Home
About Me
Preaching
Gardening
Exploring Islam
Our Country's Finances
Scientific Editing
Ten Percent
Resume
Contact Me

Health Care Inflation: The Crux of the Issue

More than any other one factor, health care inflation has caused the budget squeeze in this country. Health care costs have been rising faster than GDP for more than forty years, and health care now takes more than 17% of GDP – one of every six dollars we spend in this country. Medicare and Medicaid currently take about 5% of GDP, but if current trends continue their share of GDP will double in just twenty years.

This inexorable increase has forced federal, state, and local governments to cut every other kind of service just to stay even. The result is that people feel like they are getting less and less for their tax payments, and with the exception of health care they’re right.

My state, Massachusetts, started investing a lot more money in education a decade ago. It turns out that every penny of the additional $700 million in state aid for education paid for health care. Indeed, health care costs increased so much that towns had to find an additional $300 million on top of the state aid. (Health costs sap state aid for schools) So much for improving education.

Meanwhile, businesses are reluctant to raise wages when they have to pay higher health insurance premiums every year, which is one of the reasons incomes for most people haven’t increased in a generation.

In 2008, more than 47% of the nation’s total health care expenses were paid for by federal, state, and local governments. Private funds (insurance and out-of-pocket) paid for a slim majority of 52.7% of health care, but that percentage has been declining steadily. (National Health Expenditures)

We cannot solve our country’s economic problems unless we find a way to bring health care inflation under control.

We don’t even get good results for our money. We spend about twice as much on health care as most other industrialized countries, but we rank among the lowest in life expectancy, infant mortality, hospital infection rates, number of preventable premature deaths, and just about every other health metric.

In the words of the economist Herbert Stein, “If something can’t go on forever, it will stop.” Health care costs can’t keep increasing at their historical rate until they consume 100% of our economy. They simply can’t. So which way will things change?

The good news is that increasing quality seems to be one of the best ways to cut costs. American health care is rife with inefficiencies, omissions, redundancies, and errors. Much of our health care spending pays for over-testing, over-treatment, and other practices that don’t improve people’s health and indeed can do a lot of harm.

To give one of many examples, Ezekiel Emmanuel and Jeffrey Liebman pointed out in a (highly recommended) article titled Cut Medicare, Help Patients that the United States Preventative Services Task Force recommends against doing colonoscopies in people over age 75 because there is no evidence that they save lives in people that age, while the risk of perforating the intestine increases with age. And yet Medicare pays for colonoscopies in people over 75, and plenty of them are done. A perforated intestine is excruciatingly painful and often fatal. Wouldn’t it be better to save money by not inflicting that suffering on anyone?

For a scathing report on how often medical treatment is ineffective or worse, see Shannon Brownlee’s Overtreated: Why Too Much Medicine Is Making Us Sicker and Poorer.

As I learned more, I became more optimistic that we can bring health care costs under control – if we start focusing strongly on improving quality.

In a much-discussed article, The Cost Conundrum: What a Texas town can teach us about health care, Atul Gawande focused on financial incentives. He visited the town of McAllen, Texas, because it has the unfortunate distinction of having one of the highest Medicare costs in the country. In 2006, Medicare spent fifteen thousand dollars per enrollee in McAllen, twice the national average – and, shockingly, three thousand dollars more than the town’s per capita income. People in McAllen receive a lot of medical treatment, but Gawande found that their health is no better for it.

In contrast, Gawande pointed out, the Mayo Clinic is known world-wide for its high standard of care, and also for taking on the most challenging patients. Its doctors are all paid salaries, not per procedure, and are encouraged to cooperate with each other in providing good patient care. The Mayo Clinic’s cost per Medicare enrollee is less than seven thousand dollars.

If we gave everyone in the country Mayo Clinic quality at Mayo Clinic prices, we could cut Medicare costs in half. It’s not that simple, obviously. But the image is striking.

Some people, of course, have much higher medical needs than average. (The Kaiser Family Foundation has an interesting graph on the concentration of health care spending. Of course, some of us who are cheap now may become quite expensive later.)

For more about the history of Medicare and detailed suggestions for how to improve its finances, see The Medicare Bind in the American Prospect. “Democrats should defend Medicare. But if they want to accomplish much else, they will have to change it.”

The Quiet Health-Care Revolution profiles a company, CareMore, that specializes in Medicare patients and seeks to prevent problems or solve problems while they are still small — providing free transportation to medical visits, for example. Its patients are all over 65, and they are one-fifth as likely to fall as their contemporaries. Their diabetic patients have 60% fewer amputations than the Medicare average. Their hospitalization rate is 24% below average and their hospital stays 38% shorter than average. They have reduced hospital readmissions for congestive heart failure by 56%. All of their patients eventually die, of course. As a doctor friend of mine says, the death rate in this country is unchanging: one per person. But by keeping people as healthy as possible along the way, CareMore doesn’t just save money (their costs are 18% below the industry average) but also reduces suffering dramatically and improves people’s quality of life immeasurably.

The Hot Spotters: Can we lower medical costs by giving the neediest patients better care? focuses on chronic “super-utilizers," including young and middle-aged adults, who cost an immense amount of money — as well as, often, great frustration for their doctors, families, and other care-takers. A team in Camden, NJ, took on some of the most expensive patients in the city. By improving the treatment of these difficult patients, the team reduced their hospital and ER visits by 40% and cut hospital bills by 56%.

So the crux of the issue, I believe, is improving health care performance. Much evidence suggests that if we improved the quality of health care we would both decrease costs and improve people’s quality of life.

This is a challenging problem, but not an insoluble one. In recent years, health care performance has started to be a subject of study. Some key results are:

The implications are obvious:

For more information about improving health care performance, I suggest exploring the website of the Commonwealth Fund.

Improving performance is not the only issue, of course. Even with improved quality and cost-effectiveness, health care demand is likely to increase as people live longer and more possible treatments are invented. But improving quality could lower costs a lot, .

Since 1990, Oregon has maintained a list of procedures that will and will not be covered by the state’s Medicaid funds. The goal of this list is to prioritize procedures based on how much value they provide, and thus to provide basic high-value health care for as many people as possible. For more information about how this experiment has worked, see Oregon’s Experiment with Prioritizing Public Health Care Services in the AMA’s Journal of Ethics.

As more research is done on the effectiveness of various interventions, we will be better able to evaluate the value of different procedures. We may over time decide to use this information to determine which procedures will or will not be paid for with government funds.

One possible option would be to define a basic “high-value” level of health care that should be available to everyone, including working-age adults as well as seniors and children. Individual freedom could be preserved by encouraging people to, if they want to, purchase private health insurance that covers treatments beyond this high-value level. Meanwhile, everyone would have access to health care providers and to the procedures that have been proven most effective at improving people’s longevity and quality of life. This high-value health care would be funded with tax revenues, but the taxes would be less than what workers and employers are paying now for health insurance.

There are many other ways our current health care non-system could be transformed under financial pressure, and some of them would be ugly. But there is, I believe, a good path forward if we keep our eye on the goal of reducing costs by increasing quality.


Back to Our Country’s Finances

Or other topics that might be of interest …