This "square pie chart" shows the sources and uses of US health care
expenditures in 2008, as reported by the Department of Health and
Human Services. National health expenditures totaled $2.34T in 2008
(calendar year) or approximately 16% of US annual gross domestic
product (GDP). This represents one of the highest levels of spending
among any developed nation on both an absolute and per capita basis.
While elements of waste, fraud and other malfeasance are embedded in
this cost difference, the largest part of the difference in US health
care spend results from a higher rate of consumption of services,
especially physician and clinical services.
In countries with a single-payor (i.e., fully socialized medicine),
control over the consumption of meidcal services can be achieved by
rationing the aggregate available resources, essentially placing a cap
on the total number of doctor visits per person per year thereby
creating a type of inconvenience tax on the over use of services with
the assumed benefit of making "frivolous" visits inconvenient enough
to forego. This was the basic model utilized by Health Management
Organizations (HMO's) at their outset to successfully control the
growth of health care costs. According to a study by Thorpe, Howard,
Galactionova (2007), US patients are more likely to receive treatment
for a variety of nine prevalent chornic diseases (e.g., heart disease,
arthritis, asthma), once diagnosed, than their European counterparts.
With continued expansion in the availability of new preventitive and
non-essential treatments, including lifestyle management care (e.g.,
diet and exercise counseling for the overweight) and wellness (e.g.,
chiropractic care, acupuncture, alternative therapies) the total
growth in medical consumption is likely to increase, independent of
the concurrent and exacerbating growth in the percentage of elderly
(who naturally tend to require more medical treatment). These medical
treatment and management options may arguably enhance overall health
and wellness with the potential for increasing lifespan and/or total
quality of life, and therefore should be given serious economic
consideration. The significant gap in expenditure to benefit that the
US experiences viz. its other OECD counterparts is largely
attributable to the higher prevalence of chronic diseases, largely a
function of lifestyle. While most health care debates leave this as a
fixed parameter, the value of moving the needle on the prevalence of
obesity would far outstrip the value obtained from any significant
effort towards insurance fraud reduction or the administrative savings
from a more consolidated health care delivery system.
It is essential to realize that medical care is not free of personal
consumption-like characteristics. The per capita consumption of
healthcare typically rises with the overal income of a nation,
indicating that individuals desire to consume increasing levels of
medical care as they become wealthier. This should not be surprising
considering the growth of organic and "natural" food consumption items
that have seen steady growth rates versus their non-organic category
counterparts, and command price premiums of 10% and up. The price
premium paid is essentially an expenditure based on the desire to
purchase better health.
Similarly, consumers are increasing their utilization of medical
services in a desire to purchase better health, except the private
insurance system tends to encourage over-use of medical care. When
this preference-based consumption of health care is combined with a
(albeit arbitrarily defined) basic "need-based" consumption of health
care, it becomes difficult to disaggregate their independent drivers
and even more difficult to accurately price between the two. The
result is a health care system that is being priced from the highest
marginal buyer of health care, which is often at a price too high for
those particularly in lower-income brackets and without the implicit
purchasing power of an employer or government behind them.
There are a couple of suggested policy implications.
FIRST, health care provision and delivery should be managed more like
a consumer good and less like a public utility. Health care has more
in common with TVs and mobile phones than it does with electricity and
gasoline, and the mere fact that Americans are spending a larger
portion of their income on health care, by itself, should not be a
source of concern. Yet, health care is still treated and managed as a
quasi-utility- worse in fact because of the complex third-party payor
system. Consumers need to be encouraged to begin thinking of their
health expenditures as creating tangible benefits and to be trained to
see their degree of control over their health. Combined these would
enable health care to be marketed and priced more like a consumer
good, with the attendant benefits of market pricing and provisioning.
Personal health is a key lever for increasing economic and social
wellness at an individual and national level. A significant
improvement in the management of chronic diseases could be worth $1.1T
by 2023 (Miliken Institute estimate) or $84B per year for the next 13
years.
SECOND, a catastrophic safety-net and a minimum grant of purchasing
power could be created that builds off the concept of the health
savings account, creating universal health coverage at lower cost than
the proposed House/Senate legislation, that would create cumbersome
legislative overhead and expand Medicaid which currently costs between
$6-7K to fund at a compound annual average growth rate of 9-10% for
the last 10 years. In contrast, a combination of minimum grant of
purchasing power and a catastrophic safety net would cost about 1/2 to
2/3 of that cost up-front while providing a greater likelihood for
constraining the cost growth of overal medical costs. This
significant growth in private medical premiums has been significantly
affected by the distortionary effect of the Medicare program, which
accounts for approximately 50% of all US health care spending.
Because price and quantity is not being clearly disaggregated in the
management of Medicare, the program has tended to create a price bow
wave by under-funding reimbursements which get passed along to the
private sector as disproportionately high insurance premium increases.
-Austin
