Will Boomers Bankrupt Our Health Care System? Myths and Facts

Berlin, March 13, 2008 —  By bringing 600 government and industry leaders together from more than 50 countries, the “World Health Care Congress Europe” (WHCCE),  which began Monday, offered  a splendid  window on  the wide variety of  solutions that countries  around the world are using as they struggle  toward health care reform. One constant theme of the conference: “No One Thing Works.”

When the three-day conference ended yesterday, it also was apparent that developed countries share many of the same problems.  One that stands out is the fact that our populations are aging. Each country faces the same question: how will a shrinking workforce possibly pay for the medicine their nations’ retirees will need?

This brings me to Princeton economist Uwe Reinhardt’s speech on the very first day of the conference. The only American to speak at WHCCE, Reinhardt focused on what he called “the folklore that people bring to the health care policy table.” By nature an iconoclast, Reinhardt spent the next 20 minutes shattering some of the myths that have become part of the received wisdom among policy-makers.

Begin with the notion that an aging population is a major factor driving health care inflation.  In the U.S. this is accepted as a justification for why the nation’s health care bill now equals more than $2 trillion dollars—and why we must expect it to climb ever higher.

Bad news is often more gripping  than good news, and  “if you want to be a popular speaker you need to feed the paranoia of your audience,” Reinhardt  observed, pointing to the first slide of his Power Point presentation—a  chart illustrating just how quickly we can expect a horde of wrinkly boomers to take over the nation. Some stooped and shriveled, others proudly bloated, these former members of the Pepsi generation will be far more demanding, we’re told, than the World War II veterans who preceded them.


A second slide is even more distressing, revealing that health care
spending on patients over 75 averages about five time what we spend on
40- year-olds.


Yet the next graph that Reinhardt offers is a little puzzling.


Here, we see that the U.S. spends close to $7,000 per person on
care—even though its population is younger than the citizens of most
developed countries, including Germany, Italy and Japan. (Because of a
slightly higher fertility rate and an annual intake of 900,000 legal
immigrants, the median age in the U.S. will rise
just three years, to 39, over the next quarter-century, before the
aging of America really starts to accelerate). Meanwhile, Japan’s
population has been graying for some time, yet it spends only $1,000
per person. Could eating fish really make that much difference?

Reinhardt’s next graph provides the explanation.


It turns out that when you look at estimates of growth in health care
spending from 1990 to 2030, a senescent citizenry plays only a minor
role in the projected jump from $585 billion (what we laid out for
health care in 1990) to $14,026 billion (what analysts say we’ll ante up
in 2030, assuming we continue in our profligate ways).

What will be the biggest factor pushing the tab so much higher?
Innovation. “The health care industry will continue developing new
stuff for every age group,” Reinhardt explains. Will that “new
stuff”—in the form of new drugs, devices, tests and procedures—be worth it?
Some of it will be. Some won’t. Indeed as this article from Health Affairs
reveals, over the past twelve years, rising spending on new medical
technologies designed to address heart disease has not meant that more
patients survived.  In many areas, we seem to have reached a point of
diminishing returns. This also is true in the drug industry, where most
new entries are “me too drugs”—little different from products already
on the market.

As I have often discussed on this blog, it is usually suppliers, not
“patient demand,” that drives health care inflation. The big ticket
items are not the ones patients ask for; they’re the ones companies
advertise—or that doctors and hospitals tell us we need. Few
chronically ill patients ask to be hospitalized; not many cry out for
dialysis, or the chance to spend thousands on cancer drugs; it’s the
rare person who asks if he can die in an ICU.

“In truth, the aging of the population is not a big problem,” Reinhardt
says. We really don’t have to worry about greedy geezers suddenly
clamoring for more care than we can afford. For one, they won’t grow
old all at once. They’ll grow old just as they were born—over a period
of many years.


As Reinhardt mentioned earlier, a speaker who wants to grab his
audience’s attention may well scale a chart so that the demographic
change looks like a wave that could wipe us out—but the truth is much
less sensational.


This doesn’t mean that health care spending won’t continue to levitate.
“But what will drive costs in coming years, will come, not from the
demand side of the equation, but from the supply side,” says Reinhardt,
repeating his theme. We can be certain that, without some significant
reforms, suppliers will continue to invent new products for every age
group, charging us more and selling us more –using whatever methods it
takes, from direct-to–consumer advertising to promises of near
immortality and perpetual youth (just as 120 can be the new 80, 55 can
be the new 35!)—if we just swallow enough pills and replace enough body
parts. (Of course remembering to swallow the pills could become a
problem around 101, but that’s another post).

