President Obama discusses healthcare at a June meeting with Senate Democrats at the White House. Many health economists doubt that the president will be able to reform the health care system this year.
(Reuters/Kevin Lamarque)Photos (1 of 1)
ECONOMIC SCENE: Why does healthcare reform founder?
Cutting costs would mean trimming pay for too many professionals.
By David R. Francis | June 9, 2009 edition
President Obama has taken on a perilous project in attempting healthcare reform.
The reason: Substantially reducing healthcare costs means cutting the incomes and profits of physicians, nurses, health insurance firms, hospitals, and others.
“Everybody has to take a haircut,” says Jean Mitchell, a health economist at Georgetown University.
That’s why she and some other top American healthcare economists doubt Mr. Obama will really reform the system this year.
Proposals to cut healthcare costs boil down to “talking about people’s salaries,” says Henry Aaron of the Washington-based Brookings Institution, who recently bet Washington Post columnist E.J. Dionne that no large-scale healthcare reform would pass this year.
The industry already is the biggest in the nation. It employs more than 14 million people, many well paid. Its lobbyists have serious clout.
So when reforms are proposed, those affected go to Congress to block change. If the future follows the pattern of the past, they will succeed again in preventing serious cost reductions.
Over the longer run, the rising cost of healthcare is unsustainable. Businesses and individuals won’t be able to pay the bills.
The government estimates healthcare spending this year will reach $2.55 trillion, or 16.9 percent of the gross domestic product (GDP), the nation’s total output of goods and services. That’s $8,839 per person.
Without restraint, costs will rise by about 6.7 percent a year to reach $4.2 trillion by 2017, or 19.5 percent of GDP, projects the Centers for Medicare and Medicaid Services.
Those rising costs will push the government-run Medicare system into the red by 2017, trustees of the program projected last month.
Other nations have done a better job of controlling costs, says Victor Fuchs, a veteran healthcare economist at Stanford University.
The US already spends 60 to 80 percent more of its GDP on healthcare than many other rich nations do. And that’s before adding the money the Obama administration will need to provide health insurance for 45 million uncovered Americans.
Some of those nations get better health results than the United States gets.
A recent study by the McKinsey Global Institute found that the US spends $650 billion more on healthcare than might be expected given its wealth and the experience of comparable well-to-do nations. Roughly two-thirds of that excess pays for outpatient care, including visits to physicians, same-day hospital treatment, and emergency-room care, often expensive tasks relying primarily on paid individuals and not medical machines.
The lead author of that study, Diana Farrell, has gone to the White House to work for Lawrence Summers, head of the National Economic Council.
Of course, many reformers hope to squeeze costly inefficiencies out of the US healthcare system. For instance, a new study published in Health Affairs, an academic journal, finds the time cost to physicians of dealing with health plans runs $23 billion to $31 billion each year. Reformers also point to the use of costly medical procedures when less expensive ones work as well or better.
The healthcare industry recently promised the president to trim $2 trillion in costs over 10 years, an amount equal to 1.5 percent in the annual growth rate of healthcare costs.
“That’s a joke,” says Professor Mitchell, who doubts those voluntary cuts will be made. “Do you know anyone who wants to take less income?”
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Comments
2. Kelly | 06.09.09
Whether you call it single payer, or socialized, or government sponsored healthcare makes no difference. We have socialized schools. Why, because children universally need education. At this point we need to see that the needs of the poor, average, and rich, should be more uniformly met.
It is correct that the insurance industry is bloated with money, red tape, and bleeds money from actual care. They have to go the way of General Motors. Some in Congress are in the same way. Entrenched interests have bought their loyalty, and they are no longer useful to the country for good governance and progress. A new documentary is slated to be shown in theaters called “Food. Inc.” It shows how soy and corn, subsidized by the government, is directly linked to increased costs in healthcare, by skewing normal foods to cheapen the quality, increase profits, enrich shareholders, and is the product of Big Agriculture, and Big Supermarkets, and Big Food and Meat Corporations. Some of the rampant diseases in this country are nutritionally based, and represent a large part of the healthcare cost today.
