U.S. is on fast track to health care train wreck
December 17, 2016 at 5:00 pm
With the impending repeal of Obamacare, America is headed toward a public policy train wreck.
Three seemingly unstoppable trends in America are on collision course: 1) the inventiveness of the promoters of medical technology; 2) health care insurers and providers’ excessive costs; and (3) the health care expectations of the American public.
America is sleeping as this collision draws nearer. As Winston Churchill warned us 70 years ago, democracies always seem to wake up 20 years too late. We believe that even if America awoke tomorrow, it would be too late to avoid many aspects of the coming collision.
But what an opportunity! If we spent what other developed nations spend on health care, we could balance the budget and fund a myriad of other important public needs.
In 2015 we spent $3.2 trillion on health care, which was $10,000 per person in the U.S., ($25,000 for a typical American family). This is 17.5 percentof the U.S. Gross Domestic Product (GDP). To put this in perspective, this is more than twice what most other developed nations spend on health care while insuring all of their residents. This year we are on track to exceed that amount with it being 18 percent of GDP.
Even with the implementation of the Affordable Care Act, we still have 28 million people with no health insurance, and many more are under-insured due to rising co-pays and deductibles. Most families are unaware of the magnitude of spending since their employer pays most of their $17,000 family annual health insurance premiums. Because most do not need to be hospitalized, they are unaware of the extremely high cost of medical care.
Of the $3.2 trillion health spending, 70 percent goes directly to fund the cost of our healthcare. The remaining 30 percent is spent on administration and profit, which is more than twice that of any other nation. In 2014, studies published by the Institute of Medicine, Rand Corporation, and the Center for Medicare/Medicaid Services estimated that out of total health care spending, as much as $900 billion, or about one third of our total spending, can be attributed to waste, fraud and abuse.
Over the past 25 years, health care inflation has been three to four times the rate of overall inflation. This has forced employers to pay more and more for health insurance, which is one of the major causes of wage stagnation during this period. During this same period employees have had to pay a higher share of their health insurance premiums as well as higher co-pays and deductibles.
This current system is unsustainable, but who will tell the American public? We suggest that the solutions to the real problems of health care are hardly being talked or written about.
The ideal health insurance system is one that: provides free choice of hospitals and doctors; provides insurance coverage to all at all times (i.e., not tied to an employer); is affordable and will remove all risk of medical bankruptcy. This system should have an administrative cost of less than 5 percent and have everyone in the risk pool, thus making premiums affordable. We have such a system now: Medicare covers all persons over 65, those on total disability, and all renal dialysis patients.
Currently 20 percent of the population accounts for 80 percent of our total health care spending, most of this coming from Medicare and Medicaid. Medicare should be improved by allowing the government to negotiate for prescription drug prices, and to pay directly for prescription drugs, thus eliminating the private health insurance prescription drug coverage. This improved Medicare will eliminate the need for costly Medicare supplemental insurance and the large subsides to Medicare Advantage private insurers. It will also dramatically reduce waste, fraud and abuse. It would be funded by an increase in the Medicare tax and by cost savings.
Medicare, with all the fraud and other issues, still operates with about 3 percent to 4 percent overhead. That is much less than the profit and overhead added by U.S. health insurers, which is instead 15 percent to 20 percent. In addition, Obamacare, Veterans Affairs and Medicaid each add another entire layer of expensive bureaucracies. All these, along with the government being unable to bid for drugs purchased under Medicare, add up to unnecessary cost and waste in our system.
These costs would be dramatically reduced if the VA and Medicaid coverage could be put under Medicare instead, and if drugs could be bid for on a competitive basis. Similarly, there would be tremendous cost savings if under Medicare as a single payer, it is authorized to negotiate for hospital care on a more cost-efficient and more comparable basis across the nation.
This is where we need to go to avoid the looming disaster that we face in the future.
Vince Markovchick is president of the Healthcare for All Colorado Foundation. Richard D. Lamm is former governor of Colorado.