The Thirty Years’ Reform

Healthcare-credibility If you’ve paid attention to American politics over the last two years (real politics, not beauty contest gossip) it’s understandable if you’re sick of hearing about health care reform. It was a daily topic for nearly a year leading up to the historic legislation passed in March 2010, has not receded much since, and will likely be a top issue again in 2011 with Republican efforts to repeal health care reform in both the House and the Supreme Court. If you’re not in the health care industry and don’t know much about its inner workings, all of this may be snooze-inducing, especially since you’ve probably heard that the current round of reforms isn’t very radical and keeps the current system pretty much in place–just expands it to an approximation of the universal coverage other developed nations already have. But health care reform will not go away, and for good reason: like a leech-wielding barber of old, America’s health care industry is slowly bleeding it dry.

Unfortunately, nothing that has been done by the Democrats so far, and nothing that is likely to be done by the Republicans over the next year or two, will make a large dent in the most massive problem created by America’s health care sector today: it costs nearly $1 trillion dollars too much, each year, and the cost is growing at a rate faster than the economy. To put that in perspective, America’s expenditure on the Iraq and Afghanistan wars combined, over nine years, is bit over $1 trillion dollars. To put it another way, an extra $3,000 is spent by the average American every year on health care without, for all we can tell, contributing to a better quality of life or a single day more of it, compared to European and other industrialized nations. (see here, here and here.)

The rate of growth is as much a problem as the absolute cost. The projected increase in health care spending for the Federal government constitutes almost the entire long run projected growth in national debt. Without health care, there is no looming fiscal crisis for the United States, but with health care’s current trajectory, either the US will have a fiscal collapse in the lifetime of most people reading this, or taxes will have to rise to levels higher than the “socialist” nations that Americans are so determined to reject, just to pay for the government portion of health care.

Of course, that which cannot go up forever, won’t. Since the incremental gains and losses from reform during the (first) Obama administration won’t reduce the overspending, after the current round of reforms and Republican counter-reforms there will be yet another wave of reforms to come. Some of these reforms may arise from seeds planted deep in the health reform act of 2010 (PPACA), but many will not, and in any case each payment reform will be fought anew as it arises. These battles will be even more difficult, divisive, and painful than anything we’ve see thus far. These are the grinding battles that were, and continue to be, deliberately avoided by both political parties because they are too explosive, and the politicians know that they cannot present deep reforms to cut the cost of care by 30-40% that surmount the combined forces of industry lobbies and misplaced public perceptions and demands (the cuts mostly need to come to the price of medical services, not the volume of those services).

And that is the tragedy. Deep reform can’t happen now because those industries for which health care expenses are booked as revenue are too strong, and they are too strong because they have broad support from the voting public. In almost every congressional district, hospitals and health care systems are among the largest employers. In almost every district, seniors are the most important age demographic, and they are easily mobilized to vote against cuts in spending on health care based on fears of care denied. And this, of course, is exactly what lobbyists from the physician and hospital industries warn will happen if spending is cut. Majorities from both parties have been acclimated to the idea that as little as possible should get in the way of the relationship between doctor and patient, particularly from government or private insurers with an eye on the total bill and a desire to get the best bang for the buck. The most minor voluntary rationing in the form of end-of-life planning was demagogued into “death panels” during the last round of reform, and similar modest measures will probably meet similar hysterical responses in the near future, from left and from right.

On top of these influences, the public has been led to believe in a series of myths about high medical costs and thinks that a few quick fixes can solve most problems. Two of the biggest myths are that the high costs are created by private insurance profits and by malpractice claims. As a result, only policy wonks who aren’t too smitten by partisan affiliation know that these two factors account for only about 2% of total health care costs in the United States, combined. When higher private insurance administration and defensive medicine costs are factored in, the total impact from these sources reaches about 7% or 8%. This is roughly double the share and quadruple the total dollars paid by other nations, but still no golden road to solving America’s problem (more like a solution to one-fifth of it, if all spending that is out of line with other nations is removed).

So what happens next? Tectonic forces will gradually increase the calls to take on the core of our higher costs, namely the services provided in hospitals, outpatient clinics, radiology centers and physician offices. This is also where most of the jobs are, and reducing costs by hundreds of billions means hundreds of thousands will likely be laid off. Of course, this is a wee problem, because in an economy with 9.6% employment, the last thing the US (and world) needs is an additional half a million or more newly unemployed. In fact, all job growth in the United States over the last 10 years came from health care expansion, and it is the only industry that continued to grow in the Great Recession. America will need to learn not only how to absorb more job losses, but to create net new jobs that are not in health care, something it has not been able to do consistently for many years.

Without deft policies, the labor that is liberated for more productive occupations will instead simply create new long-term unemployed, and instead of operating more efficiently, hospitals and clinics will instead go bankrupt. But the economic obstacles to successful change will not, I suspect, hold a candle to the political and perceptual obstacles. Until we, by which I mean Americans, are able to overcome them, the slow drip from the nation’s veins into the sponge of the health care system will continue.

Meanwhile, the left tends to blame insurers and pharma (mostly insurers) and seeks remedies to those perceived problems. The right tends to blame trial lawyers, unhealthy lifestyles and oxymoronic welfare state Nazis, and seeks a competing but equally misguided set of remedies to those perceived problems. Policy wonks meanwhile tend to blame misaligned payment incentives that create a vast billing engine rather than a true health care system and that don’t subject costs to the discipline of global budgets like nearly every other nation does (more about that another time).

America as a whole certainly has earned its health care system. Millions have worked hard to create the most expensive, inefficient and callous system among the nations that have the resources to do better. Extricating ourselves from this predicament is a monumental undertaking that will likely transform American attitudes about what health care is supposed to accomplish, what level of bureaucratic interference to improve cost and quality is appropriate, how health care fits into and serves the national economy, and even towards greater trust in government as steward. Of course, unlike in the movies, failure is an option, but whatever the outcome, health care reform has only just begun.

Disclosure: Jonathan Halvorson has been employed in managed care in various capacities since 2004.

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