Moreover, health care is labor intensive—and by 2070, the number of
U.S. workers per Medicare beneficiary will have dropped from 3.4 (in
2000) to 1.9. We are already experiencing a shortage of registered
nurses—which has helped raise wages. “Today a RN in California often
makes more than a pediatrician,” Reinhardt notes. (Though this says
more about how niggardly we are when paying our pediatricians than how
extravagant we are when paying nurses. See this post on physician’s pay).


Looking ahead, we’ll probably need 50 percent more nurses than we employed in 2000. Given the laws of supply and demand, this all
but ensures that nurses’ wages will continue to rise.


So between the endless inventiveness of those who would
over-medicate us to the unavoidable costs of a labor-intensive industry
in an aging society, it is the supply side of medicine that is likely
to push prices higher. This, says Reinhardt, is what policy-makers
should be thinking about.

But, he emphasizes, it doesn’t have to happen. “If we begin to purge
our health care system of Waste, Fraud and Abuse,” we could save
billions Reinhardt notes. And when it comes to caring for the elderly,
he suggests, “if we develop health care information technology, we could
use it to monitor seniors in their homes—instead of in nursing homes.”

This is just one example of how the U.S. could bring costs down on the
supply side. In addition, Medicare could use its clout to negotiate for
lower drug and device prices—just as other nations do.  We could become
more discriminating about what we buy from the health care industry’s
suppliers—insisting on independent medical evidence that the new
product or service really is worth the higher price. And patients could
refuse to sign on for an elective procedure like knee replacement or
prostate surgery unless they are given a chance to share in weighing
risks against benefits. (See my post on “informed choice”).

Finally, Sweden offers proof that an aging population doesn’t have to
spell financial disaster. The second day of the conference I
interviewed Mona Heurgren, an economist at Sweden’s National Board of
Health and Welfare, and she pointed out that “while we have the oldest
population in the EU, our health care costs haven’t been rising. Over
the last 15 years or so, the share of our citizens who are older has
been growing, yet health care spending has stayed level at about 9
percent of GDP.”

How has Sweden managed the buck the trend?  For one, 95 percent of the
country’s hospitals and doctors use electronic medical records which
guarantee many fewer errors, and much greater efficiency. (As of three
years ago, only 15 to 20 percent of U.S doctors’ offices and 20 to 25
percent of U.S. hospitals had implemented electronic medical records,
and adoption continues to move slowly as we try to decide who should
pay for health care IT).

Moreover, in Sweden, preventive care is free. So no one is tempted to
skip a needed Pap Smear. Diabetics go for their eye check-ups. In the
U.S., by contrast, many 50-something patients put off care that they
can’t afford, waiting until they reach the magic age of 65, and qualify
for Medicare. At that point, the catch-up care they need can be very
expensive and in some cases, their health has been permanently damaged.

Finally, in Sweden, long-term care is included in the national
health care package, which is financed almost entirely through income
taxes. Heurgren estimates that the share of a family’s taxes that is
used to fund health care equals roughly 10 percent of the average
household’s income. This is roughly what a median- income family in the
U.S. lays out for health insurance—if it is lucky enough to have an
employer able and willing to pay slightly more than 50 percent of the
family’s health care premiums. (Comprehensive insurance for a family
now fetches close to $13,000; if the employer pays $7,000 that leaves a
family earning $60,000 with premiums of $6,000. Of course, in the U.S.
that family also would face co-pays and deductibles, making health care
more expensive, as a percentage of gross income, than in Sweden).

But as Heurgren puts it, with a modest shrug, “we’re just a small
country in the North.” She is suggesting that Sweden is too small to
serve as a model for larger nations. It is easer, in many ways, for Sweden
to manage the challenges of 21st century medicine in a country where
most people are middle-class, and social solidarity is part of the

In future posts, I’ll write more about how solidarity may be the critical key to health care reform.

34 thoughts on “Will Boomers Bankrupt Our Health Care System? Myths and Facts

  1. Maggie,
    A couple of things. First, I don’t think Americans, especially middle class Americans, will tolerate paying as much of their income in federal, state and local taxes as Europeans and Canadians do. Alan Enthoven has made this point as well. Second, my perception is that Americans also have higher expectations than Europeans, especially with respect to care at or near the end of life. Differences in how doctors practice medicine here vs other OECD countries may well reflect these expectations, at least in part. Differences in methods for resolving medical disputes as well as the inclination to sue may also account for some of the differences – more defensive medicine in the U.S. Within the U.S., I have no doubt that a good portion of the regional differences in practice patterns are supply driven, but I think comparisons between the U.S. and other OECD countries could well be more complex.
    Separately, since Japan and many of the European countries are well ahead of the U.S. with respect to the aging of their societies, they have a significantly higher burden than we do in paying for old age pensions. While they spend much less than we do as a percentage of GDP on healthcare, if you look at healthcare plus old age pensions combined, the comparisons are considerably narrower, and some of the other countries may be worse off than we are.

