February 9, 2006

Healthcare Pt 2: A Flawed System

Filed under: Random Stuff — Bob Gifford @ 10:29 pm

U.S. healthcare is a paradox: we spend more and get less for it than anywhere else in the world.

Americans are spending a growing portion of their incomes on healthcare. Healthcare expenditures have been growing 2.5% faster than income, a trend that could lead to healthcare consuming a third of household incomes by the year 2030. The U.S. spends dramatically more per capita on healthcare than any other developed nation. In 2000, the U.S. spent $4,500 per capita on healthcare, while the second highest spender, Switzerland, spent only $3,300, 71% as much as the U.S.

Yet U.S. life expectancy ranks 27th in the world, below countries spending half what we spend on healthcare. In 2004, almost 46 million Americans, or 18% of those under 65, were uninsured. Most of the uninsured are families where one or more members work full-time. As the cost of health insurance increased by almost 60% for a family of four between 2000 and 2004, the number of uninsured grew by 6 million. While the uninsured are able to receive free or heavily discounted healthcare, typically from hospital emergency rooms, on average they receive half as much health care as the insured, with a resulting 10-15% increase in average mortality, and as high as a 70% increase in mortality for some illnesses.

How can things have gotten so screwed up?

Healthcare in the U.S. is primarily provided through employer-sponsored plans. This is a historical accident — wage and price controls were put in place to limit inflation during World War II, and employers realized they could offer free health insurance to attract workers instead of increasing wages. During the 1950s and 60s, the practice grew because health insurance benefits were non-taxable. While employer-sponsored health insurance was not originally pursued as a matter of public policy, all the same it arose from the action of the government by virtue of wage controls and tax policies.

However, there is a major drawback to this system. Employers are not required to offer health insurance, and only do so for higher paid, skilled workers. Employers of low-skill, low-wage workers face a dilemma: if they provide health insurance for their employees, they suffer a competitive cost disadvantage compared to competitors that do not. Even if all employers in the U.S. provided healthcare, they would still face foreign competition from countries where employers do not pay for health insurance.

For employees, particularly those with chronic illnesses, their ability to obtain healthcare depends on their employment. Changing employers means potentially changing insurers and doctors, and perhaps losing health insurance altogether. Meanwhile, the individual health insurance market is unaffordable for those who need it most: low income adults with a chronic illness.

No one would design a national healthcare system around employer-sponsored health insurance if one were starting from scratch.

But this doesn’t explain our over-spending on healthcare. Our healthcare system has built-in incentives that drive up spending. Patients covered by health insurance only pay a small portion of the cost of a given procedure, prescription or test, typically 10 to 20 cents on the dollar. We want our healthcare providers to order these measures even when their benefit is less than the cost. The doctors, meanwhile, have a greater incentive to keep their patients happy than to deny services, even if they know their cost can’t be justified. While it gets way over-played by conservatives, fear of malpractice lawsuits can only encourage doctors to order unnecessary medical care.

The U.S. health insurance industry has moved from fee-for-service plans to managed care, which puts in place incentives for physicians to manage costs. However, because of their cost controls, we patients-as-consumers have come to view these plans as second class health care. Most Americans with private health insurance are in preferred provider option plans, a compromise closer to fee-for-service plans than managed care.

Given these incentives and lack of cost restraint, the U.S. is an over-consumer of health care in general, and in particular, high cost medical technologies, such as MRIs, compared to other countries.

One health issue worth noting is the extreme cost of care provided at end-of-life. Think of the reaction of many Americans to the Terry Schiavo debacle. We seem to believe that death is something to be resisted by every means at our disposal, resulting in massive healthcare expenditures that provide minor postponements to the inevitable.

So costs keep going up, while more Americans are uninsured, and American companies trying to do the right thing by their employees suffer in the competitive marketplace.

Basically its a mess.

I know this has all been pretty dry stuff, but it’s the necessary foundation as we work our way towards some policy proposals. Next up: so what’s Bush’s healthcare plan all about?

