Friday, April 13, 2012

Healthcare Costs Could Overwhelm U.S. Economy

The U.S. Supreme Court is expected to rule in June on the Constitutionality of the Affordable Care Act, also know as 'Obamacare'. The latter name is either used pejoratively by the President's adversaries or in complimentary fashion by his supporters.

For better or for worse (and since the law won't fully go into effect until 2014, it may be too soon to tell), crediting or discrediting the President for the law is misleading. After all, the 2,700-page law was crafted by Congress, in conjunction with the healthcare, insurance and pharmaceutical industries.

However, the final bill was passed with no Republican votes, which made it immediately controversial.

A reasonable argument can be made that the law is too long, too complex and had far too much input from the private industries that stand to benefit from the law's existence.

The one thing that most Americans — conservatives and progressives alike — seem to dislike about the law is the mandate requiring every American to carry health insurance coverage. Conservatives see it as a direct assault on their freedom and progressives see it as a generous gift to the private health insurance industry.

No matter how one views the law, there is no denying the litany of problems with the current U.S. health care system.

Health care spending now accounts for 18% of the US economy — the highest proportion ever, according to the government. As recently as 1980, health care expenditures were just 4.2% of gross domestic product.

By comparison, in 2009, industrialized nations spent an average of 8.9% of GDP for healthcare expenditures, according to the OECD. If the U.S. spent 9% instead of 18%, the annual savings to the nation would be roughly $1 trillion annually. That's stirring when your consider that Americans spent $2.6 trillion on health care in 2010.

The saddest thing is how little Americans get for their health care dollars.

The United States spends more on health care than any other country. But, at 78.2 years, American life expectancy is just 27th in the world. On the other hand, Japan spends $2,878 per person — about $5,000 less than the U.S. — and has the highest life expectancy among developed nations.

In most of the OECD countries, health care expenses come to more than $2,000 per person each year. In the 10 countries with the highest costs, expenses are roughly twice that.

However, in the U.S., spending on health care per capita comes to nearly $8,000 per person, approximately $2,600 more per person annually than Norway, the second-highest spender.

In four of the countries with the most expensive health care, pharmaceutical expenses come to at least $600 per person per year. In the U.S., those costs are more than $950 per capita, the highest in the world.

Even if the health care system ultimately saves lives, attempting to pay off all its associated debt is destroying many others.

From 1999-2009, health insurance premiums for families rose 131%, while the general rate of inflation increased 28% over that period. The increases in health insurance costs are not relative to anything else in the economy. They exist in a world of their own, driven by profit, high executive pay, advertising and marketing.

A recent study by the American Journal of Medicine found that 62 percent of all bankruptcies filed in 2007 were tied to medical expenses. The more striking thing is that three-quarters of those who filed for bankruptcies in 2007 had health insurance. This is further evidence of a truly broken system.

However, last year, roughly 50 million Americans were without health insurance, according to Census Bureau data. This amounted to 17% of the population in 2011. A report by the Kaiser Family Foundation found that three-quarters of the 50 million uninsured in the US are actually employed. Again, more evidence of just how broken the existing system is.

Sadly, things are moving in the wrong direction. Due to the struggling economy, more Americans lack healthcare today than just four years ago. In 2010, the total number of Americans with health insurance fell for the first time in decades.

Yet, the nature of many accidents and illnesses is that they are unpredictable and often unpreventable. Invariably, the uninsured end up in the emergency room with no means to pay the bill. Hospitals still treat them, but the ensuing costs are passed along to the Americans who are insured in the form of higher prices.

For this and other reasons, the unfortunate reality is that the U.S. has an exceptionally expensive healthcare system that doesn't deliver much value for all of its massive costs. As previously noted, this is largely attributable to the fact that the system is profit-driven and bloated by expensive marketing and advertising costs. The system is also inflated by generous executive compensation packages and the need to satisfy Wall St expectations.

For example, the U.S accounts for almost half of the global pharmaceutical market, with $289 billion in annual sales, followed by the EU and Japan. For years, the pharmaceutical industry has been the most profitable of all businesses in the U.S. In the annual Fortune 500 survey, the pharmaceutical industry topped the list of the most profitable industries, with a return of 17% on revenue.

The profit motive is clearly one of the primary drivers of costs. But perhaps the most worrisome issue is how little we get in return for what we spend.

According to a 2007 report issued by the Commonwealth Fund (a non-profit group that studies healthcare issues), America has the most expensive, least efficient healthcare system compared to five other industrialized nations.