  2. Of course those who resent taxes always can find reasons why it is social spending that is the reason taxes are so “high”. So Americans would never stand for the level of taxation that those in Sweden do. Why is this?
    Perhaps it is because they get such poor value for their money. In the US half of income taxes goes to fund militarism. Imagine what could be done if that money was used for something productive. In the US per capita military spending is about $986, Sweden $495.
    If we had child care, medical care, free higher education, parental leave and generous vacations we might not mind using our taxes to pay for it.

  3. “How has Sweden managed the buck the trend?”
    Because it’s a boutique, Maggie. In the U.S., a government entity with the population of Sweden is called a ” large city.”
    You (and many others) are in denial on the boomer tsunami. If we try to base health care policy on the assumptions built into your post, the result will be a system wide collapse.

  4. Barry, Robert and Catron,
    Barry, see the end of the post. An average family in Sweden spends 10% of its gross income on taxes that fund full coverage for everyone, including long-term care.
    In the U.S., if a median-income family is lucky, and an employer pays a little more than half of its insurance premiums, that family also spends 10% of gross income on healthcare –plus co-pays and deductibles.
    Would you rather pay the 10% to an insurance company rather than the govt–knowing that if you lose your job, or your employer decides to cut back on benefits, you’re out of luck?
    Insurance companies, among others, have circulated many myths about heatlh care costs in Europe. One is that people in Sweden pay prohibitive taxes for health care. Just not true.
    They do pay higher taxes than we do, but in return they get, not just free heatlh care, but free university education, (free medical education if they choose to become doctors), electronic medical records which keep them much safer; and a host of other social servcies.
    Above all, they have security. They just don’t have to worry so much about not having enough money. In the recession that has just begun, I think more and more Americans are going to feel that security is a big issue.
    This is why so many already say they want national health insurance. If they have employer-based insurance now, they’d like to keep it (which most reform plans would let them do), but they’d like to know that good national health insurance will be their as a fall-back–which many will need as more and more employers get out of the health benefits business.
    Will people have to pay more in taxes to create that national health insurance? Absoolutely. When we cover more people, it will cost more. And the federal govt is going to have to help buy those electronic medical records that we sorely need.
    Over the longer term, if reform creates a more efficient system, we’ll save. Our Medicare taxes and deductibles won’t go up. Health care inflation can be checked.
    Short-term, I’m the first to admit, it will cost us something. But for many people, the trade-off–knowing that they and their famlies will always have access to healthcare– will be worth it.
    A story: the economist I interviewed told me her aunt had moved from Sweden to California 40 years ago. But now that she has retired, she couldn’t afford her heart medication. So she moved back to Sweden–leaving behind her children and grand-children. This was very difficult. (Plus, afer years in California, she had forgotten how cold Sweden is!) But at least she doesn’t have to worry about how she’ll pay for her medication . . .
    Robert, I agree with much of what you say. But let’s keep the conversation focused on health care.
    If we drift off into tax policy in different countries we’re likely to draw ideologues into the discussion who really aren’t intersted in discussing-just in stating
    their point of view. And then the conversation is deadlocked.
    As the charts show, you’re wrong about the tsunami. The Boomers won’t grow old all at once.
    And as the experience in Europe and Japan shows, an aging population does not have to mean spiraling health care inflation.

  5. Maggie,
    Most people who work for large employers don’t pay anywhere near 10% of income for health insurance as their contribution toward the employer’s cost of the premium. While economists argue that the employee ultimately pays the employer’s cost in the form of lower wages than he or she would otherwise be paid, employees generally don’t appreciate that. Federal employees pay 25% of the cost of their premium or about $3,000+ for family coverage. Most state and local workers (especially teachers and police officers) pay far less and, in some cases, nothing. Personally, I pay $80 per month for myself and my wife (my son is grown and on his own). At any rate, if we had taxpayer funded national health insurance in the U.S., it would probably cost the average middle class person 15% of income or more and not the 10% that Swedes pay because our system costs significantly more as a percentage of GDP and nationalizing it will save little or no money in the short term. The average middle class person already pays about 35% of income in combined federal, state and local taxes excluding the employer’s share of FICA taxes, so adding 15% for healthcare would bring that burden to 50%. While you might be happy to pay that for a comprehensive social safety net, I suspect that most Americans would not.
    As for some of the long term strategies for controlling healthcare costs such as electronic records, a Comparative Effectiveness Institute to figure out what drugs, devices and procedures we should pay for and not pay for, negotiate with drug companies for lower prices and reduce regional variations in practice patterns, CMS could already do this if we had the political will to pass enabling legislation. If we did so, private insurers would follow CMS’ lead as you have said many times. We do need to bite the bullet and establish more generous subsidies to help the uninsured (including the unemployed) acquire coverage which would probably add $100-$150 billion to annual costs in the short term.

