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Health Care Costs & the Entitlement Crisis
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In their 2006 book Aging Nation, Jim Schulz and Robert Binstock referred to "merchants of doom"--academics, political figures, and journalists who mistakenly believe that we cannot afford the aging of the population. A central concern of these doomsayers is the cost of entitlements, i.e., Social Security and Medicare, which they argue will "require massive tax increases, cause immense deficits or crowd out other important government programs".
Talk of a general entitlement crisis is misleading, however, because Social Security and Medicare face very different problems. According to the best estimate of the Social Security and Medicare Trustees, the Social Security Trust Fund will remain solvent until 2037, and between now and 2050, spending for Social Security will increase from 5 percent of GDP to 6 percent. This is an issue, but a relatively manageable one.
In contrast, Medicare's Hospital Insurance Trust Fund will run out in 2017, and, at current rates of spending, total Medicare spending will "grow from 2.7 percent of GDP in 2007 to 8.4 percent in 2050" (http://tinyurl.com/danjjd). Between now and 2050, spending per person on Medicare and Medicaid will increase from 5 percent of GDP to 20 percent. The entitlement problem is actually a Medicare (and Medicaid) problem.
It would be a mistake to assume that costs are an issue only for Medicare. Between 1970 and 2006, Medicare had a slightly better record controlling cost than private insurers. The underlying problem is health care inflation. According to Peter Orszag, Director of the Office of Management and Budget, "Health costs are the real deficit threat." To address Medicare, and provide affordable health care for everyone, we must succeed in "bending the curve," i.e. flattening out the growth of health care costs.
As the current debate in Washington shows, this is easier said than
done. A central challenge for reform, both
of Medicare and our system generally, is the widespread difference in
spending among and within geographical areas, what Orszag called "the
massive regional variation in cost and health outcomes". John Wennberg and his colleagues at
Dartmouth have found wide differences in practice patterns and spending
“in different regions across the country, different cities, and even
among different hospitals in the same city.” Although there is some
disagreement about the cause of or best way to address these
variations, there is widespread agreement that they exist, even after
controlling for a range of factors. Ironically, "higher spending does not
result in better quality of care" but often leads to "worse access" and
"lower quality".
Further insight into cost and outcome variations was provided by Atul
Gawande, in a widely-discussed article in The New Yorker. Gawande visited McAllen, Texas, the second
most-expensive health care market in the nation (Miami is first). “In
2006, Medicare spent fifteen thousand dollars per enrollee here, almost
twice the national average.” In contrast, in El Paso County, Texas,
which “has essentially the same demographics,” Medicare spending is
about half that in McAllen. Despite this, McAllen’s outcomes are
similar to El Paso’s and the national average.
Gawande went on to contrast McAllen with high-quality, low-cost
systems, such as the Mayo Clinic and Geisinger Health System, and
concluded "we are witnessing a battle for the soul of American
medicine." "McAllen and other cities like it have to be weaned away
from their untenably fragmented, quantity-driven systems of health
care" to systems "in which doctors collaborate to increase prevention
and the quality of care, while discouraging overtreatment,
undertreatment, and sheer profiteering." This of course would amount to
a fundamental transformation of our health care system. Elliott Fisher,
a Dartmouth researcher, estimated that changing higher-cost practice
patterns to lower-cost ones could save enough money to move Medicare
"from red to…black" and provide health care for everyone.
Unfortunately, making these changes will not be easy. Because practice
patterns and costs can vary within cities and even hospital systems, we
simply cannot cut physicians' fees "across the board in a given region". President Obama took a first step toward
dealing with cost disparities when he provided funding for comparative
effectiveness research. The simple--and unsettling--fact is that we
often don't know what works and what doesn't, and even when we do know
this information is not always communicated to providers. The
President's initiative on comparative effectiveness will help close
these gaps. Its purpose is not to ration care but to give providers the
information they need to treat their patients. In his speech to the
AMA, President Obama explicitly stated that "identifying what works is
not about dictating what kind of care should be provided." As other
steps toward reducing the quantity, and increasing the quality, of
services, the president advocated bundling payments, giving incentives
to physicians to work in teams, and providing "bonuses for good health
outcomes". Medicare, and the public health
insurance plan proposed by the president, could serve as vehicles for
introducing the sechanges.
Health care inflation lies at the root of both our entitlement and
health care crises. To preserve Medicare for current and future
generations and provide quality, affordable health care to everyone, we
need to make fundamental changes in the way we deliver health care.
President Obama and his advisors clearly recognize this challenge. We
have an unprecedented opportunity to bring about these changes. We must
act now and let Congress know we want to move beyond petty politics and
solve our health care crisis.
Steve:
Well done - wonderful blog. Thank you.