The report found that — in order — Germany, Britain, Australia, New Zealand and Canada all provide better care for less money.

The reports’ issuers said, “The U.S. healthcare system ranks last compared with five other nations on measures of quality, access, efficiency, equity and outcomes.”

The report also studied convenience, such as waiting more than four months for elective, non-emergency surgery. The U.S. didn’t fare as well as Germany, but was better than the other countries.

The Commonwealth Fund has consistently found that the U.S. — the only one of the six nations surveyed that does not provide universal healthcare — is inferior to the other nations in many measures of healthcare.

Though the Affordable Health Care Act has yet to be fully implemented, things haven't improved in recent years.

If the U.S. wants to continue thinking of itself as a world leader, then it has to be able to do better than other industrialized nations. Like education, the health of the nation's citizens is not just critical, but fundamental.

Unquestionably, the U.S. has a highly advanced, highly technological healthcare system. If you are in crisis and in need of intensive care, or some form of life-saving surgery, the U.S. is among the very best. The problem is that the U.S. system focuses very little on prevention and health maintenance, both of which mitigate future costs.

As of 2008, 80% of all healthcare dollars were spent on chronic conditions. As the old saying goes, an ounce of prevention is worth a pound of cure — and it could also be worth billions in savings. Quite simply, prevention is a lot cheaper than treatment.

However, cost will not be part of the equation in the Supreme Court's decision-making. The Justices will simply determine whether or not it is Constitutional for the government to mandate that the American people purchase health insurance.

If the Court rules that it is not Constitutional, it could call into question the government's ability to mandate many things. After all, laws are supposed to be compulsory, not optional.

Would the overturning of the mandate invalidate the Massachusetts healthcare law signed by Mitt Romney in 2006?

While conservatives now vehemently oppose the Affordable Care Act, the concept of an individual health insurance mandate originated at the Heritage Foundation, a conservative think tank, in 1989. Republicans also introduced health care bills that contained an individual health insurance mandate twice in 1993. And of course Republican Mitt Romney championed and signed such a mandate into law as Massachusetts' governor.

The conservative approach has been to create a truly national health insurance market, allowing people to purchase insurance from any of the 50 states. This seems logical. The larger and more competitive a market is, the lower prices tend to be.

However, the U.S. problem is a matter of high costs, which ultimately drive end-prices for consumers.

The other long-time conservative solution to soaring costs is tort reform. However, the 15 leading insurance companies had a 5.7% increase in malpractice payouts from 2000 to 2004, while increasing premiums by 120% during that period. Since malpractice lawsuits don't appear to be the problem, tort reform is not the solution.

That said, a solution must be arrived at soon because health care spending will eventually strangle the economy.

The U.S. healthcare system encourages hospitals and doctors to perform unnecessary medical procedures on people who don't need them, while denying procedures to those who do.

According to a 2005 report by researchers at the Boston University School of Public Health, about 10% of the U.S. population is responsible for 70% of its health care costs. That group consists primarily of the elderly and the chronically sick.

While we can’t stop the aging process, we can do more to avoid lifestyle diseases such as heart disease, hypertension and diabetes. We can also stop spending so much on end-of-life care, which simply prolongs the inevitability of death.

The health care costs related to our aging population are poised to worsen. The health care system is on a collision course with reality.

The U.S. is on the threshold of becoming the first-ever mass-geriatric society. For the first time in history, people 85 and older are the fastest growing segment of the population. Over the next 20 years, the number of people over the age of 65 will double to more than 70 million, or 20% of the population.

Ultimately, America needs to spend more money preventing disease than treating it. In order to regain control of spiraling costs, the focus must shift to prevention. It's the chronic conditions that people ignore for so long — usually because they don't have insurance — that are so expensive to treat.

However, the government, doctors, hospitals, and insurance companies can only do so much. Ultimately, we need to do a better job of taking care of ourselves.

Two-thirds of Americans are overweight or obese, and that is the public health issue of this generation. The CDC has reported that obesity is now overtaking smoking as the leading cause of preventable deaths.

Additionally, diabetes is now viewed as an American epidemic and is projected to become this nation's most costly disease. Incredibly, 90% of diabetes cases are Type II, meaning they are almost entirely preventable.

Yet, Americans refuse to change their behaviors and their lifestyles.

Our physical well being is largely in our own hands. Until we start taking better care of ourselves, the personal and economic costs will become increasingly burdensome to our nation as a whole.

1 comment:

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