  6. “In truth, the aging of the population is not a big problem”

    Maggie Mahar reports from Berlin, detailing economist Uwe Reinhardt’s speech on health care costs and the aging population.

  7. Barry–
    You’re right–some people who work for large corporations don’t pay 10% of their income for insurance because they
    earn far more than median household income.
    For example, if a family earns $195,000 a year, $6,500 for health insurance would equal only a little over 3 percent of their income.
    But only about 3 percent to 4 percent of all American families earn $195,000 a year. (Families earning over $157,000 are in the top 5 percent.)
    And lots of people who work for large corporations fall into the lower 96%.. (For every extremely well-paid executive there are many, many more people earning much less. They just aren’t as visible.)
    But when we talk about fixing our broken system, we are interested in how health care insurance could be made affordable and secure for the vast majority of Americans–i.e. the 96% -97T who don’t bring home $195,000. (Those in the top 3 percent to 4 percent will get health care whether or not we pass national health reform. )
    Keep in mind that 80 percent of American families make $88,000 a year –or less.
    For them, if they pay half of their $13,000 premium(and their employer pays the other half) that’s around 8 percent of their income–plus what they pay to cover a deductible and co-pays, bringing them very close to the 10 percent that the Swedish pay.
    And here’s the kicker– if they don’t have an employer able or willing to pay 50 percent of the premium, they pay significantly more than 10 percent of their income for insurance.
    When people talk about health care reform,
    they are usually focusing on the 80% to 95% of the nation that represents the working class, the middle class and the upper-middle class (I’m assuming that if a famly climbs 95% of the way up the ladder and earns $157,000 they qualify as “upper middle class.”
    And when we talk about people paying 10 percent of their income for national health insurance, we’re not talking about adding 10 percent to what is taken out of their check each week. We’re talking about giving them the choice between having the 10 percent gong to a private insurer (assuming they are lucky enough to have employer-based insurance) or having the 10 percent go to the govt (which, unlike the private insurers, will not cut them off if they change jobs or raise their premiums if they become sick. ) So we are not talking about lowering the middle-class or upper-middle class family’s take-home.
    It’s just that the 10% would go to the govt instead of to a private insurer–and again, under all of the reform plans for universal coverage floating around today (Jacob Hacker, HRC, Obama)
    everyone who now has employer-based insurance would have a choice between keeping it–and sending their 10% to a private insurers–or switching to Medicare-for-all.
    Would Medicare-for-all be inferior to what people get under private insurance. IF people had a choice, we’d find out.
    Maybe it would be, but when people turn 65, most are much happier with Medicare than they were with their private insurer–even if it was employer-based.

  8. Quick question. For the 60% odd folks with employer based coverage, the number I was always quoted, and see frequently, is about 25% of premium pick up by employee. This does not include OOP expenses, and includes non Federal employees (Barry specified Federal only, I wanted to make clear). 50% sounds a bit high, although it is out there for sure.

  9. Maggie,
    According to an article in the September 12, 2007 issue of the Washington Post and quoting Kaiser Family Foundation data, the average cost of employer provided family health insurance coverage in 2007 was $12,106 of which the employee paid $3,281 or 27%. Several human resources executives have told me that the private sector average, at least for large, self-funded employers is closer to 20% paid by the employee. For manufacturing companies with large unionized workforces, the employee percentage is much lower. Federal employees, as I said in my last comment, pay 25% of the premium while many state and local workers (especially teachers and police officers) pay little or nothing. Uninsured workers, including millions of young, healthy people, also pay nothing of course. Employees who work for small businesses (fewer than 50 employees) may well pay considerably more than this, but they are not a large percentage of the total workforce. For my employer, as I said, I pay $80 per month for health insurance while non-union workers who only need single coverage pay $40 per month. The unionized people pay considerably less. So, it’s not just the highly paid folks who get a good deal. We all do, and there are lots of companies that are equally generous or even more so. Even the little 35 employee software company that my wife works for pays 75% of the cost of health insurance for those employees who opt to take it. Some, including my wife, decline it because they are already covered under their spouse’s plan.
    There is lots of interest among employers in maintaining control over health insurance for their employees rather than just contributing a percentage of payroll to a government fund. The reason is the trend toward wellness and disease management. Employers feel that if they can engage their employees in programs that will help them improve their behavior and reward them for doing so in the form of lower deductibles or contributions to a health savings account, they are finding that they can reduce the cost of insuring their workforce from what it would have been if they did not pursue these strategies.

