Will Spiraling Healthcare Costs Bring Change?Published: April 28, 2004 in Knowledge@Emory
For nearly a century, any number of presidents and presidential hopefuls have proposed universal health insurance. The idea that Teddy Roosevelt first proposed in 1912 is back yet again, this time proposed by a number of the Democratic presidential candidates. Given these uncertain economic times, chances of sweeping change might not seem good, but some Emory health policy experts say that conditions may in fact be right for some change in the way Americans pay for their medical services.
“I think that it goes beyond the need of the moment for a Democratic candidate to make some noise about something,” says Charles D. Frame, a faculty member at the Emory School of Medicine and a marketing professor at Emory University’s Goizueta Business School. His reasoning: because of increasingly high deductibles, more Americans are personally feeling the pinch of rising healthcare costs now, and such personal pain is generally one precondition for change. “People aren’t going to really act on the general cost level. What they’re going to act on is when they perceive it to hit them in the individual pocket books,” he says.
Emory health observers cite two more factors that may make some kind of change more likely than at other times:
· More doctors are dissatisfied with the system today than ever before. In past periods, physician opposition to a single-payor system was a given. But now that most physicians typically spend up to a third of their time doing paperwork, trying to navigate the ins and outs of hundreds of different health plans, the idea of “socialized medicine” is not sounding as frightening to some doctors as it once did, according to Frame. The thinking goes that at least they’d be working with only one payor, and one set of rules, Frame says. “Now [that payor is] the federal government, so it’s a real doozy…on the other hand, you’re balancing off complexity for much reduced volume in terms of numbers of sets of rules and contracts that you have to wade through,” he says.
· Many employers are also unhappy with the current system. “Business is increasingly frustrated with getting hit with repeated rounds of 15% or higher increases in premiums.” Says Kenneth J. Thorpe, a professor at Emory’s School of Medicine and health cost policy expert. Additionally, Frame believes that the growing complexity of administering health plans, coupled with growing worker dissatisfaction with the insurance they’re getting, is leading business to express some impatience with the status quo.
What’s underlying these growing systemic pressures is the fact that U.S. healthcare costs are far outstripping increases in the rate of inflation, professors say. Today, the U.S. spends a larger portion of its gross national product on healthcare than any other nation on Earth. A study by the Johns Hopkins Bloomberg School of Public Health found that the U.S. spent more than 44% more on healthcare per person than the country with the next highest health care costs, Switzerland.
In 2000, healthcare costs in the U.S. were clocked at $4,631 per capita, about 83% higher than those of Canada and 134% higher than the median of $1,983 in all other major industrialized nations. This amounts to 13% of the U.S.’s gross national product, compared to 10.7 for Switzerland, 9.1 for Canada – and an 8% median for the 30 member states of the Organisation for Economic Co-operation and Development, a group that comprises most of the large industrial democracies.
Included within that 13% slice of the collective income is the 5.9% in public spending for Medicare and Medicaid. Ironically, that level of spending on healthcare is only enough to cover some of the poor, elderly and disabled, even though in most countries it’s nearly enough to cover every citizen for most of their medical needs, according to the Johns Hopkins study.
While many people, including Daniel Rodriguez, a Goizueta professor of organization and management, argue that Americans pay more because they get better care, it’s a fact that’s easier to prove on a personal, anecdotal level than through statistics. When it comes to such key indicators as life expectancy and infant mortality, the U.S. does not fare very well. In infant mortality, the U.S. ranks 28th, according to the National Center for Health Statistics; in life expectancy, the U.S. does a bit better, coming in at 24th.
Healthcare costs keep skyrocketing for a number of reasons, Emory experts say. In addition to the costs of maintaining paperwork for all those insurance plans, the system has tended to encourage waste, since neither the patient nor the doctor has much incentive to choose cost-effective therapies. It’s easy to order more if someone else is picking up the tab, Frame says. “Everybody was buying Porsches when basically some of us could afford and needed Yugos,” quips Frame. “There was a disconnect between the overall value that we got out of the overall diagnostic process.”
The medical lobby also notes that malpractice insurance premiums and doctors’ ordering extra tests as a legal defensive measure has driven up costs as well.
Finally, the 40 million or more uninsured Americans drive up costs too, since many of them are cared for through emergency rooms in public hospitals, which then often have to recoup their costs from the paying customers, professors say. Thorpe says the result is just the same as with car insurance, where the cost of uninsured drivers ends up being paid for by the insured driver’s premium.