3. Bob Davis | 06.09.09
Does anyone know how the proposed uniform health care act applies in regard to illegal aliens? Will they get the subsidies if they can’t afford to pay the premiums? Will they be able just to walk into an emergency room and get treatment? All I’ve heard is “all Americans” will be covered.
4. John | 06.09.09
If we cut the paychecks of Doctors and Nurses, we will (over time) lose the most gifted students to other industries. Sure many doctors get paid well, but they paid the price for that high salary. Many if not most doctors will be in school until their mid 30’s. 4 years of undergrad, 4 years of medical school, 3 years of residency, 3 years of fellowship = 14 years after high school + 250-400k debt.
5. James | 06.09.09
You acknowledge that inefficient government subsidies create additional costs, yet you think that a government-run single payer system will be a more efficient way to allocate resources. Oh boy… For a simple example, just look at how efficiently the post office operates its mailing operations compared to Fed Ex or UPS. It’s $18B in the red, while UPS and Fed Ex turn a PROFIT each quarter…
6. Bill M | 06.10.09
We have to ask ourselves: do we want affordable healthcare, or do we want an industry (health insurance) that may have zero “value added” over single payer systems, but that employees many middle and upper income citizens. The status quo insurance industry is really a government make-work industry protected not by laws but by lobbyists.
US citizens don’t seem to want to think through this, so we will certainly plow blindly ahead, then squabble over what to do once it bankrupts Medicare.
7. Bill M | 06.10.09
One added note: James: I think it’s good we are all talking about this. The more we debate it, the more we are going to end up making practical (not theoretical) comparisons to other country’s approaches. The theoretical argument that you make will become irrelevant and suspect. There is no credible evidence for the support of the status quo support. It’s only support is public ignorance and apathy. The more we talk about this on websites like this, the more we are going to wonder why we don’t go to single payer.
8. David | 06.11.09
James, you bring up a point about the USPS. But, they are mandated to serve small and less accessible communities that most for-profit concerns would ignore. Are there inefficiencies? Absolutely, and they should be trimmed.
One thing I notice is that anti-centralize health care advocates often speak in terms of rationing. Don’t insurance companies do the same when they choose to pay for (or not) procedures or medicines? Unless you have a ‘Gold Card’ health plan; you are probably faced with decisions. And those without medical insurance are faced with even more draconian choices.
Clearly, we can’t pay for everything; but an honest discussion with less rhetoric and more dialog about practical solutions is needed. We certainly cannot continue on the current path.
9. duelles | 06.13.09
those of you who believe that a single payer healthcare system run by the government can not point to one program that is efficiently run by our government. You can not say- read prove - that other countries are ‘better’ than here.
When you take a freedom from me then you compromise the Bill of Rights and the Constitution. The innocuous slide into serfdom continues. you haven’t a clue what ‘rights’ are or what natural law is.
You get caught up in the precedent of what the government already does and lose sight of what it is Constitutionally allowed.
You are wrong!
10. Rolf A Nesse MD | 06.15.09
All health care is local. All patients are sorted by payment category. We have a fee for service model of payment that encourages volume of care over quality of results. There is no relationship between the mecical value of the procedure and its financial value. These four facts are at the heart of the problem of physician economic behavior.
Providers will try to find a place to practice with a better payer mix thus avoiding the low paying programs. They will do more for one type of patient ( by the patients insurance ) and less for others. They will do whatever procedures are currently most profitable to the exclusion of those which may be equally or more valuable to the health of the patient,but pay less.
To reslove all of this, every patient in every town in the nation needs access to what is called an ” Accountable Health Delivey system”. These entities, however organized, will make shure that all patients are seen as equal economically in the area, while providing the payment structure that makes best care the most profitable care, instead of the most profitable care crowding out the most effective care.
11. Darwin | 06.15.09
Question: Who charges increasingly higher medical costs and who benefits from charging more?
Answer: Doctors
Question: Who negotiates lower costs for medical services?