  10. >>> “The Boomers won’t grow old all at once.”
    Unfortunately, Maggie, at the rate and level we’re providing health care, some boomers won’t grow old at all.
    But that said, and I know you agree with me, our more critical problem is the cash flow between the health care interests that want to keep our system broken and profitable, and the politicians that write the laws. Get the money out and health care will be fixed overnight.
    And Barry, I disagree. Most people would accept higher taxes if provided guaranteed health care and higher education.

  11. Jack,
    Try doing a Google search by asking the question: How much more in taxes would Americans be willing to pay to provide universal health insurance? You will find that support is quite soft. Those who are willing to pay more in taxes are not willing to pay very much – $500 per year or less, though they may also be willing to forgo future tax cuts. Moreover, support for a universal health plan financed by taxes drops off sharply if it would mean (1) limitations on choice of doctors, (2) longer wait times for services or (3) mandatory participation. I suspect, however, that the vast majority of middle class taxpayers would support higher taxes on SOMEONE ELSE – namely, the rich. Par for the course in America — Don’t tax you, don’t tax me, tax that fella behind the tree.

  12. Barry, part of our problem is unnecessary costs (and fraud and waste) as the doctor points to in http://tinyurl.com/2hzj65.
    But your (1) limitations on choice of doctors occurs with today’s private health care today, but would not under a 100%Medicare-for-all, (2) longer wait times for services occur more under HMOs and health care plans than under Medicare, and (3) for “mandatory participation,” well, only the payment would be mandatory but the rich can bypass the plan and pay directly if they want. But we have on both sides people who have an ideological bent for one side or the other, and it’s only because of the political payola that we haven’t fixed it to date.


    One way single-pay advocates kid themselves about the cost of government-mandated universal health care is to ascribe magical powers to EMR. Typically delusional on this point is Maggie Mahar, who advises her readers that electronic medi…