Even if we were to have perfect comparative effectiveness research (which, of course, is unrealistic), we would still have to face an important question. How much is a unit of marginal benefit worth to us? What ought to be the cost cutoff for saving one quality adjusted life year? Right now, we tend to say that if an intervention costs less than ~$35,000-50,000/QALY (or even more) it's cost-effective. However, that number, or any number, is a value judgment. One interesting fact - we frequently accept as cost-effective a cost for each quality adjusted life year that is higher than the average per capita income in the U.S. How should these two relate?
I'm not proposing solutions - only suggesting that this, ultimately, is the issue with which we will need to grapple.
Thanks for focusing on the central issue of the reform: exploding cost. As you quoted, "McAllen and other cities like it have to be weaned away from their untenably fragmented, quantity-driven systems of health care" to systems "in which doctors collaborate to increase prevention and the quality of care, while discouraging overtreatment, undertreatment, and sheer profiteering."
Given the mounting evidences, one also has to wonder how did the system deteriorate into such a dysfunctional state? Where is the "free market" that suppose to provide the best price for the best outcome? Like the financial meltdown, in a fundamental way, when the main objective is predominantly more cash rather than better cure, and/or prevention, the system breaks down. Healthcare, of all things, should be a public service first and fore most, otherwise any reform can only do patch work for the myriad problems, including greed, temporarily. A true public option will be a giant step towards achieving the goal quoted above. Assisted by interoperable healthcare IT, evidenced based medicine, and standard payment system, we may even lower the cost soon.
Thank you Steve for the informative blog. The various comments are valuable as well. Until I read Linda's comment I did not realize a big factor in the lower cost-better quality programs was that many doctors are on salary. Having been involved in getting care for family members and friends, I would observe that there is a dispirited quality to many treatment centers and hospitals. It has been a common experience that test after test is done with each result reported, but rarely a planned and timely approach to a diagnosis and often, little sense that the care takers often do not appear to care if the patient feels lost after test with still no wrapping up and assessment by a main caretaker. This indicates that doctors are in trouble, just as are the patients. It is easy to think improving doctor pay will fix this dissatisfaction or that reducing it will reduce costs. Certainly this is an area that needs attention for patients to have the best care. It is always good to hear sober discussions of various approaches and new evaluations of current proposals. We not only need to have health care reform, we need a whole new reverence for patients and respect for health care providers.
Thanks to everyone for these thoughtful and informative comments. Linda's comment is insighful. We've known for many years that staff model HMOs, where doctors don't have a stake in providing unnecessary care seem to have a better record controlling costs (though some observers have questioned this). I recall reading a report on health care costs by the George H.W. Bush administration (!) in the early 1990s that pointed to "service intensity" as the culprit in health care inflation. In 1993, I met Michael Rachlis, an M.D. and leading defender of the Canadian health care system. To my surprise, he argued that Canada needed to introduce pre-paid group practices such as Kaiser to control its health care costs. HMOs may not be the whole answer, and they must be accompanied by a Patient's Bill of Rights, but they seem part of the answer.
What is discouraging is that all these years later we are debating the same issues. We must make this time different. We're so close to creating an environment where we can figure out what works and what doesn't. As always, it comes down to the politics. We must pressure Congress to do the right thing and enact the presiden't approach with a storng public option.
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We Must Stop the Rampant Fraud in the Health Care Industry
http://www.huffingtonpost.com/rep-bernie-sanders/we-must-stop-the-rampant_b_222510.html
Health insurance doesn't really operate in a free market. It's a quasi monopoly if you ask me. I know that is not the proper economic term, but you get the idea. It's like funeral caskets. They are ridiculously expensive, even though there is "compeition" between 10 to 20 casket manufactureres in the USA.
I public option will bring in some more reasonable and true competition.
- Down to 611 Billion: Congratulations Senators Dodd and Kennedy
By Enku K on Jul 2, 2009 2:18 PM EDTThis could be the answer:
http://www.huffingtonpost.com/jason-rosenbaum/all-13-democrats-are-voti_b_224853.html
Happy July 4th
Message from Senators Dodd and Kennedy:
http://big.assets.huffingtonpost.com/HELPLetterToColleagues.pdf
The Public Option Plan:
http://big.assets.huffingtonpost.com/HELPPublicOption.pdf
Estimated budget
http://big.assets.huffingtonpost.com/HELPTitleI.pdf
The health reform bill:
Senator Grassley invites the 50 million uninsured citizens to work for the Federal Government. So, is this promoting big government or what?
With all due respect, this is ridiculous, insulting and at best not helpful. BTW, compared to the cost of the public option plan, it will cost a lot more money to hire 50 million people because Federal employees have the most generous benefits.