Yet another source of expense is that the system tends to concentrate too much attention on the visit to the doctor’s office. “Our model is based on having the physician as a center of activity when a lot of the medical care that needs to be delivered has nothing to do with the physician,” Thorpe says. Many chronic conditions, such as diabetes and hypertension need ongoing monitoring that doesn’t necessarily need to be done by a physician. Instead, because the office visit tends to be a precondition for payment, problems tend to be untreated until they get more serious – and more expensive. “It’s really not a patient-focused payment system, it’s a provider-focused, hospital focused payment system that really needs to be rethought,” Thorpe says.
But, Thorpe says, the system can only be reinvented if the way healthcare is paid for is changed. “We’re not going to be able to make the changes in how we deliver services until we change the way we pay for them. Money certainly drives behavior here,” he says.
Of course, the healthcare industry isn’t the only one to blame for health costs. American’s own bad habits have contributed as well. Professors say that rising obesity rates are leading to a variety of expensive chronic conditions, including heart disease, strokes, and diabetes.
But what should be done about it? The Democratic presidential contenders have recommended a variety of plans to solve some aspects of the problem, ranging from Missouri Rep. Richard Gephardt’s (D-Mo.) plan to insure every uninsured American, which Thorpe estimates would cost $240 billion a year, to Connecticut Sen. Joseph Lieberman’s more modest proposals to subsidize coverage for children, young people, the out of work and self-employed, which he says would cost about $53 billion.
Thorpe himself recently estimated in a study commissioned by Blue Shield of California that a $75 billion increase in federal spending could provide healthcare to every American, while at the same time reducing spending by individuals and businesses by $43 billion.
One important element of Thorpe’s proposal, and in many of the proposals, is to find ways to broaden the risk pool. Professors say that one of the reasons that the system is so expensive now is that so many people either slip-out or opt-out of the system, which reduces the numbers of people who can share the risks and allows individuals to “cherry-pick” their insurance – basically, people more at risk buy insurance, while those who are less at risk don’t buy it. Also, small businesses and the self-employed are at a disadvantage in this kind of system, since they have less pricing power with the insurance companies, professors say.
Interestingly, most of the current proposals retain the current connection between employment and healthcare. While the connection between employment and health insurance seems natural and inevitable to most Americans, it’s actually a fairly recent development, according to Frame. The practice of providing health benefits as a part of a salary package began largely in World War II, as a way to attract scarce workers in spite of the economy’s wage-price freeze.
Rodriguez is not convinced that this relationship makes much sense. “Businesses should not be medical brokers, and hopefully they’ll get out of that business,” he says.
Companies should concentrate on producing goods or services, not benefits management, Rodriguez says. On the whole, he says, costs will be contained as individuals take on more direct responsibility for their healthcare costs. “That trend is a good trend, because that should put more pressure on healthcare providers to be more efficient and effective,” he says.
Despite the stump appeal of the health plans for many Democrats, Frame predicts that if a big change comes in the health care system, it’s going to come slowly. First, because of Americans’ distaste for top-down decisions, as demonstrated most recently by the Clintons’ ill-fated healthcare proposals of 1994. “I think anytime you try to reform completely from the top down -- I don’t know if it’s part of the American genome or what -- but boy, people just dig in their heels,” he says. Second, he says, because solving the health crisis will ultimately mean taking money out of the healthcare sector – and nobody in the healthcare system, whether for-profit or not-for-profit, stands to gain by taking money out.
Frame predicts that change is likelier to come not from the stroke of a presidential pen, but through a gradual shift in the way in which Americans finance their health care. He does not believe a single payor plan will be established, but instead that rising costs will push the system into more of what he calls a “retail” model – basically a system in which people pay for services directly rather than through a plan. Possibly, he says, consumers will pay for much of their healthcare out of a tax-advantaged medical savings account, something like a medical 401(k). Effectively, he says, this will amount to insurance with a high deductible, backed by what he calls “stop-loss” insurance for expensive but statistically rare catastrophic events.
Frame predicts that change will come the same way the shift in retirement plan practices has occurred. Thirty years ago, the expectation was that the firm paid for retirement; today, the employee is expected to be responsible for saving, through such a vehicle as the ubiquitous 401(k) account. “There has been a significant change in terms of how folks view their responsibility for their retirement income. And that shows me at least that psychologically a major, major investment element can in fact be changed,” he says.