  14. Thank you all for your comments.
    Barry– I don’t think you realize that when it comes to health care benefits, you are in a lucky minority.
    Most people do not work for an employer who pays 75 percent to 80 percent of their premiums.
    You write “It is not just the highly paid folks who
    get a good deal.”
    That may
    we true at your company, but it is not true nationwide.
    First of all, only 60% of all employers offer ANY Health Benefits. (And many offer as little as possible, while others offer benefits only because their workforced is unionized and they have no choice. There is, in truth, not “a lot of interest among employers in maintaining control over health insurance.” Only the elite employers can afford to and want to be involved.)
    Secondly, within that 60 percent, employers offer signficiantly less
    generous benefits to lower-paid full-time workers than they offer to higher-paid full-time workers.
    According to a 2007 report from the Employee Benefit Reserach Institute, 16 PERCENT OF ALL HIGH-WAGE WORKERS” (earning more than $15 an hour) who participate in an employer-based health insurance plan are NOT REQUIRED
    THAT’S RIGHT THEY PAY 0 percent. Their employer pays 100%.
    THIS SKEWS THE AVERAGES THAT YOU QUOTE UPWARD–making it appear that the “average’ employer is much more generous than he is.
    By contrast, only half as many low-wage workers who participate in a employer-based insurance plan get a free ride–making no contribution to premiums (8 percent vs. 16 percent of higher-paid workers.)
    Secondly, when you look at how much of a contribution employees have to make, the difference is not between large corporations and small corporations. It’s a difference between low-paid full time workers (less than $15 an hour) and higher-paid full-time workers (over $15 an hour).
    Higher-paid workers pay only 27 percent of premiums for a family plan. Lower-paid full-time workers pay 34 percent of premiums for a family plan.
    And that’s if the lower-paid worker can afford the 34 percent (plus co-pays).
    Only 67 percent of lower-paid workers who have access to an employer-sponosored plan participate. The reason, EBRI points out is that:
    “Data released by the Consumer Expenditure Survey indicate that lower wage workers spend an average of $16,452 on food, housing, and transportation, roughly 68 percent of their annual expenditures.Spending on these necessities does not leave very much money for discretionary expenses, such as health insurance.”
    The consumer expenditure survey http://www.bls.gov/cex/csxann05.pdf
    was published in 2007. It also shows that 40 percent of all consumers spend 10 percent to 20 percent of their income on health care.
    These are the households in the lowest two quintiles (bottom 40%) of the income ladder, reporting an average joint household income of $10,000 and an average age of 52 on the bottom rung of the ladder, and an average joint income of $25,000 and an average age of 51 on the second step of a five-rung income ladder.
    And these people are not slackers. In the households earning $25,000 an average of one person in the household is working full-time and they have an average of .5 children (or to put it another way, on average, half have one child.)
    By contrast, the wealthiest 20 percent of all households ,(earning an average of $147,000 at an average age of 47), spend only 3.6 percent of their income on healthcare.
    The second wealthiest quintile, earning an average of $68,000 (in 2005 at an average age of 42, pay just about 5 percent of income on healthcare.
    In the middle quintile (on the third rung of a five-rung income ladder), where the average household earns $42,000 and the average age is 46.9, that household pays 6 percent of gross income for healthcare.
    Not too bad (and less than the 10 percent the Swiss pay), but now we’re into a sector of the population where many people in their 40s, living in a household earning $42,000 aren’t getting as much health care as they need. This is the difference between them and a Swiss family paying 10 percent.
    These middle-income Americans may have a cheap policy with high deductibles and co-pays that they can’t afford to use. Or, in many cases, they don’t have any insurance at all. Or sometimes they have insurance, sometimes they don’t, depending on who they are working for.
    Bottom line: 60 percent of the people in this country are paying 6 percent to 20 percent of their income for heatlhcare, with the poor paying most of all, and many of them getting either very little care or poor care.
    Meanwhile, a minority of Americans–the top 40 percent on the top two rungs of the income ladder– spend only 3.5 percent to 5 percent of their income on healthcare.
    Jack & Barry–
    You disagree on whether people are willing to pay more taxes for universal coverage. Here is the cold truth:
    The Wall Street Journal polls divide the responses by income and show that this depends on how much you earn.
    The wealthy say “no” to more taxes.
    The middle class and
    working-class say “yes.” They are having a tough time affording healthcare, and realize that if premiums keep rising–or their employer backs out–they may be priced out of the healthcare market.
    Who can afford to pay higher taxes?
    As we all know, ever since President Reagan slashed taxes for the rich in the early 1980s, the rich have been payinig a historically low marginal rate.
    Low long-term capital gains taxe rates and high capital gains have also helped the very, very rich who have pocketed most of the winnings.
    Higher income taxes in teh top brakcets and higher capital gains taxes could help raise the money needed for universal high quality coverage without altering the life-styles of those at the top of the income/wealth ladder–while
    greatly changing the lives of those in the middle, and on the bottom.
    Another idea that has been proposed: tax the health benefits that highest-paid employees receive,, tax free. The 16 percent of employees who
    pay 0 toward their benefits are receving a $13,000 tax-free gift from their employer (per family). If those at the top of the income ladder (say, the to 20%) paid taxes on this additoinal income that would raise a handsome sum.
    This is just a suggestion–I’m not a tax expert, or an expert on how to raise revenues. So let’s not get into a long discussion of taxes.
    My main point here is simply that the majority of Americans are not working for employers who pay 75 percent of their health premiums.
    And, unfortunately, the employees who need the help most get the least. (Not that I begrudge the other empoloyees; I don’t. I myself happen to work for a non-profit that offers relatively low salaries (compared to for-profit companies) but very generous
    health benefits.)
    I just would like everyone to have the coverage I have. And I would be willing to pay income taxes on my benefits to help make that happen.
    Jack–Also, thanks very much to the links you sent–some good pieces.

  15. Brad–
    Thanks for your comment.
    The quick answer is that the “average” percent that employers pay is skewed upward by the fact that 16% of higher-paid employees who have employer-based insurance pay zero toward their premiums. Their employers pay 100%.
    And so when you calculate the average percent employers pay, that 100 percent pulls the average way up.
    (See my long reply to Barry & Jack)