Answer: Healthcare insurance companies
I am no fan of the healthcare insurance industry, but they do force doctors’ high charges downward, saving consumers/patients money and scrutinizing unnecessary or fraudulent charges by doctors–more common than most patients realize. A single-payer system, if well-regulated, can be an effective means of reducing patient costs further (i.e., forcing doctors’ charges lower).
U.S. doctors are among the highest-paid doctors in the world. Many are primarily businessmen, seeking to maximize their profit. In fact, that is why many are going into private practices and choosing specialties, rather than becoming general practitioners–to maximize their profits/paychecks.
12. Barbara | 06.16.09
Most of us in salaried positions went to college, attend seminars and workshops to keep up to date with what is going on in the world around us. A lot of us have to pay a fee and take a test yearly to recertify so that we can keep our job. Yet many of the salaried people I have spoken with whether at my company or else where, have had to take a drastic pay cut. An example is the teachers have to accept a 10% pay cut, yet they deserve hazard pay to do the jobs they do. Why not have the medical community take a pay cut just like the rest of us? It only seems fair. After all everyone’s pay is going down and medical costs have not. In fact even though paychecks have been cut, insurance rates have remained the same.
13. M. Leslie Nichols | 06.16.09
Your report is a fact. Here is a few more facts from a CSR report to congress. We spend 50% more on healthcare per capita than any other industrialized nation. We have a below average life expectancy than other nations. We have a higher infant mortally rate. We are third highest in medical errors. We have less doctors per capita and we get to see them less than most other nations. We spend 6-7 times more on health insurance and administrative costs as other nations. How we pay for healthcare, out of pocket or in taxes doesn’t matter as long as it costs alot less. If you don’t believe this, you didn’t do your homework like I did. I am not at all confident that the president get a decent plan passed because special interests own both houses of congress and both political parties.
Thanks, M.Leslie
14. Dee | 06.18.09
The U.S. is one of the few countries left where the profit margin in the healthcare industry is not regulated. There are opportunities for bonuses in other countries but they are applied for keeping patients healthy, reverse of the situation here.
Link to a great documentary on PBS Frontline, “Sick Around the World” explains other countries systems and the pros and cons of each.
http://www.pbs.org/wgbh/pages/frontline/sickaroundtheworld/
see the link on the right of the page to watch the documentary online.
15. Mike Cuntner | 06.23.09
A single payer healthcare system run by the government Is going to be the same as the single payer public school system that we have now.
In the U.S. spending per student is higher (200%-300%) higher than other developed nations despite fewer class days than others, yet our comparative test scores in math & science are Sig. lower!
We will get the same results in medicine under a single payer healthcare system much higher costs less health care
16. Phil | 07.01.09
The problem with the current debate is the focus on only one area of the system. There is plenty of blame to go around. Without a comprehensive examination of all the players, health insurance, providers, drug manufacturers, and ultimately the people who receive services, there will be no true reform.
17. med student | 10.24.09
i think people are forgeting that we have the highest obesity rates in the world, probably highest stress (apparently Americans work more), and there is unregulated spending on healthcare of older Americans. Most countries have a cap on their benefits, while in America, you can pretty much get any service that you want as long as you can pay for it!!! In some Scandinavian countries, you cannot get transplants and bypasses if you’re over 60 since they can cost up to a million dollars to perform but there is no return in investment. people needs to be informed about this. personally, i agree with limiting benefits on some people whose illness(es) are too costly to manage and increase “sin” taxes like smoking and fatty foods just like in Europe!
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1. Jack | 06.09.09
The biggest problem with healthcare costs is the health insurance industry. Insurance adds nothing to healthcare and sucks out 1/3 of all healthcare dollars. Insurance promotes inefficiency and bad results. It is not some industrialized nations that get better results for less money; it is most; almost all. The answer is single payer. It is shown over and over to cut costs and provide better care by far than the US. Insurance company money has totally corrupted the system Senator Baucus took over $1 million from them. And despite the refusal to consider single payer, polls show that 2/3 of all Americans want it. The only real reform is single payer. The time is now. Obama, either lead on single payer, or get out of the way!