After all, we’re the wealthiest nation in the world. And what is more important than the health of our citizens?
Nevertheless, even in the U.S. resources are finite. And in 2007, Congressional Budget Office director Petter Orzag warns, “The central fiscal challenge facing the nation involves rising health care costs.” In a recent letter to the House Subcommittee on Health chairman Pete Stark, Orzag frames the problem in a way that no one can ignore by comparing how much faster healthcare spending is growing than income per capita. “The rate at which health care costs grow relative to income is the most important determinant of the nation’s long-term fiscal balance,” he explains. “It exerts a significantly larger influence on the budget over the long term than other commonly cited factors such as the aging of the population.”
Let’s cut to the bottom line: If health care inflation continues to outstrip income growth over the next forty years at the same rate that it has over the past 40 years, spending on Medicare and Medicaid alone will rise to 20 percent of GDP in 2050. (To give you a sense of how big a slice of the pie that is: today, the entire federal budget equals roughly 20 percent of GDP).
Is government spending on healthcare growing at a breakneck speed because the government just isn’t very careful about how it spends health care dollars? Yes and no. Put it this way, the government is somewhat less profligate than the private sector. When you set Medicare spending side by side with outlays by private insurers, employers and patients, you find that from 1969 through 2003, Medicare spending per enrollee grew by a nominal average of 9.0 percent a year while health care bills for the privately insured grew by 10.1percent.
As the CBO chart below reveals there have been periods of time (such as the mid-1990s) when Medicare looks relatively extravagant, as well as periods (such as the late 1990s) when Medicare was tightening its belt while private insurers responded to the backlash against “managed care” by becoming much more generous in covering whatever patients asked for. (Insurers then passed the cost on in the form of higher premiums, leading to a 75 percent hike in premiums in less than five years.)
If you add private sector spending on health care to government spending—and assume that they will continue to grow at the same rate as they have in the past–by 2050 health care would account for close to 40 percent of GDP. At that point it is not at all clear how we will find the money needed for education, defense, the environment, national security . . . As one of my friends on Wall Street puts it: “We’ll all just be operating on each other.”
Of course what can’t happen, won’t. We’re heading for a wall. At some point, health care spending will have to slow down. The question is: How? One way to do it would be to sit back and watch more and more of us become uninsured. The uninsured generally get less care than others—or they get it too late. If we cut back on efforts to save the uninsured when they come in too late, we could begin to save real money. Some see a two-tier system as inevitable. They argue that budgeting for rising health care premiums is a matter of “personal responsibility.” If you don’t do it, you can’t expect a free ride.
On the other hand, consider just how much health care costs, particularly if you don’t have an employer sharing the burden. Today, someone in New York who is buying an individual policy on his own can easily spend somewhere between $500 and $1,000 a month.
(Rates are high in New York because insurers are forced to take all comers. They are not allowed to turn down people who are sick, and they are not allowed drive sicker or older people out of the market by charging them exorbitant rates. See my post below on “Should 21-year-olds Pay Less” for a description of “community rating”)
If a policy for one person costs $6,000 to $12,000 a year today, what will it cost in five years? What will it cost to insure a family? Keep in mind that more and more employers are pulling out of the health insurance business. This means that more and more of the middle-class—and even the upper-middle class— will join the ranks of the uninsured. At that point, the notion of letting the uninsured fend for themselves becomes a political non-starter.
In a June 2007 report, the CBO points to a far more palatable alternative. “Significant evidence exists that more-expensive care need not mean higher-quality care—suggesting an opportunity to reduce costs without impairing health outcomes. Perhaps the most compelling evidence of that opportunity comes from the substantial geographic differences in spending on health care within the United States—and the fact that they do not translate into higher life expectancy or measured advantages in other health statistics in the higher-spending regions.”
I’ve written about those unwarranted “geographic variations” on how much we spend on care—and what the research suggests about how to reduce spending while improving quality—here. Suffice to say, the CBO is right. The research shows that about one out of every three dollars that we spend on healthcare is squandered on redundant, unnecessary, unproven and sometimes unwanted treatments. And the overspending tends to be concentrated in geographic areas that boast more specialists and more hospital beds. In other words, supply is driving demand: build the beds and they will come. Yet, in these regions, outcomes are no better. Quite often they are worse.
Returning to the question at hand—“How do we reduce costs without compromising quality?”– CBO report points to “comparative effectiveness” research—research that compares “the impact of different options that are available for treating a given medical condition for a particular set of patients. Such studies may compare similar treatments, such as competing drugs, or they may analyze very different approaches, such as surgery and drug therapy. . . In some cases, a given treatment may be found more effective for all types of patients, but more commonly a key issue is determining which specific types [of patients]would benefit most from it. An expanded research effort could be organized in
various ways. In a response to a request from the Senate Budget and Finance Committees, the Congressional Budget Office (CBO) will issue a report on those options in the near future.”
“To affect medical treatment and reduce health care spending,” the CBO adds “ the results of comparative effectiveness analyses would ultimately have to change the behavior of doctors and patients—that is, to get them to use fewer services or less intensive and less expensive services than are currently projected. Bringing about those changes would probably require action by public and private insurers.”
In other words, both public and private insures would have to resolve to let medical evidence determine what treatments they will cover and how much they will pay for them. Insurers could require enrollees to pay some or all of the additional costs of more-expensive treatments that were shown to be less effective or less cost-effective (in which case enrollees would have to decide whether the added benefits were worth the added costs.) “Alternatively,” the CBO observes, “insurers could adjust payments to doctors and hospitals to encourage the use of more-effective care.”
Finally Medicare, too, could take costs and comparative effectiveness into account when deciding what to cover, how much to pay providers, and when to demand higher co-pays. This is not a quick fix, CBO director Orzag acknowledges. It could take more than a decade to build up the data needed to compare the risks and benefits of various treatments for particular groups of patients. Some results would be controversial; some trials would have to be repeated.
Moreover, this is not the only way to contain run-away health care inflation. The CBO report also emphasizes the need to focus on preventive care, and to encourage life-style changes. But, it acknowledges, it is very difficult to motivate people to change ingrained behaviors—even with financial incentives.
Using unbiased “comparative-effectiveness” research seems one of the most rational ways to get our national health care bill under control. After all, who wants to waste dollars on treatments that are both expensive and not as effective?
Nevertheless, the whole idea of the government becoming involved in trying to
create a center for unbiased “comparative effectiveness’ analysis has come extremely controversial–as Dr. Roy Poses recently pointed out on his excellent blog, Health Care Renewal.
In a future post, I’ll explore just who is opposed to head-to-head comparisons—and why.