  16. Maggie,
    I appreciate the detailed responses as always and your patience.
    Just a few more thoughts. First, I have always advocated and supported doing away with the tax preference for employer provided health insurance for all employees, not just the highly paid. I think the standard deduction could be raised and/or the lowest income tax brackets could be lowered to insure that the federal government does not collect much more net revenue than it does now. For higher income people like me, however, it would be a net tax increase of a few thousand dollars per year which would be OK with me.
    Second, the data you cited defines “high income” as $15 per hour or more. $15 per hour is only $30K per year for a 2,000 hour work year which does not sound like a high income to me. As for those who are paid less than $15 per hour, I am curious as to how many are teenagers or young adults living at home who may be earning the minimum wage or slightly more? How many are illegals? How many live in households with more than one person working each earning less than $15 per hour? How many are in a household covered by a spouse’s plan?
    Virtually all employers with 200 or more employees offer health insurance, as I understand it. It is small businesses that are having a problem with health insurance affordability. At any rate, most of the reform plans contemplate offering subsides that would limit cost exposure to about 6.5% of income for people and families earning up to 300% of the FPL (federal poverty level) and require employers who don’t currently provide health insurance to pay a comparable percentage of payroll into a government fund that would provide subsidized coverage.
    The issue then becomes how best to raise the money to pay for the subsidies as opposed to turning 16% of the GDP upside down. While taxation is not my specialty either, I have built up considerable expertise in the area because it is a subject that interests me. I have long thought that the gap between the tax treatment of wages and capital gains (and dividends more recently) is way too wide. After the 1986 Tax Reform Act that you alluded to, all income was taxed alike with a maximum marginal rate of 28%. I would be happy to go back to that. I know numerous well paid people on Wall Street who earn the bulk of their income from base salary and bonuses. Including New York State and New York City income taxes, Medicare taxes on their entire base salary and bonus and federal income taxes, not to mention property taxes, they are already paying at or close to 50% of gross income in federal, state, and local taxes. They are not especially interested in having another 10%-15% of their income taxed away to pay for national health insurance subsidies, and I frankly don’t blame them. As for the super wealthy who earn the bulk of their income from dividends and capital gains, I note that the capital gains tax rate in the 1950’s was 25% (vs 15% now) when marginal tax rates on ordinary income peaked at 91%, later reduced to 77%, though there were numerous tax shelters available to insure that most people never actually paid anywhere near those rates. Capital gains should be taxed at 28% instead of 15%, and dividends should be taxed as ordinary income like they were until a few years ago. People who receive income from these sources, as well as interest and rents, are not paying payroll taxes on those earnings, so they still bear a lower burden than the wage earner. Finally, the states have also been going after the wealthy. New Jersey, for example, which had no income tax at all until 1976, raised its top marginal rate a couple of years ago from 6.5% to 8.97% on income above $500,000. New York is currently considering increasing the marginal rate on income above $250,000 as well. It’s a dangerous approach that can have behavioral effects that are detrimental to the economies of the states that pursue it. Politicians seem to have to learn that lesson again and again.

  17. Barry, one thought comes to mind:
    “America will always do the right thing, but only after everything else fails.” Winston Churchill

  18. Jack,
    I saw the same NY Times article that you linked to.
    We all know that there is a lot of waste in the system caused by regional differences in physician practice patterns. I think we are going to have to come up with changes in incentives that reward doctors for cost-effective practice and penalize them for waste. It would probably work better with large, multi-specialty groups than with individual or small group practices.
    With respect to hospital charges, I think it would also be helpful if the so-called RAPE doctors – radiologists, anesthesiologists, pathologists, and emergency medicine doctors were all salaried employees of the hospitals with those costs built into the case rate or per diem reimbursement that the hospital receives from insurers. Under the current system, since patients have no role in choosing these doctors, even for procedures that are scheduled well in advance, they have an incentive to stay out of the insurance networks so they can get paid more than they would have been paid if they were in the networks. Surgeons, for their part, should work more closely with hospitals to bring about episode or package pricing for all care needed (including drugs, physical therapy, etc.) for expensive surgical procedures like CABG, hip replacement, etc.
    As for the cardiologist quoted in the article citing the patient who went to another doctor, got all the tests for palpitations, and then told her friends how thorough he was, I wonder how a similarly situated patient in Canada, UK, France, Germany, Sweden, etc. would have reacted when the first doctor told her that no tests were necessary. This speaks to my earlier point about differences in expectations between Americans, Canadians and Europeans, and I don’t have a good answer for how we can bring about more convergence in expectations among patients in the U.S. vs those elsewhere. Robust price and quality transparency tools, along with unbiased, objective infomediaries that patients could easily access for information might be helpful. At the very least, I think patients should be responsible for much higher cost sharing for treatment that doctors do not think is necessary, and doctors should be able to exclude healthcare utilization attributable to such patients from data that insurers evaluate to determine P4P bonuses or gain sharing payments.

  19. But Barry, the NY Times article was about a cardiologist, not any of your RAPE doctors who, incidentally, do not have the ability to self-refer patients to their own testing lab. Let’s call self-referrals what they are: a major conflict of interest at the least, and fraud at the most.
    I agree that salaried physicians is the best approach, and they have that in our “socialized” VA system and academic medicine. I’d like to say that surgeons are less likely to get caught up in this, but they are just as bad. They get paid on a piecework basis, and when sent a patient needing questionable surgery are more likely to cut than not. But, that’s the free market approach to medicine, so live with it.
    If a doctor in one of the other countries were to avoid unnecessary tests, I don’t know. I find that today’s judgments are based too much on bedside manner, personality, rather than whether the doctor is good or not. I agree with your “transparency,” but not on price and only on quality.
    We indeed need evidence-based health care, but we won’t get there until we have a solid, national database where 100% of our population’s diseases and treatments and results (without patient ID) are stored and compared and then given to the physician before he treats the patient. This will someday lead to transparency and competition on the basis of physician quality rather than price, and it will allow us to follow drug reactions and dangerous trends.