6 Comments

  1. “We spend more and get less for it than anywhere else in the world.”

    While I don’t dispute the statistical fact, the statement is misleading. And therein lies teh real paradox: I don’t spend more and get less. I spend less and get much, much more. I paid $40 for three injections of a $600 synthetic joint fluid in my knee. That was on top of the $200 I spent for arthroscopic surgery (the pre-op MRI was included). If the knee gets worse, I have the option of knee-replacement surgery. I’m not sure about the exact cost, but it won’t be but a small fraction of the actual billing charges.

    So, since I am relatively affluent and work for an employer with a decent health insurance program that costs me relatively little, I am getting a lot for my health care dollar, bot in real dollar terms and as a percentage of my income. Not so for my co-workers who are less skilled and less well paid. A $40 office visit to a specialist means the kids don’t get new shoes or that they can’t fill the gas tank (don’t get me started!). To them, the costs are prohibitive. In fact, many of our workers who are parents only have health coverage for themselves and not their dependents because of the cost. One woman, who is an epileptic, has had two seizures at work because she tries to stretch her medication by taking it less frequently. Not a good choice. Workers like her, who have the same coverage that I have, are getting less for their money than I am. Paradox, indeed!

    Comment by Herman O. — February 10, 2006 @ 8:31 am

  2. Herman,

    Do you really think that your $600 synthetic joint fluid is being purchased for only $40?

    It might not be being purchased for $600, but someone is getting more than $40 for it. That someone is being paid by your health insurance plan, not you. The money your health insurance plan uses to pay for it comes from your premiums. Health insurance does not mean that we as a country and society are actually spending less for medical care. It just means it’s not coming directly out of the consumer’s pocket.

    But it is coming out indirectly in the form of rising premiums. While some part of the increase is related to increased company profits, the major part of the increase is related to growing overconsumption. Opinions about the reasons for the overconsumption vary but the bottom line is that it’s overconsumption that is driving the problem. This is a societal, not an individual, problem.

    Comment by Catherine — February 11, 2006 @ 4:57 pm

  3. […] The death of our current employer-sponsored health insurance system isn’t necessarily a bad thing, since it’s a fairly illogical accident of history. The important issue is what will replace it. With HSAs, Bush is aiming to replace our current system with an HSA/high-deductible insurance healthcare system. This is not a small, incremental program — this is the shape of the healthcare system of the future. […]

    Pingback by I am a Christian Too » Healthcare Pt 3: Bush’s Health Savings Accounts — February 21, 2006 @ 6:05 pm

  4. […] So far in this series of posts I have examined the biblical foundation for healthcare, the flaws in the current U.S. system, Bush’s proposals for healthcare, and some of the progressive alternatives for providing universal healthcare. All of this has been leading to the key question: as progressive Christians, what U.S. healthcare policies are we to advocate? […]

    Pingback by I am a Christian Too » Healthcare Pt 5: What’s the Solution? — March 12, 2006 @ 8:03 pm

  5. Bob,

    As someone with a mother who has been involved in the health care industry for over twenty years, I can tell you that it hasn’t just been “patients-as-consumers” who have had a problem with managed health care/HMO’s. Truth be told, managed health care has too often placed medical care under the control of beurocratic decision-makers rather than leaving it a matter of medical decisions. The net effect is that too often, health care providers feel they are forced toshort-change their patients’ care due to the “managed” pressure to cut costs.

    In reality, any ultimately workable health care system is going to have to address both sides of this “healthcare as a consumable/cutting costs wherever possible” dichotomy. And it’s not going to be an easy solution to come by.

    Personally, I think the first step in the right direction will probably be to quit viewing healthcare as a consumable/business altogether. Unfortunately, that seems to be the only model we are familiar or comfortable with. So much so, that I can’t at this time offer an alternative. But it’s clear to me that there are more and possibly bigger issues than “who pays for it all.”

    Comment by Jarred — March 14, 2006 @ 7:02 pm

  6. no comments abt relgion.

    Comment by cyma — May 21, 2007 @ 1:09 am

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