Here is the link to the statement:
http://www.huffingtonpost.com/2009/07/02/sen-grassley-if-you-want_n_225258.html
In 1980 Ted Kennedy promoted Universal Healthcare. He and it were defeated by "reasonable" objections. In 1993-4 Hillary Clinton fought for healthcare and was defeated by "reasonable" objections.
So now it happens again that the forces of this "reason" are against the forces of good. It'll end up,any reform, as a watered down mess of emptyness. We need courage and backbone to get "real" healthcare reform passed.
But once again the "reasonable" voices will drown out any real change and we will be back trying to reform the system,assuming it'll still be there to reform,and "reasonable" voices will once again prevail, but what the hey, it's all a game to "reasonable" voices.
Great article!
Thomas,
I understand you fear, but this time is different. We are different and we are going to win. YES WE CAN!
I think the big difference between now and then is that there is a greater public support for the healthcare reform.
NYT, July 2, 2009, 6:43 PM
Yes, we can by Paul Krugman
Get more or less universal coverage, that is. The CBO scoring on an incomplete bill sent everyone into a tizzy — and also led to an avalanche of bad reporting, with claims that it said terrible things about the public option. (There was no public option in the bill.)
Now the real thing has been scored — and it’s OK. Something like 97 percent coverage for people already here, at a total cost somewhere in the $1 trillion range. Bear in mind that the Bush tax cuts cost around $1.8 trillion over a decade. We can do this — and have no excuse for not doing it.
Here is the link:
ttp://krugman.blogs.nytimes.com/2009/07/02/yes-we-can/?emc=eta1
Earlier this week, Uwe Reinhardt, the well-known health economist, estimated that we could find $1.6 trillion for reform by "diverting money away from existing but wasteful health spending" (http://economix.blogs.nytimes.com/2009/06/29/reader-response-can-we-afford-health-reform/). Krugman is right, we "have no excuse for not doing" this.
Great the numbers are improving on public support, total cost, waste reduction and coverage. The bottom line is that Healthcare reform, at least with a true public option, is no longer just a choice, but simply a necessity. At 18 percent of GDP ($2.5 trillion a year) today,and projected to one third of GDP by 2030 and one half by 2080, if not reined in, the exploding healthcare cost would break all backs of the hard working individuals and families, and bankrupt the nation too.
The power of joining all forces for real change in the days, weeks and months ahead is crucial.
Dear Supporter: Two hundred and thirty-three years ago, our countrymen declared their independence from the tyrannical British Empire. Today, will you declare your independence from the tyrannical insurance industry and demand the choice of a public health insurance option? Click here to sign the petition and declare your independence from the insurance industry! All over the country today, thousands of Americans are holding these truths to be self-evident - we need health care reform that will provide:
Coverage we can afford;
Comprehensive benefits we can count on;
Choice of a private or public health insurance plan; and
Equal access to quality care
For too long, the insurance industry has held us in their monopolistic grip, so much so that there is no competition in 94% of our communities.<sup>1</sup> We have no choice but to pay their absurd rates and receive their sub-standard care so they can pay their CEOs another bonus. No more! With the choice of a public health insurance option, the industry will finally have a competitor strong enough to keep them honest. With this choice, we can restore stability to our lives, with no more unaffordable and low-quality coverage.
Happy Independence Day! To your health,
Levana Layendecker
Health Care for America Now<!--EndFragment--><!--[if gte mso 9]><xml> <w:WordDocument> <w:View>Normal</w:View> <w:Zoom>0</w:Zoom> <w:DoNotOptimizeForBrowser /> </w:WordDocument> </xml><![endif]--> <!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:"Times New Roman";} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in 1.0in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} -->
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- Controlling costs won't be easy
By LindaB on Jun 29, 2009 11:41 AM EDTControlling costs, in Medicare or any other part of the health sector, will not be easy. Some providers will earn less; others may even earn more. But the only way to do it is to combine two powerufl incentives -- money and organizational change. Why is it that places like Mayo or Kaiser or Geisinger keep costs down? Because in many cases doctors are on salary, so their incentives for doing more to make more are removed, and the culture of the organizations rewards collaboration and cooperation among providers. The Obama Administration has proposed a number of different ways to get at these problems, most of which are not necessarily top down, heavily bureaucratic government control. By moving the decision points downstream into the many places where health care is delivered, it makes it possible to have change without as much political opposition. By proposing "bundling" of physician and hospital payments for Medicare, the exact methods for change would be focused on communities and local physicians and hospitals. They themselves would have to figure out how to work together to make the most of the bundled payment. It wouldn't be government telling them "how" to do it, only that they must have good outcomes. I have a lot of faith in this type of reform to make significant system change. 2017 is NOT that far away!