  20. Jack & Barry–
    In many other countries a doctor simply wouldn’t do procedures that he thought were medically unncessary and therefore would be expose the patient to risk with no benefit. (Every procedure–even a test– has risks so if there is no benefit it’s all risk.
    In our fee-for-service system, where physicIANS are free to practice as they please, doctors often do thingS a patient asks for, even if they don’t think it’s medically justified as long as either a) they can figure out a way to bill the insurer for it or b)the
    patient is willing to pay out of pocket.
    Since 2000, most insurers have become much looser about paying for things (than they were in the 1990s). Rather than trying to “manage care” they have just been passing on higher costs for unncessary care along in the form of spiraling premiums.
    Most developed countires do have a database for evidence-based medicine, and guidelines based on that evidence.
    As you know, the U.S. is unique in that a) we are so far behind in developing electronic records (in other countries the govt has taken the lead in developing and funding electronic medical records)
    b) we have a very fragmented system, based, to a large degree on solo practioners, each practicing medicine as he thinks best. . .
    Finally, if we begin practicing evidence-based medicine, Americans won’t be happy about being told “no.”
    But in the U.K.
    people have adjusted to NICE setting the guidelines based on medical evidence (NICE was set up in 1999). It seems that many people grasp that it is better to have medical decisions based on science rather than which lobbyists have the greatetst power.
    OF course Americans are different from the British, the Swiss, Germans, people in Israel, etc.
    But aren’t you getting tired of hearing that “Americans are different” as a justification for why we can’t do things in a rational way? I’m hoping to write about this . .

  21. I look forward to your piece on “Americans are different,” Maggie. I usually attribute it to “we don’t do things other countries do, even if they are better.” 🙂
    And Barry, fraud has nothing to do with “regional differences in physician practice patterns.” Like all other fraud it has only to do with greed. Unfortunately, the fee-for-service system of paying physicians offers a blank check with little or no oversight.

  22. MedBlog Power 8

    03/19/2008 – 03/26/2008Next revision: 03/26/2008
    (Key: Rank, Blog name, Last week’s rank, Post of note)
    1) over my med body! (1), Health Care’s Broke: Primary Care Crumbling

  23. MedBlog Power 8

    03/19/2008 – 03/26/2008Next revision: 03/26/2008
    (Key: Rank, Blog name, Last week’s rank, Post of note)
    1) over my med body! (1), Health Care’s Broke: Primary Care Crumbling

  24. OIG Approves Gainsharing Program for Ortho and Spine
    AUGUST 14, 2008
    The OIG has approved the first orthopedic and spine gainsharing project.
    No details have been released on the participating hospitals or the particular procedures and technologies that will be covered in the project. Additionally, no financial terms have been publicized, though the Goodroe press release says that most arrangements allow participating physicians to be paid as much as 50% of the savings generated under the program. According to Goodroe, up to $75 million in potential savings has been identified in the existing programs, so these benefits could be significant. A 2006 survey found that most physicians felt that gainsharing was an effective way to align financial incentives for hospitals and physicians, though they were divided on what constitutes gainsharing and whether it should be disclosed to patients.
    In her guest blog for HealthpointCapital, Goodroe Healthcare Solutions founder Joane Goodroe commented, “Gainsharing is first about assuring quality of care for patients and secondly about increasing efficiency.” Industry groups such as MDMA and AdvaMed have taken issue with these objectives, suggesting that gainsharing may reduce the quality of patient care, slow development of new technology and discriminate against smaller manufacturers.
    I’ve present Gainsharing to MGMA Annual, BONES, MGMA FMS and MSO Societies.
    The docs have to approach the hospital – the hospital is not going to be very aggressive about sharing their savings.
    Marshall Maglothin MHA MBA
    President, Blue Oak Consulting, LLC
    COO, Inpatient Specialists, P.A.
    Fairfax, VA / Rockville, MD

  25. Separately, since Japan and many of the European countries are well ahead of the U.S. with respect to the aging of their societies, they have a significantly higher burden than we do in paying for old age pensions. While they spend much less than we do as a percentage of GDP on healthcare, if you look at healthcare plus old age pensions combined, the comparisons are considerably narrower, and some of the other countries may be worse off than we are.

  26. Pingback: Truth Squad: Is “Obamacare” Pushing Health Care Spending Higher? What Will Happen in 2014? | Health Beat by Maggie Mahar