solution, argues Physicians for a National Health[care] Program, is to give the government more authority over the healthcare system, e.g., progress to a "single payer" system. Government funds nearly two-thirds of US healthcare costs,
op. cit.

"We pay the world's highest healthcare taxes. But patients are still saddled with unaffordable premiums and deductibles," said Dr. Steffie Woolhandler. "Meanwhile, billions are squandered on paperwork, and insurers and drug companies pocket huge profits at taxpayer expense."

Dr. David Himmelstein commented: "Our study shows that universal coverage is affordable - without a big tax increase. In fact, we already pay for national health[care] insurance, but we don't get it. It's an outrage that the American people pay sky-high healthcare taxes, but 33 million are still uninsured."

Conservatives note the effects of having the bulk of healthcare expenditures billed to insurance companies and government agencies, with patients paying only a residual share. This situation has resulted from government policies, e.g., subsidies for employer-provided HCI going back to World War II (such arrangements were deemed exempt from wartime pay limits), entitlement programs like Medicare and Medicaid that were enacted in the 1960s and have grown far larger and more expensive than originally envisioned, and most recently the Affordable Care Act. No wonder so many patients seem largely oblivious to the cost of medical tests, medical treatment, prescription drugs, etc. They don't perceive that the cost is coming out of their own pockets.

Given all that has happened to date, it's hard to see why one should infer that the solution to current problems is to give even more power to the government. The idea sounds noble, however, and it evidently has strong appeal. Democrats shift left on healthcare, Alexander Burns & Jennifer Medina, New York Times,

Spoiler alert: "there is no such thing as a free lunch." Perhaps healthcare costs would be reduced in a single payer system, but this would not be due to wiser regulations to stop price gouging on pharmaceuticals, the provision of unnecessary medical services, and sky-high medical bills during the end of life phase. Rather, it would result from a factor that single payer advocates never seem to mention, de facto rationing of healthcare services. Why "healthcare" is not a right, Roger Stark, Washington Times,

How does society pay for healthcare for all? Who gets to decide who should receive healthcare and how much? Who gets to decide what the healthcare budget should be? Who should have the power to make healthcare decisions for us? Or rather than confront these issues, do proponents of healthcare as a right mean everyone should have health[care] insurance? The problem with this belief is that simply having health[care] insurance does not guarantee timely access to actual medical care. Every citizen of Canada has government-paid health[care] insurance, but the long wait times for treatment, most notably for specialty care, would be unacceptable for Americans.

SUMMING UP: the US healthcare system is unreasonably expensive and produces indifferent results. Basic decisions are made by healthcare bureaucrats and their surrogates (e.g., insurance companies) rather than by the patients who pay a relatively minor portion of the overall costs.

We would favor an overhaul of the healthcare system, which would give patients more choices in what kind of healthcare arrangements they would be allowed to make, foster more competition between healthcare service providers, and empower patients to make informed choices about their own treatment

There is currently more support for expanding the government's role in healthcare, however, than there is for cutting it back. And if "single payer" healthcare wins out, as it has in most advanced countries, healthcare services will necessarily be rationed (by manipulating wait times for treatment, imposing age limits on expensive procedures, etc.) to blunt the fiscal effects on government.

So, has the battle over healthcare been lost, and if not what should the next move be for conservatives? Stay tuned for further discussion.

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