Healthcare reform has entered the limelight again this year and already people are trying to frame the problem as government versus marketplace solutions dividing along traditional liberal/conservative lines. Unfortunately, this comes at the problem from the wrong direction.
From the Congressional Budget Office (CBO) Growth in Health Care Costs report we get the following graph. The simple projection shows that healthcare costs will consume the whole federal budget and all of GDP in the next 70 years.
Clearly that won’t happen, but it does spell out that large fundamental changes to the way healthcare is apportioned and delivered in the US will occur whether by design or market place adjustments.
The US currently currently spends 15.4% of GDP on healthcare including both government and private . With that it gets 2.6 doctors per 1,000 people, 3.3 hospital beds and its people live to an average age of 78.2.
Here is how some other developed nations compare.
- UK – spends 8.1% of GDP, gets 2.3 doctors, 4.2 hospital beds and live to an average age of 79.4.
- Canada – spends 9.8% of GDP on healthcare, gets 2.1 doctors, 3.6 hospital beds and live until they are 80.6 yrs.
- France – spends 10.5%, 3.4 docs, 7.5 beds and live until they are 80.6
- Spain – spends 8.1% , 3.3 docs , 3.8 beds and live until they are 81.
- Europe (in aggregate) spends 9.6%, has 3.9 docs, 6.6 beds and live until they are 81.15.
Clearly there is room for the US to improve both quality and coverage without significantly increasing cost.
Employers should not be the primary providers of health insurance and pensions
As a financial planner I often see first hand the grief this linkage causes. Here is a list of just some of the problems.
- Preexisting conditions can prevent an individual from changing jobs or starting their own business.
- People who left the workforce because of a chrnoic illness (e.g, AIDs) and who are on Medicaid cannot reenter the workforce because it risks leaving them without health insurance.
- People who want to slow down by working fewer hours (before age 65) often can’t do so because of the loss of health benefits ti would cause.
- A company that must provides health insurance is potentially at a competative disadvantage to those that don’t.
- Varied coverage — Employer coverage is very uneven; some offer none, some offer minimal plans and some offer luxury plans.
Government’s Role in Health Insurance
If you start the process by asking the question “what healthcare should every citizen have covered”, you have already gotten into trouble. That is like asking a home buyer what home features are a must have before they have set a budget and examined the housing landscape. Unfortunately, this is how Medicare, Medicaid and US health insurance in general are currently structured and you can see the unsustainable cost increases that result.
Healthcare wants are virtually unlimited. The first question to ask is “how much of our GDP/budget should society dedicate towards providing basic healthcare for everyone. Only after that question has been answered can we begin the incredibly arduous process of determining how to best spend that money. By expliciting controlling the amount we spend on healthcare, we force improvements to come through improved efficency (efficacy/$). This will cause a natural restriction to administrative bloat (public or private). I am somewhat ambivilant about whether universal healthcaare should be run by the government or private industry.
If private insurers are used, there clearly needs to be a mandate for everyone to carry medical insurance (otherwise people don’t participate until they need it) and eliminate medical underwriting (i.e., insurer can’t deny enrollment).
Having the federal government admister the program gives you all kinds of operating efficiencies, but it creates a one size fits all program for the country. Sometimes you may want coverage that is more regionalized. For example in a coal mining state you might prefer to cover black lung issues, where in Utah they might prefer to put more dollars to fertility issues.
Lastly, I have had a high deductible plan with health savings account for my family for the last five years and it has been quite educational. Soon after my family switched, my youngest daughter had a cold and was wheezing for a while. The doctor prescribed some medicine to help with her breathing. When I went to the pharmacy the total came to $750! I paid it, but then went home and did some research. I discovered that a drug that was 99% as effective could have been had for $40. Needless to say, from then on I always discussed drug costs with doctors and am often amazed at the non chalance by doctors of prescribing a drug that is 10 times more expensive just because it has been slightly tweaked (and therefore back under patent). This has clearly demonstrated to me the need for health insurance plances to have cost sharing provisions (with caps).
If I had to put a stake in the ground, I would have the federal government act as the major medical insurer and then have states or private industry provide the supplemental insurance, but a lot of hard thinking is still needed in this area.